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DVA PLUS PROFILE AND PROSPECTUS
FORM ONE
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Registration Nos. 333-51353
Filed pursuant to Rule 424(b)(3)
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| PROFILE AND PROSPECTUS FOR GOLDENSELECT DVA PLUS/R/
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| Fixed and Variable Annuity Contract, February 1, 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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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
FIXED AND VARIABLE ANNUITY CONTRACT
FEBRUARY 1, 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 25 mutual fund
investment portfolios through our Separate Account B and/or (ii) in a
fixed account of Golden American with guaranteed interest periods.
The 25 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 8 below.
The optional benefit riders can provide protection 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
withdrawals and transfers. The
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PROSPECTUS BEGINS AFTER
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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 with Shaded Header]
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| ANNUITY OPTIONS |
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| Option 1 Income for a Payments are made for a specified number of |
| fixed period years to you or your beneficiary. |
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| Option 2 Income for Payments are made for the rest of your life |
| life with a or longer for a specified period such as 10 |
| period or 20 years or until the total amount used to |
| certain 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 Payments are made for your life and the life |
| income 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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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 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
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purchased as either an Individual Retirement Annuity (IRA) or in
connection with a qualified retirement plan (each a "qualified
Contract").
The Contract is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term
purposes. The tax-deferred feature is more attractive to people in
high federal and state tax brackets. You should not buy this Contract
if you are looking for a short-term investment or if you cannot risk
getting back less money than you put in.
4. THE INVESTMENT PORTFOLIOS
You can direct your money into (1) the fixed account with guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years, and/or (2) into
any one or more of the following 25 mutual fund investment portfolios
through our Separate Account B. The investment portfolios are
described in the prospectuses for the GCG Trust and the PIMCO Variable
Insurance Trust. 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>
<C> <C> <C>
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series
Limited Maturity Bond Series Capital Growth Series Strategic Equity Series
Global Fixed Income Series Growth Series Small Cap Series
Total Return Series Value Equity Series Real Estate Series
Fully Managed Series Research Series Hard Assets Series
Equity Income Series Managed Global Series Developing World Series
Investors Series All Cap Series Emerging Markets Series
Large Cap Value Capital Appreciation Series
THE PIMCO TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income 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>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
<S> <C> <C> <C>
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%
</TABLE>
If you choose to purchase one of the optional benefit riders we offer,
we will deduct a separate quarterly charge for the rider on each quarterly
contract anniversary and pro rata when the rider terminates. We deduct
the rider charges directly from your contract value in the investment
portfolios; if the value in the investment portfolios is insufficient,
rider charges will be deducted from the fixed account. The rider charges
are as follows:
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OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
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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 0.59% to 1.83% annually (see following
table) of the portfolio's average daily net asset balance.
If you withdraw money from your Contract, or if you begin receiving
annuity payments, 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, the
asset-based administrative charge, the annual contract administrative
charge as 0.06% (based on an average contract value of $65,000), 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, 1998, except for
(i) portfolios that commenced operations during 1998 where the charges
have been estimated, and (ii) newly formed portfolios where the charges
have been estimated. The column "Total Annual Charges" reflects the
sum of the previous two columns. The columns under the heading
"Examples" show you how much you would pay under the Contract for a
1-year period and for a 10-year period.
As required by the Securities and Exchange Commission, the examples
assume that you invested $1,000 in a Contract that earns 5% annually
and that you withdraw your money at the end of Year 1 or at the end of
Year 10. For Years 1 and 10, the examples show the total annual
charges assessed during that time and assume that you have elected the
7% Solution Enhanced Death Benefit. For these examples, the premium
tax is assumed to be 0%.
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[Table with Shaded heading]
<TABLE>
<CAPTION>
Total Annual Total Annual Total Charges at the End of:
Insurance Charges Charges 1 Year 10 Years
w/ the w/o Total w/ the w/o w/ the w/o w/ the w/o
Highest any Investment Highest any Highest any Highest any
Rider Rider Portfolio Rider Rider Rider Rider Rider Rider
Investment Portfolio Charge Charge Charges Charge Charge Charge Charge Charge Charge
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The GCG Trust
Liquid Asset 2.11% 1.61% 0.59% 2.70% 2.20% $99 $92 $325 $253
Limited Maturity Bond 2.11% 1.61% 0.60% 2.71% 2.21% $100 $92 $326 $254
Global Fixed Income 2.36% 1.61% 1.60% 3.96% 3.21% $110 $102 $417 $351
Total Return 2.36% 1.61% 0.97% 3.33% 2.58% $104 $96 $362 $291
Fully Managed 2.36% 1.61% 0.98% 3.34% 2.59% $104 $96 $363 $292
Equity Income 2.36% 1.61% 0.98% 3.34% 2.59% $104 $96 $363 $292
Investors 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
Large Cap Value 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
Rising Dividends 2.36% 1.61% 0.98% 3.34% 2.59% $104 $96 $363 $292
Capital Growth 2.36% 1.61% 1.08% 3.44% 2.69% $105 $97 $372 $302
Growth 2.36% 1.61% 1.09% 3.45% 2.70% $105 $97 $373 $303
Value Equity 2.36% 1.61% 0.98% 3.34% 2.59% $104 $96 $363 $292
Research 2.36% 1.61% 0.94% 3.30% 2.55% $103 $96 $359 $289
Managed Global 2.36% 1.61% 1.26% 3.62% 2.87% $106 $99 $388 $319
All Cap 2.36% 1.61% 1.01% 3.37% 2.62% $104 $97 $366 $295
Capital Appreciation 2.36% 1.61% 0.98% 3.34% 2.59% $104 $96 $363 $292
Mid-Cap Growth 2.36% 1.61% 0.95% 3.31% 2.56% $103 $96 $360 $290
Strategic Equity 2.36% 1.61% 0.99% 3.35% 2.60% $104 $96 $364 $293
Small Cap 2.36% 1.61% 0.99% 3.35% 2.60% $104 $96 $364 $293
Real Estate 2.36% 1.61% 0.99% 3.35% 2.60% $104 $96 $364 $293
Hard Assets 2.36% 1.61% 1.00% 3.36% 2.61% $104 $96 $365 $294
Developing World 2.36% 1.61% 1.83% 4.19% 3.44% $112 $105 $436 $372
Emerging Markets 2.36% 1.61% 1.83% 4.19% 3.44% $112 $105 $436 $372
The PIMCO Trust
PIMCO High Yield Bond 2.36% 1.61% 0.75% 3.11% 2.36% $101 $94 $342 $270
PIMCO StocksPLUS
Growth and Income 2.36% 1.61% 0.65% 3.01% 2.26% $100 $93 $333 $260
</TABLE>
The "Total Annual Investment Portfolio Charges" column above reflects
current expense reimbursements for applicable investment portfolios.
The 1 Year examples above include a 7% surrender charge. For more
detailed information, see the "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.
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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 9. 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 taxable earnings 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 1998. These numbers reflect the deduction of
the mortality and expense risk charge (based on the 7% Solution
Enhanced Death Benefit), the asset-based administrative charge, the
annual contract fee, and the maximum optional death benefit rider charge
on a rider base that accumulates at 7%, but do not reflect deductions
for any surrender charges, if any. 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.
[Table with Shaded Header]
Calendar Year
Investment Portfolio 1998 1997 1996
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 10.33% 26.33% 17.76%
Strategic Equity(2) (1.31)% 20.62% 16.92%
Managed by Alliance Capital Management L.P.
Capital Growth(2) 9.63% 22.58% --
Managed by Baring International Investment Limited
Developing World(2) -- -- --
Global Fixed Income 9.51% (1.48)% 2.77%
Hard Assets(2) (31.19)% 3.94% 30.54%
Managed by Capital Guardian Trust Company
Large Cap Value -- -- --
Managed Global(3) 26.68% 9.85% 9.97%
Small Cap(3) 18.48% 8.00% 17.66%
Managed by Eagle Asset Management, Inc.
Value Equity (0.61)% 24.70% 8.28%
Managed by EII Realty Securities, Inc.
Real Estate (15.34)% 20.26% 32.51%
Managed by ING Investment Management, LLC
Limited Maturity Bond 4.63% 4.44% 2.12%
Liquid Asset 2.85% 2.89% 2.77%
Managed by Janus Capital Corporation
Growth(2) 24.23% 13.39% --
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 11.76% 27.19% 18.15%
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 20.29% 17.18% 18.20%
Research 20.52% 17.65% 20.80%
Total Return 9.26% 18.37% 11.30%
Managed by Salomon Brothers Asset Management, Inc.
All Cap -- -- --
Investors -- -- --
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) 5.99% 15.01% 6.47%
Fully Managed 3.67% 12.95% 13.94%
Managed by Putnam Investment Management, Inc.
Emerging Markets (25.82)% (11.28)% 5.03%
Managed by Pacific Investment Management Company
PIMCO High Yield Bond -- -- --
PIMCO StocksPLUS Growth and Income -- -- --
_______________________
(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.
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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. In
addition, 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
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 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 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 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 reaching the
maximum enhanced death benefit or attained age 80 of the
contract owner, if earlier.
Note: The actual interest rate used for calculating the death
benefit for the Liquid Asset and Limited Maturity Bond
investment portfolios will be the lesser of the 7%
annual effective rate or the net rate of return for
such portfolios during the applicable period. The
interest rate used for calculating the death benefit
for your investment in the fixed account will be the
lesser of the 7% annual effective rate or the interest
credited to such investment
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during the applicable period. Thus, selecting these
investments may limit 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 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.
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 changes, (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 are separate
charges 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
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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 withdrawls 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, accumulated 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 if your contract value is reduced
to zero 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 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, less adjustments for any prior
withdrawals. 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.
DVA PLUS PROFILE
9
<PAGE>
<PAGE>
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.
DVA PLUS PROFILE
10
<PAGE>
<PAGE>
[begin shaded block]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA PLUS
[end shaded block]
- ----------------------------------------------------------------------
FEBRUARY 1, 2000
This prospectus describes GoldenSelect DVA Plus, a group and
individual deferred variable annuity contract (the "Contract") offered
by Golden American Life Insurance Company (the "Company," "we" or
"our"). The Contract is available in connection with certain
retirement plans that qualify for special federal income tax treatment
("qualified Contracts") as well as those that do not qualify for such
treatment ("non-qualified Contracts").
The Contract provides a means for you to invest your premium payments
in one or more of 25 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, dated February 1, 2000, has been filed with
the Securities and Exchange Commission. It is available without
charge upon request. To obtain a copy of this document, write to our
Customer Service Center at P.O. Box 2700, West Chester, Pennsylvania
19380 or call (800) 366-0066, or access the SEC's website
(http://www.sec.gov). The table of contents of the Statement of
Additional Information ("SAI") is on the last page of this prospectus
and the SAI is made part of this prospectus by reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SUBACCOUNTS THROUGH THE GCG TRUST OR THE PIMCO TRUST
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 AND THE PIMCO TRUST.
[Shaded Line]
A list of the investment portfolios and the managers are listed on the
back of this cover.
- ----------------------------------------------------------------------
<PAGE>
<PAGE>
The investment portfolios available under your Contract and the portfolio
managers are:
AIM CAPITAL MANAGEMENT, INC.
Capital Appreciation
Strategic Equity
ALLIANCE CAPITAL MANAGEMENT L.P.
Capital Growth
BARING INTERNATIONAL INVESTMENT LIMITED
Developing World
Global Fixed Income
Hard Assets
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap
EAGLE ASSET MANAGEMENT, INC.
Value Equity
EII REALTY SECURITIES, INC.
Real Estate
ING INVESTMENT MANAGEMENT, LLC
Limited Maturity Bond
Liquid Asset
JANUS CAPITAL CORPORATION
Growth
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth
Research
Total Return
SALOMON BROTHERS ASSET MANAGEMENT, INC.
All Cap
Investors
T. ROWE PRICE ASSOCIATES, INC.
Equity Income
Fully Managed
PUTNAM INVESTMENT MANAGEMENT, INC.
Emerging Markets
Managed Global
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High yield Bond
PIMCO StocksPLUS Growth and Income
The above mutual fund investment portfolios are purchased and held by
corresponding divisions of our Separate Account B. We refer to the
divisions as "subaccounts" and the money you place in the Fixed
Account's guaranteed interest periods as "Fixed Interest Allocations"
in this prospectus.
<PAGE>
<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------
PAGE
Index of Special Terms 1
Fees and Expenses 2
Performance Information 8
Accumulation Unit 8
Net Investment Factor 8
Condensed Financial Information 9
Financial Statements 9
Performance Information 9
Golden American Life Insurance Company 10
The Trusts 10
Golden American Separate Account B 11
The Investment Portfolios 11
Investment Objectives 11
Investment Management Fees 14
The Fixed Interest Allocation 14
Selecting a Guaranteed Interest Period 15
Guaranteed Interest Rates 15
Transfers from a Fixed Interest Allocation 15
Withdrawals from a Fixed Interest Allocation 16
Market Value Adjustment 16
The Annuity Contract 17
Contract Date and Contract Year 17
Annuity Start Date 17
Contract Owner 18
Annuitant 18
Beneficiary 19
Purchase and Availability of the Contract 19
Crediting of Premium Payments 19
Contract Value 21
Cash Surrender Value 21
Surrendering to Receive the Cash Surrender Value 21
Addition, Deletion or Substitution of Subaccounts and
Other Changes 21
The Fixed Account 21
Optional Riders 21
Rider Date 22
Special Funds 22
No Cancellation 22
Termination 22
Minimum Guaranteed Accumulation Benefit Rider 22
Minimum Guaranteed Income Benefit Rider 24
Minimum Guaranteed Withdrawal Benefit Rider 27
Other Contracts 29
Other Important Provisions 29
Withdrawals 29
Regular Withdrawals 29
Systematic Withdrawals 30
IRA Withdrawals 31
Transfers Among Your Investments 31
Dollar Cost Averaging 32
Automatic Rebalancing 33
Death Benefit Choices 33
Death Benefit During the Accumulation Phase 33
Standard Death Benefit 34
Enhanced Death Benefits 34
i
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<PAGE>
Death Benefit During the Income Phase 35
Charges and Fees 35
Charge Deduction Subaccount 35
Charges Deducted from the Contract Value 35
Surrender Charge 35
Waiver of Surrender Charge for Extended Medical Care 35
Free Withdrawal Amount 36
Surrender Charge for Excess Withdrawals 36
Premium Taxes 36
Administrative Charge 36
Transfer Charge 36
Charges Deducted from the Subaccounts 36
Mortality and Expense Risk Charge 36
Asset-Based Administrative Charge 37
Optional Rider Charges 37
Trust Expenses 38
The Annuity Options 38
Annuitization of Your Contract 38
Selecting the Annuity Start Date 38
Frequency of Annuity Payments 39
The Annuity Options 39
Income for a Fixed Period 39
Income for Life with a Period Certain 39
Joint Life Income 39
Annuity Plan 39
Payment When Named Person Dies 39
Other Contract Provisions 40
Reports to Contract Owners 40
Suspension of Payments 40
In Case of Errors in Your Application 40
Assigning the Contract as Collateral 40
Contract Changes-Applicable Tax Law 40
Free Look 40
Group or Sponsored Arrangements 41
Selling the Contract 41
Other Information 41
Voting Rights 41
State Regulation 42
Legal Proceedings 42
Legal Matters 42
Experts 42
Federal Tax Considerations 42
More Information About Golden American Life Insurance Company 47
Financial Statements of Golden American Life Insurance Company 72
Unaudited Financial Statements of Golden American Life Insurance 81
Company
Statement of Additional Information
Table of Contents 111
Appendix A
Condensed Financial Information A1
Appendix B
Market Value Adjustment Examples B1
Appendix C
Surrender Charge for Excess Withdrawals Example C1
ii
<PAGE>
<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
INDEX OF SPECIAL TERMS
- --------------------------------------------------------------------------
The following special terms are used throughout this prospectus.
Refer to the page(s) listed for an explanation of each term:
SPECIAL TERM PAGE
Accumulation Unit 8
Annual Ratchet Enhanced Death Benefit 34
Annuitant 18
Annuity Start Date 17
Cash Surrender Value 21
Contract Date 17
Contract Owner 18
Contract Value 20
Contract Year 17
Fixed Interest Allocation 14
Free Withdrawal Amount 36
Market Value Adjustment 16
Net Investment Factor 8
7% Solution Enhanced Death Benefit 34
Standard Death Benefit 34
The following terms as used in this prospectus have the same or
substituted meanings as the corresponding terms currently used in the
Contract:
TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE
CONTRACT
Accumulation Unit Value Index of Investment Experience
Annuity Start Date Annuity Commencement Date
Contract Owner Owner or Certificate Owner
Contract Value Accumulation Value
Transfer Charge Excess Allocation Charge
Fixed Interest Allocation Fixed Allocation
Free Look Period Right to Examine Period
Guaranteed Interest Period Guarantee Period
Subaccount(s) Division(s)
Net Investment Factor Experience Factor
Regular Withdrawals Conventional Partial
Withdrawals
Withdrawals Partial Withdrawals
1
<PAGE>
<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7+
SINCE PREMIUM PAYMENT | | | | | | |
SURRENDER CHARGE 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>
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION
<S> <C> <C> <C>
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%
</TABLE>
****As a percentage of average daily 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 paid 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 purchased the rider after
the contract date, reduced pro rata for all withdrawals taken
while the MGAB rider is in effect, and reduced pro rata for transfers made
during the three year period before the MGAB Benefit Date.
2
<PAGE>
<PAGE>
(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 or
transfer 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):
[Table with Shaded Heading and Shaded Lines for readability]
OTHER TOTAL
EXPENSES(2) EXPENSES
MANAGEMENT AFTER EXPENSE AFTER EXPENSE
PORTFOLIO FEES(1) REIMBURSEMENT REIMBURSEMENT(3)
Liquid Asset 0.59% 0.00% 0.59%
Limited Maturity Bond 0.60% 0.00% 0.60%
Global Fixed Income 1.60% 0.00% 1.60%(3)
Total Return 0.94% 0.03% 0.97%(3)
Fully Managed 0.98% 0.00% 0.98%
Equity Income 0.98% 0.00% 0.98%
Investors 1.00% 0.01% 1.01%
Large Cap Value 1.00% 0.01% 1.01%
Rising Dividends 0.98% 0.00% 0.98%
Capital Growth 1.08% 0.00% 1.08%
Growth 1.08% 0.01% 1.09%
Value Equity 0.98% 0.00% 0.98%
Research 0.94% 0.00% 0.94%
Managed Global 1.25% 0.01% 1.26%
All Cap 1.00% 0.01% 1.01%
Capital Appreciation 0.98% 0.00% 0.98%
Mid-Cap Growth 0.94% 0.01% 0.95%
Strategic Equity 0.98% 0.01% 0.99%
Small Cap 0.98% 0.01% 0.99%
Real Estate 0.98% 0.01% 0.99%
Hard Assets 0.98% 0.02% 1.00%
Developing World 1.75% 0.08% 1.83%
Emerging Markets 1.75% 0.08% 1.83%
_______________________
(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, 1998, except for portfolios that commenced
operations in 1998 where the charges have been estimated.
(3)Total expenses are based on actual expenses for the fiscal year
ended December 31, 1998. Directed Services, Inc. is currently
reimbursing expenses to maintain total expenses at 0.97% for the
Total Return portfolio and 1.60% for the Global Fixed Income
portfolio as shown. Without this reimbursement, and based on
current estimates, total expenses would be 0.98% for the Total
Return portfolio and 1.74% for the Global Fixed Income portfolio.
This agreement will remain in place through August 14, 2000 after
which it may be terminated at any time.
3
<PAGE>
<PAGE>
THE PIMCO TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of a portfolio):
[Table with Shaded Heading and Shaded Lines for readability]
OTHER TOTAL
EXPENSES EXPENSES
MANAGEMENT AFTER EXPENSE AFTER EXPENSE
PORTFOLIO FEES REIMBURSEMENT REIMBURSEMENT(1)
PIMCO High Yield Bond 0.50% 0.25%(2) 0.75%
PIMCO StocksPLUS Growth
and Income 0.40% 0.25% 0.65%
_______________________
(1) PIMCO has agreed to waive some or all of its other expenses,
subject to potential future reimbursement, to the extent that
total expenses for the PIMCO High Yield Bond Portfolio and PIMCO
StocksPLUS Growth and Income portfolio would exceed 0.75% and
0.65%, respectively, due to payment by the portfolios of their pro
rata portion of Trustees' fees. Without this agreement and, based
on current estimates, total expenses would be 0.81% for the PIMCO
High Yield Bond portfolio and 0.72% for the PIMCO StocksPLUS
Growth and Income portfolio.
(2) Since the PIMCO High Yield Bond portfolio commenced operations on
April 30, 1998, other expenses as shown has been annualized for
the year ended December 31, 1998.
The purpose of the foregoing tables is to help you understand the
various costs and expenses that you will bear directly and indirectly.
See the prospectuses of the GCG Trust and the PIMCO Trust for
additional information on portfolio expenses.
Premium taxes (which currently range from 0% to 3.5% of premium
payments) may apply, but are not reflected in the tables above or in
the examples below.
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 $65,000). In addition, Examples 1 and 2 assume you elected an
optional benefit rider with the highest charge (0.75% annually where the
rider base is equal to the initial premium and increases by 7% annually,
except for the Liquid Asset and Limited Maturity Bond portfolios, where the
charge is 0.50% annually) and assume the rider charge is assessed each quarter
on a base equal to the hypothetical $1,000 premium increasing at 7% per year
(the assumed net rate for Liquid Asset and Limited Maturity Bond portfolios).
The annual charge of 0.75% results from the assumption of a 7% annual increase
in the rider base but only a 5% earnings increase in the contract value before
expenses. Thus, 0.75% represents an annual charge over the 10-year period
which is equivalent to an increasing charge of 0.125% per quarter over the same
period. If the Standard Death Benefit, 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 Example 1 and 3 below which assume applicable surrender
charges.
4
<PAGE>
<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 $150 $194 $325
Limited Maturity Bond $100 $151 $194 $326
Global Fixed Income $110 $181 $243 $417
Total Return $104 $162 $214 $362
Fully Managed $104 $163 $214 $363
Equity Income $104 $163 $214 $363
Investors $104 $164 $216 $366
Large Cap Value $104 $164 $216 $366
Rising Dividends $104 $163 $214 $363
Capital Growth $105 $166 $219 $372
Growth $105 $166 $219 $373
Value Equity $104 $163 $214 $363
Research $103 $162 $212 $359
Managed Global $106 $171 $227 $388
All Cap $104 $164 $216 $366
Capital Appreciation $104 $163 $214 $363
Mid-Cap Growth $103 $162 $213 $360
Strategic Equity $104 $163 $215 $364
Small Cap $104 $163 $215 $364
Real Estate $104 $163 $215 $364
Hard Assets $104 $163 $215 $365
Developing World $112 $187 $254 $436
Emerging Markets $112 $187 $254 $436
The PIMCO Trust
PIMCO High Yield Bond $101 $156 $203 $342
PIMCO StocksPLUS
Growth and Income $100 $153 $198 $333
5
<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 $29 $90 $154 $325
Limited Maturity Bond $30 $91 $154 $326
Global Fixed Income $40 $121 $203 $417
Total Return $34 $102 $174 $362
Fully Managed $34 $103 $174 $363
Equity Income $34 $103 $174 $363
Investors $34 $104 $176 $366
Large Cap Value $34 $104 $176 $366
Rising Dividends $34 $103 $174 $363
Capital Growth $35 $106 $179 $372
Growth $35 $106 $179 $373
Value Equity $34 $103 $174 $363
Research $33 $102 $172 $359
Managed Global $36 $111 $187 $388
All Cap $34 $104 $176 $366
Capital Appreciation $34 $103 $174 $363
Mid-Cap Growth $33 $102 $173 $360
Strategic Equity $34 $103 $175 $364
Small Cap $34 $103 $175 $364
Real Estate $34 $103 $175 $364
Hard Assets $34 $103 $175 $365
Developing World $42 $127 $214 $436
Emerging Markets $42 $127 $214 $436
The PIMCO Trust
PIMCO High Yield Bond $31 $96 $163 $342
PIMCO StocksPLUS
Growth and Income $30 $93 $158 $333
6
<PAGE>
<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 $129 $158 $253
Limited Maturity Bond $92 $129 $158 $254
Global Fixed Income $102 $159 $208 $351
Total Return $96 $140 $177 $291
Fully Managed $96 $141 $178 $292
Equity Income $96 $141 $178 $292
Investors $97 $141 $179 $295
Large Cap Value $97 $141 $179 $295
Rising Dividends $96 $141 $178 $292
Capital Growth $97 $144 $182 $302
Growth $97 $144 $183 $303
Value Equity $96 $141 $178 $292
Research $96 $139 $176 $289
Managed Global $99 $149 $191 $319
All Cap $97 $141 $179 $295
Capital Appreciation $96 $141 $178 $292
Mid-Cap Growth $96 $140 $176 $290
Strategic Equity $96 $141 $178 $293
Small Cap $96 $141 $178 $293
Real Estate $96 $141 $178 $293
Hard Assets $96 $141 $179 $294
Developing World $105 $166 $219 $372
Emerging Markets $105 $166 $219 $372
The PIMCO Trust
PIMCO High Yield Bond $94 $134 $166 $270
PIMCO StocksPLUS
Growth and Income $93 $131 $161 $260
7
<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 $69 $118 $253
Limited Maturity Bond $22 $69 $118 $254
Global Fixed Income $32 $99 $168 $351
Total Return $26 $80 $137 $291
Fully Managed $26 $81 $138 $292
Equity Income $26 $81 $138 $292
Investors $27 $81 $139 $295
Large Cap Value $27 $81 $139 $295
Rising Dividends $26 $81 $138 $292
Capital Growth $27 $84 $142 $302
Growth $27 $84 $143 $303
Value Equity $26 $81 $138 $292
Research $26 $79 $136 $289
Managed Global $29 $89 $151 $319
All Cap $27 $81 $139 $295
Capital Appreciation $26 $81 $138 $292
Mid-Cap Growth $26 $80 $136 $290
Strategic Equity $26 $81 $138 $293
Small Cap $26 $81 $138 $293
Real Estate $26 $81 $138 $293
Hard Assets $26 $81 $139 $294
Developing World $35 $106 $179 $372
Emerging Markets $35 $106 $179 $372
The PIMCO Trust
PIMCO High Yield Bond $24 $74 $126 $270
PIMCO StocksPLUS
Growth and Income $23 $71 $121 $260
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.
[Shaded Section Header]
- --------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each
subaccount of Separate Account B has its own accumulation unit value.
The accumulation units are valued each business day that the New York
Stock Exchange is open for trading. Their values may increase or decrease
from day to day according to a Net Investment Factor, which is
primarily based on the investment performance of the applicable
investment portfolio. Shares in the investment portfolios are valued
at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain charges
under the Contract and the investment performance of the subaccount. The
Net Investment Factor is calculated for each subaccount as follows:
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(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 years
ended December 31, 1998 and 1997 are included in the Statement of
Additional Information. The unaudited condensed consolidated
financial statements of Golden American for the nine months ended
September 30, 1999 and the audited consolidated financial statements
of Golden American for the years ended December 31, 1998, 1997 and
1996 are included in this prospectus.
PERFORMANCE INFORMATION
From time to time, we may advertise or include in reports to contract
owners performance information for the subaccounts of Separate Account
B, including the average annual total return performance, yields and
other nonstandard measures of performance. Such performance data will
be computed, or accompanied by performance data computed, in
accordance with standards defined by the SEC.
Except for the Liquid Asset subaccount, quotations of yield for the
subaccounts will be based on all investment income per unit (contract
value divided by the accumulation unit) earned during a given 30-day
period, less expenses accrued during such period. Information on
standard total average annual return performance will include average
annual rates of total return for 1, 5 and 10 year periods, or lesser
periods depending on how long Separate Account B has been investing
in the portfolio. We may show other total returns for periods less
than one year. Total return figures will be based on the actual
historic performance of the subaccounts of Separate Account B, assuming
an investment at the beginning of the period, when the Separate Account
first invested in the portfolio, withdrawal of the investment at the
end of the period, adjusted to reflect the deduction of all
applicable portfolio and current contract charges. We may also
show rates of total return on amounts invested at the beginning
of the period with no withdrawal at the end of the period.
Total return figures which assume no withdrawals at the end of
the period will reflect all recurring charges, but will not reflect
the surrender charge. Quotations of average annual return for the
Managed Global subaccount take into account the period before September
3, 1996, during which it was maintained as a subaccount of Golden
American Separate Account D. In addition, we may present historic
performance data for the investment portfolios since their inception
reduced by some or all of the fees and charges under the Contract. Such
adjusted historic performance includes data that precedes the inception
dates of the subaccounts of Separate Account B. This data is designed to
show the performance that would have resulted if the Contract had been in
existence before the Separate Account began investing in the portfolios.
Current yield for the Liquid Asset subaccount is based on income
received by a hypothetical investment over a given 7-day period, less
expenses accrued, and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks). We calculate "effective yield"
for the Liquid Asset subaccount in a manner similar to that used to
calculate yield, but when annualized, the income earned by the
investment is assumed to be reinvested. The "effective yield" will
thus be slightly higher than the "yield" because of the compounding
effect of earnings. We calculate quotations of yield for the
remaining subaccounts on all investment income
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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.
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- --------------------------------------------------------------------------
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 . Golden American is authorized to sell insurance and
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, one of
the portfolio managers of the GCG Trust. ING also owns Baring
International Investment Limited, another portfolio manager of The GCG
Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
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- --------------------------------------------------------------------------
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 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 Trust is 840 Newport Center Drive, Suite 300, Newport
Beach, CA 92660.
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 and the PIMCO Trust, Directed Services, Inc., Pacific
Investment Management Company and any other insurance
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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 AND THE PIMCO
TRUST IN THE ACCOMPANYING PROSPECTUS FOR EACH TRUST. YOU SHOULD READ
THEM CAREFULLY BEFORE INVESTING.
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GOLDEN AMERICAN SEPARATE ACCOUNT B
- --------------------------------------------------------------------------
Golden American Separate Account B ("Account B") was established as a
separate account of the Company on July 14, 1988. It is registered
with the SEC as a unit investment trust under the Investment Company
Act of 1940. Account B is a separate investment account used for our
variable annuity contracts. We own all the assets in Account B but
such assets are kept separate from our other accounts.
Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of The GCG Trust and
the PIMCO Trust. Each investment portfolio has its own distinct
investment objectives and policies. Income, gains and losses,
realized or unrealized, of a portfolio are
credited to or charged
against the corresponding subaccount of Account B without regard to
any other income, gains or losses of the Company. Assets equal to the
reserves and other contract liabilities with respect to each are not
chargeable with liabilities arising out of any other business of the
Company. They may, however, be subject to liabilities arising from
subaccounts whose assets we attribute to other variable annuity
contracts supported by Account B. If the assets in Account B exceed
the required reserves and other liabilities, we may transfer the
excess to our general account. We are obligated to pay all benefits
and make all payments provided under the Contracts.
We currently offer other variable annuity contracts that invest in
Account B but are not discussed in this prospectus. Account B may
also invest in other investment portfolios which are not available
under your Contract.
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- --------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments
and contract value to any of the 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.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS
IN THE PROSPECTUSES FOR THE GCG TRUST AND THE PIMCO TRUST. YOU SHOULD
READ THESE PROSPECTUSES BEFORE INVESTING.
[Shaded Header]
INVESTMENT INVESTMENT OBJECTIVE
PORTFOLIO
- ----------------------------------------------------------------------
THE GCG TRUST
Liquid Asset Seeks high level of current income
consistent with the preservation of capital
and liquidity.
Invests primarily in obligations of the U.S.
Government and its agencies and instrumentali-
ties, bank obligations, commercial paper and
short-term corporate debt securities. All
securities will mature in less than one year.
----------------------------------------------------
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Limited Maturity Seeks highest current income consistent with
Bond low risk to principal and liquidity.
Also seeks to enhance its total return through
capital appreciation when market factors, such
as falling interest rates and rising bond
prices, indicate that capital appreciation may
be available without significant risk to
principal.
Invests primarily in diversified limited
maturity debt securities with average maturity
dates of five years or shorter and in no cases
more than seven years.
----------------------------------------------------
Global Fixed Seeks high total return.
Income Invests primarily in high-grade fixed income
securities, both foreign and domestic.
----------------------------------------------------
Total Return Seeks above-average income (compared to a
portfolio entirely invested in equity
securities) consistent with the prudent
employment of capital.
Invests primarily in a combination of equity
and fixed income securities.
----------------------------------------------------
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.
----------------------------------------------------
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.
----------------------------------------------------
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.
----------------------------------------------------
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".
----------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of
companies where the potential for change
(earnings acceleration) is significant.
----------------------------------------------------
Growth Seeks capital appreciation.
Invests primarily in common stocks of growth
companies that have favorable relationships
between price/earnings ratios and growth rates
in sectors offering the potential for above-
average returns.
----------------------------------------------------
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Value Equity Seeks capital appreciation. Dividend
income is a secondary objective.
Invests primarily in common stocks of domestic
and foreign issuers which meet quantitative
standards relating to financial soundness and
high intrinsic value relative to price.
----------------------------------------------------
Research Seeks long-term growth of capital and
future income.
Invests primarily in common stocks or
securities convertible into common stocks
of companies believed to have better than
average prospects for long-term growth.
----------------------------------------------------
Managed Global Seeks capital appreciation. Current income
is only an incidental consideration.
Invests primarily in common stocks traded
in securities markets throughout the world.
----------------------------------------------------
All Cap Seeks capital appreciation through investment
in securities which the portfolio manager
believes have above-average capital
appreciation potential.
Invests primarily in equity securities of U.S.
companies of any size.
----------------------------------------------------
Capital Seeks long-term capital growth.
Appreciation Invests primarily in equity securities
believed by the portfolio manager to be
undervalued.
----------------------------------------------------
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.
----------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of
medium- and small-sized companies.
----------------------------------------------------
Small Cap Seeks long-term capital appreciation.
Invests primarily in equity securities of
companies that have a total market
capitalization within the range of
companies in the Russell 2000 Growth Index
or the Standard & Poor's Small-Cap 600
Index.
----------------------------------------------------
Real Estate Seeks capital appreciation. Current income is
a secondary objective.
Invests primarily in publicly-traded real
estate equity securities.
----------------------------------------------------
Hard Assets Seeks long-term capital appreciation.
Invests primarily in hard asset securities.
Hard asset companies produce a commodity which
the portfolio manager is able to price on a
daily or weekly basis.
----------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of
companies in developing or emerging countries.
----------------------------------------------------
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Emerging Markets Seeks long-term capital appreciation.
Invests primarily in equity securities of
companies in at least six different
emerging market countries.
----------------------------------------------------
THE PIMCO TRUST
PIMCO High Yield Seeks to maximize total return, consistent
Bond with preservation of capital and prudent
investment management.
Invests in at least 65% of its assets in a
diversified portfolio of junk bonds rated at
least B by Moody's Investor Services, Inc. or
Standard & Poor's or, if unrated, determined
by the portfolio manager to be of comparable
quality.
----------------------------------------------------
PIMCO StocksPLUS Seeks to achieve a total return which exceeds
Growth and Income the total return performance of the S&P 500.
Invests primarily in common stocks, options,
futures, options on futures and swaps.
----------------------------------------------------
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager 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. Directed
Services (and not the GCG Trust) pays each portfolio manager a monthly
fee for managing the 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 the PIMCO Trust. The PIMCO Trust pays PIMCO a monthly
advisory fee and a monthly administrative fee of 0.25% based on the
average daily net assets of each of the investment portfolios for
managing the assets of the portfolios and for administering the PIMCO
Trust.
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.
[Shaded Section Header]
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THE FIXED INTEREST ALLOCATION
- --------------------------------------------------------------------------
You may allocate premium payments and transfer your contract value to
the guaranteed interest periods of our Fixed Account at any time
during the accumulation period. Every time you allocate money to the
Fixed Account, we set up a Fixed Interest Allocation for the
guaranteed interest period you select. We currently offer guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years, although we may
not offer all these periods in the future. You may select one or more
guaranteed interest periods at any one time. We will credit your
Fixed Interest Allocation with a guaranteed interest rate for the
interest period you select, so long as you do not withdraw money from
that Fixed Interest Allocation before the end of the guaranteed
interest period. Each guaranteed interest period ends on its maturity
date which is the last day of the month in which the interest period
is scheduled to expire.
If you surrender, withdraw, transfer or annuitize your investment in a
Fixed Interest Allocation more than 30 days before the end of the
guaranteed interest period, we will apply a Market Value Adjustment to
the transaction. A Market Value Adjustment could increase or decrease
the amount you surrender, withdraw,
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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, transfers or other charges we may impose, including any
Market Value Adjustment. Your Fixed Interest Allocation will be
credited with the guaranteed interest rate in effect for the
guaranteed interest period you selected when we receive and accept
your premium or reallocation of contract value. We will credit
interest daily at a rate which yields the quoted guaranteed interest
rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is
guaranteed as long as you do not take your money out until its
maturity date. We do not have a specific formula for establishing the
guaranteed interest rates for the different guaranteed interest
periods. We determine guaranteed interest rates at our sole
discretion. To find out the current guaranteed interest rate for a
guaranteed interest period you are interested in, please contact our
Customer Service Center or your registered representative. The
determination may be influenced by the interest rates on fixed income
investments in which we may invest with the amounts we receive under
the Contracts. We will invest these amounts primarily in investment-
grade fixed income securities (i.e., rated by Standard & Poor's rating
system to be suitable for prudent investors) although we are not
obligated to invest according to any particular strategy, except as
may be required by applicable law. You will have no direct or
indirect interest in these investments. We will also consider other
factors in determining the guaranteed interest rates, including
regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors.
We cannot predict the level of future interest rates but no Fixed
Interest Allocation will ever have a guaranteed interest rate of less
than 3% per year.
We may from time to time at our discretion offer interest rate
specials for new premiums that are higher than the current base
interest rate then offered. Renewal rates for such rate specials will
be based on the base interest rate and not on the special rates
initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to
one or more new Fixed Interest Allocations with new guaranteed
interest periods, or to any of the subaccounts of Account B. We will
transfer amounts from your Fixed Interest Allocations starting with the
guaranteed interest period nearest its maturity date until we have
honored your transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract
value remaining in a Fixed Interest Allocation to less than $100, we
will treat such transfer request as a request to transfer the entire
contract value in such Fixed Interest Allocation. Transfers from a
Fixed Interest Allocation may be subject to a Market Value Adjustment.
If you have a special Fixed Interest Allocation that was offered
exclusively with our dollar cost averaging program,
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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 is subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer
amounts from the applicable Fixed Interest Allocation to the
subaccounts and/or to new Fixed Interest Allocations with guaranteed
interest periods of any length we are offering at that time. You may
not, however, transfer amounts to any Fixed Interest Allocation with a
guaranteed interest period that extends beyond the annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed
Interest Allocations, or earlier if required by state law, we will
send you a notice of the guaranteed interest periods that are
available. You must notify us which subaccounts or new guaranteed
interest periods you have selected before the maturity date of your
Fixed Interest Allocations. If we do not receive timely instructions
from you, we will transfer the contract value in the maturing Fixed
Interest Allocation to a new Fixed Interest Allocation with a
guaranteed interest period that is the same as the expiring guaranteed
interest period. If such guaranteed interest period is not available
or would go beyond the annuity start date, we will transfer your
contract value in the maturing Fixed Interest Allocation to the next
shortest guaranteed interest period which does not go beyond the
annuity start date. If no such guaranteed interest period is
available, we will transfer the contract value to a subaccount
specially designated by the Company for such purpose. Currently we
use the Liquid Asset subaccount for such purpose.
Please be aware that the benefit we pay under certain optional benefit
riders will be adjusted by any transfers you make to and from the Fixed
Interest Allocations during specified periods while the rider is in
effect. See "Optional Riders."
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your
contract value in any Fixed Interest Allocation. You may make
systematic withdrawals of only the interest earned during the prior
month, quarter or year, depending on the frequency chosen, from a
Fixed Interest Allocation under our systematic withdrawal option.
Systematic withdrawals from a Fixed Interest Allocation are not
permitted if such Fixed Interest Allocation is currently participating
in the dollar cost averaging program. A withdrawal from a Fixed
Interest Allocation may be subject to a Market Value Adjustment and,
in some cases, a surrender charge. Be aware that withdrawals may have
federal income tax consequences, including a 10% penalty tax, as well
as state income tax consequences.
If you tell us the Fixed Interest Allocation from which your
withdrawal will be made, we will assess the withdrawal against that
Fixed Interest Allocation. If you do not, we will assess your
withdrawal against the subaccounts in which you are invested, unless
the withdrawal exceeds the contract value in the subaccounts. If
there is no contract value in those subaccounts, we will deduct your
withdrawal from your Fixed Interest Allocations starting with the
guaranteed interest periods nearest their maturity dates until we have
honored your request.
Please be aware that the benefit we pay any certain optional riders
will be reduced on a pro rata basis by any withdrawals you make from the
Fixed Interest Allocation 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:
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( 1+I )N/365
(---------) -1
(1+J+.0025)
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.
[Shaded Section Header]
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THE ANNUITY CONTRACT
- --------------------------------------------------------------------------
The Contract described in this prospectus is a deferred combination
variable and fixed annuity contract. The Contract provides a means
for you to invest in one or more of the available mutual fund
portfolios of
the GCG Trust and the PIMCO Trust through Account B. It also provides
a means for you to invest in a Fixed Interest Allocation through the
Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each
12-month period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity
payments under your Contract. The Contract, like all deferred
variable annuity contracts, has two phases: the accumulation phase and
the income phase. The accumulation phase is the period between the
contract date and the annuity start date. The income
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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, 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.
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BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary
is the person who receives any death benefit proceeds and who becomes
the successor contract owner if the contract owner (or the annuitant
if the contract owner is other than an individual) dies before the
annuity start date. We pay death benefits to the primary beneficiary
(unless there are joint owners, in which case death proceeds are
payable to the surviving owner(s)).
If the beneficiary dies before the annuitant or the contract owner,
the death benefit proceeds are paid to the contingent beneficiary, if
any. If there is no surviving beneficiary, we pay the death benefit
proceeds to the contract owner's estate.
One or more persons may be a beneficiary or contingent beneficiary.
In the case of more than one beneficiary, we will assume any death
benefit proceeds are to be paid in equal shares to the surviving
beneficiaries.
You have the right to change beneficiaries during the annuitant's
lifetime unless you have designated an irrevocable beneficiary. When
an irrevocable beneficiary has been designated, you and the
irrevocable beneficiary may have to act together to exercise some of
the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's
lifetime, you may transfer ownership of a non-qualified Contract. A
change in ownership may affect the amount of the death benefit and the
guaranteed death benefit. You may also change the beneficiary. All
requests for changes must be in writing and submitted to our Customer
Service Center in good order. The change will be effective as of the
day you sign the request. The change will not affect any payment made
or action taken by us before recording the change.
PURCHASE AND AVAILABILITY OF THE CONTRACT
We will issue a Contract only if both the annuitant and the contract
owner are not older than age 85.
The initial premium payment must be $10,000 or more ($1,500 for
qualified Contracts). You may make additional payments of 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.
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 all information necessary is
received. 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. For initial premium payments, the payment will be credited
at the accumulation unit value next determined after receipt of your premium
payment and the completed application. Once the completed application is
received, we will allocate the payment to the subaccount and/or Fixed Interest
Allocation specified by you within 2 business days. We will make
inquiry to discover any missing information related to subsequent
payments. For any subsequent premium payments, the payment will be
credited at the accumulation unit value next determined after receipt
of your premium payment 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 Account B with respect to your Contract. The net investment
results of each subaccount vary with its investment performance.
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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, together with an Application Acknowledgement
Statement for your execution. Until our Customer Service
Center receives the executed Application Acknowledgement
Statement, neither you nor the broker-dealer may execute any
financial transactions on your Contract unless they are
requested in writing by you. We may require additional
information before complying with your request
(e.g., signature guarantee).
In some states, we may require that an initial premium designated for
a subaccount of Account B or the Fixed Account be allocated 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.
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.
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(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 rider 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.
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 a portfolio
subject to those instructions, we will execute your instructions using
the substituted portfolio, unless you request otherwise.
We also reserve the right to: (i) deregister Account B under the 1940
Act; (ii) operate Account B as a management company under the 1940 Act
if it is operating as a unit investment trust; (iii) operate Account B
as a unit investment trust under the 1940 Act if it is operating as a
managed separate account; (iv) restrict or eliminate any voting rights
as to Account B; and (v) combine Account B with other accounts.
We will, of course, provide you with written notice before any of
these changes are effected.
THE FIXED ACCOUNT
The Fixed Account is a segregated asset account which contains the
assets that support a contract owner's Fixed Interest Allocations.
See "The Fixed Interest Allocations" for more information.
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 are separate charges 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. THEY SHOULD
BE ANALYZED THOROUGHLY AND UNDERSTOOD COMPLETELY BEFORE BEING ELECTED.
THE OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR
PREMIUM PAYMENTS AND DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC
INVESTMENT PORTFOLIO UNDER THE CONTRACT. YOU SHOULD CONSULT A
QUALIFIED FINANCIAL ADVISER IN EVALUATING THE RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR
CUSTOMER SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE
NUMBER IS (800)366-0066.
RIDER DATE
We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider
becomes effective. The rider date is also the contract date if the
rider was purchased at the time the Contract is issued.
SPECIAL FUNDS
We use the term Special Funds in the discussion of the Minimum
Guaranteed Accumulation Benefit rider (with the 20-year waiting
period) and the Minimum Guaranteed Income Benefit rider. The Special
Funds refer to the Liquid Asset subaccount, Limited Maturity Bond
subaccount and the Fixed Interest Allocations. The Company may
designate new and/or existing subaccounts as a Special Fund with 30
days notice at any time, including during the life of a rider.
NO CANCELLATION
Once you purchase a rider, the rider may not be cancelled, unless you
cancel the Contract during the Contract's free look period, surrender,
annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the
free look period, you may not at any time cancel the rider, except
with respect to a one-time right to cancel the twenty-year option of
the Minimum Guaranteed Accumulation Benefit rider under specified
conditions. The Company may, at its discretion, cancel and/or
replace a rider at your request in order to renew or reset a rider.
TERMINATION
The optional riders are "living benefits". This means that the
guaranteed benefits offered by the riders are intended to be
available to you while you are living and while your Contract is
in the accumulation phase. The optional riders automatically
terminate (and all benefits under the rider will cease) if you
annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are multiple contract owners, or at death
of annuitant if contract owner is not a natural person), unless your spouse
beneficiary elects to continue the Contract, during the accumulation phase.
The optional rider will also terminate if there is a change in contract
ownership (other than a spousal beneficiary continuation on your death).
Other circumstances which may cause a particular optional rider to
terminate automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER
The MGAB rider is an optional benefit which provides you with an MGAB
benefit intended to guarantee a minimum contract value at the end of
a specified waiting period. The MGAB is a one-time adjustment to your
contract value in the event your contract value on the MGAB Benefit Date
is less than the MGAB Base. The MGAB rider may offer you protection in
the event your contract value 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
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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; 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 Rate reduced pro rata for
any withdrawals and reduced for any transfers made within 3
years. 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. 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 Charges 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.
Under the 20-year option, adding the rider after the contract date,
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.
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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 to and from 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 a minimum
amount of annuity income will be available to you if you annuitize
on the MGIB Benefit Date, regardless of fluctuating market conditions.
The amount of the Minimum Guaranteed Income Benefit will depend
on the amount of premiums you pay, during the five contract years after you
purchase the rider, the amount of contract value you allocate or transfer to
the Special Funds, the MGIB Rate (7% for all portfolios except the Special
Funds), the adjustment 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
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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 after the 5th contract
anniversary 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 additional 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.
Such additional premium payments added
more than 5 years before the earliest MGIB Benefit Date
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.
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We offer a 7% MGIB Base Rate, except for the Special Funds.
The Company may at its discretion discontinue offering
this rate. The MGIB Base Rate is an annual
effective rate.
The MGIB Base is subject to the MGIB Base Maximum. The MGIB
Base Maximum is the amount calculated above until the
earlier of: (i) the date the oldest contract owner reaches
age 80, or (ii) the date the MGIB Base reaches two times the
MGIB Eligible Premiums, adjusted for any withdrawals. MGIB
Eligible Premiums is the total of premiums paid during the
first 5 years after the rider date.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE
AND PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor)
and 10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii) Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table
of Income Factors specified in the MGIB rider for the Income Option you
selected. The guaranteed factors contained in the MGIB rider generally
provide lower payout per $1,000 of value applied than the guaranteed
factors found in your Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for
the same option. The greater amount of income will be available
to you on the MGIB Benefit Date.
WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the
MGIB Base Maximum pro rata 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. This 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 during the 30-day period
preceding your first contract anniversary after the date of this prospectus,
your MGIB Benefit Date is any contract anniversary on or after the tenth
contract anniversary from the rider date when you decide to exercise your
right to annuitize under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the
annuitant may not be changed except for the following exception. If
an annuitant who is not a contract owner dies
prior to annuitization, a new annuitant may be named in accordance
with the provisions of your Contract. The MGIB Base is unaffected
and continues to accumulate.
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NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date,
we will provide you with notification which will include an estimate
of the amount of MGIB annuity benefit available if you choose to exercise.
The actual amount of the MGIB annuity benefit will be determined as of
the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR 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 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
Changes." 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
premiums received that day, and 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;
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(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 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
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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.
PURCHASE. To purchase the MGWB rider, your must be age 80 or
younger on the rider date. The MGWB rider must be purchased (i) on
the contract date, or (ii) within 30 days after the contract date.
For contracts issued more than 30 days before the date this rider
first became available in your state, the Company may in its discretion
allow purchase of this rider during the 30-day period preceding the first
contract anniversary after the date of this prospectus, or the date of state
approval, whichever is later.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the same
portfolios of the Trusts. These contracts have different charges that
could effect their performance, and may offer different benefits more
suitable to your needs. To obtain more information about these other
contracts, contact our Customer Service Center or your registered
representative.
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "Death Benefit
Choices," "Charges and Fees," "The Annuity Options" and "Other
Contract Provisions" in this prospectus for information on other
important provisions in your Contract.
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WITHDRAWALS
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Any time during the accumulation phase and before the death of the
annuitant, you may withdraw all or part of your money. Keep in mind
that if you request a withdrawal for more than 90% of the cash
surrender value, we will treat it as a request to surrender the
Contract. If any single withdrawal or the
sum of withdrawals exceeds the Free Withdrawal Amount, you will incur
a surrender charge. The Free Withdrawal Amount in any contract year is
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 effect the withdrawal amount you receive.
Please be aware that the benefit we pay under certain optional benefit
riders will be reduced by any withdrawals you take while the rider
is in effect. See "Optional Riders."
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each
withdrawal must be a minimum of $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.
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SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1)
from the contract value in the subaccounts in which you are invested,
or (2) from the interest earned in your Fixed Interest Allocations.
Systematic withdrawals may be taken monthly, quarterly or annually.
You decide when you would like systematic payments to start as long as
it is at least 28 days after your contract date. You also select the
date on which the systematic withdrawals will be made, but this date
cannot be later than the 28th day of the month. If you have elected
to receive systematic withdrawals but have not chosen a date, we will
make the withdrawals on the same calendar day of each month as your
contract date. If your contract date is after the 28th day of the
month, your systematic withdrawal will be made on the 28th day of each
month.
Each systematic withdrawal amount must be a minimum of $100. The
amount of your systematic withdrawal can either be (1) a fixed dollar
amount, or (2) an amount based on a percentage of your contract value.
Both forms of systematic withdrawals are subject to the following
maximum, which is calculated on each withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 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. 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
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your contract value as determined on the day we receive your election of
this feature. The maximum limit will not be recalculated when you
make additional premium payments, unless you instruct us to do so. We
will assess a surrender charge on the withdrawal date if the
withdrawal exceeds the maximum limit as calculated on the withdrawal
date. We will assess a Market Value Adjustment on the withdrawal date
if the withdrawal from a Fixed Interest Allocation exceeds your
interest earnings on the withdrawal date. We will apply the surrender
charge and any Market Value adjustment directly to your contract value
(rather than to the withdrawal) so that the amount of each systematic
withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the
maximum. Such withdrawals are subject to surrender charges and Market
Value Adjustments when they exceed the applicable free withdrawal
amount.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2
during the current calendar year, you may elect to have distributions
made to you to satisfy requirements imposed by Federal tax law. IRA
withdrawals provide payout of amounts required to be distributed by
the Internal Revenue Service rules governing mandatory distributions
under qualified plans. We will send you a notice before your
distributions commence. You may elect to take IRA withdrawals at that
time, or at a later date. You may not elect IRA withdrawals and
participate in systematic withdrawals at the same time. If you do not
elect to take IRA withdrawals, and distributions are required by
Federal tax law, distributions adequate to satisfy the requirements
imposed by Federal tax law may be made. Thus, if you are
participating in systematic withdrawals, distributions under that
option must be adequate to satisfy the mandatory distribution rules
imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or
annual basis. Under this option, you may elect payments to start as
early as 28 days after the contract date. You select the day of the
month when the withdrawals will be made, but it cannot be later than
the 28th day of the month. If no date is selected, we will make the
withdrawals on the same calendar day of the month as the contract
date.
You may request that we calculate for you the amount that is required
to be withdrawn from your Contract each year based on the information
you give us and various choices you make. For information regarding
the calculation and choices you have to make, see the Statement of
Additional Information. The minimum dollar amount you can withdraw is
$100. When we determine the required IRA withdrawal amount for a
taxable year based on the frequency you select, if that amount is less
than $100, we will pay $100. At any time where the IRA withdrawal
amount is greater than the contract value, we will cancel the Contract
and send you the amount of the cash surrender value.
You may change the payment frequency of your IRA withdrawals once each
contract year or cancel this option at any time by sending us
satisfactory notice to our Customer Service Center at least 7 days
before the next scheduled withdrawal date.
An IRA withdrawal in excess of the amount allowed under systematic
withdrawals will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED
WITH TAKING WITHDRAWALS. You are responsible for determining that
withdrawals comply with applicable law. A withdrawal made before the
taxpayer reaches age 59 1/2 may result in a 10% penalty tax. See
"Federal Tax Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
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You may transfer your contract value among the subaccounts in which
you are invested and your Fixed Interest Allocations at the end of the
free look period until the annuity start date. We currently do not
charge you for transfers made during a contract year, but reserve the
right to charge $25 for each transfer
after the twelfth transfer in a contract year. We also reserve the right
to limit the number of transfers you
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may make and may otherwise modify or terminate transfer privileges if
required by our business judgement or in accordance with applicable law.
We will apply a Market Value Adjustment to transfers from a Fixed Interest
Allocation taken more than 30 days before its maturity date, unless the
transfer is made under the dollar cost averaging program.
Please be aware that the benefit we pay under an optional benefit rider may
be effected by certain transfers you make while the rider is in effect.
Transfers may also affect your optional rider base. See "Optional Riders."
Transfers will be based on values at the end of the business day in
which the transfer request is received at our Customer Service Center.
The minimum amount that you may transfer is $100 or, if less, your
entire contract value held in a subaccount or a Fixed Interest
Allocation.
To make a transfer, you must notify our Customer Service Center and
all other administrative requirements must be met. Any transfer
request received after 4:00 p.m. eastern time or the close of the New
York Stock Exchange will be effected on the next business day.
Account B and the Company will not be liable for following instructions
communicated by telephone or over the internet that we reasonably believe
to be genuine. We require personal identifying information to process a
request for transfer made over the telephone or internet.
DOLLAR COST AVERAGING
You may elect to participate in our dollar cost averaging program if
you have at least $1,200 of contract value in the (i) Limited Maturity
Bond subaccount or the Liquid Asset subaccount, or (ii) a Fixed
Interest Allocation with either a 6-month or a 1-year guaranteed
interest period. These subaccounts or Fixed Interest Allocations
serve as the source accounts from which we will, on a monthly basis,
automatically transfer a set dollar amount of money to other
subaccounts selected by you. We also may offer DCA Fixed Interest
Allocations, which are 6-month and 1-year Fixed Interest Allocations
available exclusively for use with the dollar cost averaging program.
The DCA Fixed Interest Allocations require a minimum premium payment
of $1,200 directed into a DCA Fixed Interest Allocation.
The dollar cost averaging program is designed to lessen the impact of
market fluctuation on your investment. Since we transfer the same
dollar amount to other subaccounts each month, more units of a
subaccount are purchased if the value of its unit is low and less
units are purchased if the value of its unit is high. Therefore, a
lower than average value per unit may be achieved over the long term.
However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities
regardless of fluctuating price levels. You should consider your
tolerance for investing through periods of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar
amount you want transferred under this program. Each monthly transfer
must be at least $100. If your source account is the Limited Maturity
Bond subaccount, the Liquid Asset subaccount or a 1-year Fixed
Interest Allocation, the maximum amount that can be transferred each
month is your contract value in such source account divided by 12. If
your source account is a 6-month Fixed Interest Allocation, the
maximum amount that can be transferred each month is your contract
value in such source account divided by 6. You may change the
transfer amount once each contract year. If you have a DCA Fixed
Interest Allocation, there is no minimum or maximum transfer amount;
we will transfer all your money allocated to that source
account into the subaccount(s) in equal payments over the selected
6-month or 1-year period. The last payment will include earnings
accrued over the course of the selected period. If you make an
additional premium 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
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trigger a Market Value Adjustment if the transfer is made more
than 30 days before the maturity date of the DCA Fixed Interest
Allocation.
If you do not specify the subaccounts to which the dollar amount of
the source account is to be transferred, we will transfer the money to
the subaccounts in which you are invested on a proportional basis.
The transfer date is the same day each month as your contract date.
If, on any transfer date, your contract value in a source account is
equal or less than the amount you have elected to have transferred,
the entire amount will be transferred and the program will end. You
may terminate the dollar cost averaging program at any time by sending
satisfactory notice to our Customer Service Center at least 7 days
before the next transfer date. A Fixed Interest Allocation or DCA
Fixed Interest Allocation may not participate in the dollar cost
averaging program and in systematic withdrawals at the same time.
We may in the future offer additional subaccounts or withdraw any
subaccount or Fixed Interest Allocation to or from the dollar cost
averaging program, stop offering DCA Fixed Interest Allocations or
otherwise modify, suspend or terminate this program. Of course, such
change will not affect any dollar cost averaging programs in operation
at the time.
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the
subaccounts of Account B, you may elect to have your investments in
the subaccounts automatically rebalanced. We will transfer funds
under your Contract on a quarterly, semi-annual, or annual calendar
basis among the subaccounts to maintain the investment blend of your
selected subaccounts. The minimum size of any allocation must be in
full percentage points. Rebalancing does not affect any amounts that
you have allocated to the Fixed Account. The program may be used in
conjunction with the systematic withdrawal option only if withdrawals
are taken pro rata. Automatic rebalancing is not available if you
participate in dollar cost averaging. Automatic rebalancing will not
take place during the free look period.
To participate in automatic rebalancing, send satisfactory notice to
our Customer Service Center. We will begin the program on the last
business day of the period in which we receive the notice. You may
cancel the program at any time. The program will automatically
terminate if you choose to reallocate your contract value among the
subaccounts or if you make an additional premium payment or partial
withdrawal on other than a pro rata basis. Additional premium
payments and partial withdrawals effected on a pro rata basis will not
cause the automatic rebalancing program to terminate.
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DEATH BENEFIT CHOICES
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either
the annuitant (when a contract owner is not an individual), the
contract owner or the first of joint owners dies. Assuming you are
the contract owner, your beneficiary will receive a death benefit
unless the beneficiary is your surviving spouse and elects to continue
the Contract. The death benefit value is calculated at the close of
the business day on which we receive written notice and due proof of
death, as well as any required paperwork, at our Customer Service
Center. If your beneficiary elects to delay receipt of the death
benefit until a date after the time of death, the amount of the
benefit payable in the future may be affected. The proceeds may be
received in a single sum or applied to any of the annuity options. If
we do not receive a request to apply the death benefit proceeds to an
annuity option, we will make a single sum distribution. We will
generally pay death benefit proceeds within 7 days after our Customer
Service Center has received sufficient information to make the
payment.
You may choose from the following 3 death benefit choices: (1) the
Standard Death Benefit Option; (2) the 7% Solution Enhanced Death
Benefit Option; and (3) the Annual Ratchet Enhanced Death Benefit
Option. Once you choose a death benefit, it cannot be changed. We
may in the future stop or suspend offering any of the enhanced death
benefit options to new Contracts. A change in ownership of the
Contract may affect the amount of the death benefit and the guaranteed
death benefit. The MGWB rider may affect the death
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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.
[Shaded Table Header]
HOW THE ENHANCED DEATH BENEFIT IS CALCULATED
7% SOLUTION ANNUAL RATCHET
We credit interest each On each contract anniversary
business day at the 7% annual that occurs on or before the
effective rate* to the enhanced contract owner turns age 80,
death benefit from the we compare the prior enhanced
preceding day (which would be death benefit to the contract
the initial premium if the value and select the larger
preceding day is the contract amount as the new enhanced
date), then we add additional death benefit.
premiums paid since the On all other days, the
preceding day, then we subtract enhanced death benefit is the
any withdrawals made (including amount determined below. We
any Market Value Adjustment first take the enhanced death
applied to such withdrawals) benefit from the preceding day
since the preceding day and (which would be the initial
then we subtract any associated premium if the valuation date
surrender charges.** is the contract date) and then
The maximum enhanced death we add additional premiums
benefit is 2 times all premium paid since the preceding day,
payments, as reduced by then we subtract any
withdrawals.*** 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.
* The interest rate used for calculating the death benefit for
the Liquid Asset and Limited Maturity Bond subaccounts will
be the lesser of the 7% annual effective rate or the net
rate of return for such subaccounts during the applicable
period. The interest rate used for calculating the death
benefit for your Fixed Interest Allocation will be the
lesser of the 7% annual effective rate or the interest
credited to such investment during the applicable period.
Thus, selecting these investments may limit the enhanced
death benefit. If we offer additional subaccounts in the
future, we may restrict those new subaccounts from
participating in the 7% Solution Enhanced Death Benefit.
** Each premium payment 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
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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.
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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.
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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 you have a contract value of $100,000 or more at
the end of a contract year or the sum of the premiums paid equals or
exceeds $100,000. 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 1.10% of the assets you have in each subaccount.
The charge is deducted on each business day at the rate of .003030%
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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 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
-------------- ----------------
0% ................0.05% of the MGIB Base* (0.20% annually)
3%.................0.08% of the MGIB Base (0.32% annually)
5%.................0.10% of the MGIB Base (0.40% annually)
6%.................0.15% of the MGIB Base (0.60% annually)
7%.................0.125% of the MGIB Base (0.50% annually)
The MGIB Base during the 5-year period after the
rider date, reduced pro rata for all withdrawls 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 Premiums. 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.
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TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of
the Trusts. Please read the respective Trust prospectus for details.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start
date, we will begin making payments to the contract owner under an
income plan. We will make these payments under the annuity option
chosen. You may change annuity option by making a written request to
us at least 30 days before the annuity start date. The amount of the
payments will be determined by applying your contract value adjusted
for any applicable Market Value Adjustment on the annuity start date
in accordance with the annuity option you chose. 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.
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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. See "Federal Tax
Considerations" and the Statement of Additional Information. For a
Contract purchased in connection with a qualified plan, other than a
Roth IRA, distributions must commence not later than April 1st of the
calendar year following the calendar year in which you attain age
70 1/2 or, in some cases, retire. Distributions may be made through
annuitization or withdrawals. You should consult your tax adviser for
tax advice.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be
monthly, quarterly, semi-annually or annually. If we do not receive
written notice from you, we will make the payments monthly. There may
be certain restrictions on minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options 1,
2 and 3 are fixed. Payments under Option 4 may be fixed or variable.
For a fixed annuity option, the contract value in the subaccounts is
transferred to the Company's general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make
monthly payments in equal installments for a fixed number of years
based on the contract value on the annuity start date. We guarantee
that each monthly payment will be at least the amount stated in your
Contract. If you prefer, you may request that payments be made in
annual, semi-annual or quarterly installments. We will provide you
with illustrations if you ask for them. If the cash surrender value
or contract value is applied under this option, a 10% penalty tax may
apply to the taxable portion of each income payment until the contract
owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Payment is made
for the life of the annuitant in equal monthly installments and
guaranteed for at least a period certain such as 10 or 20 years.
Other periods certain may be available to you on request. You may
choose a refund period instead. Under this arrangement, income is
guaranteed until payments equal the amount applied. If the person
named lives beyond the guaranteed period, payments continue until his
or her death. We guarantee that each payment will be at least the
amount specified in the Contract corresponding to the person's age on
his or her last birthday before the annuity start date. Amounts for
ages not shown in the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there
are 2 persons named to determine annuity payments. At least one of
the persons named must be either the contract owner or beneficiary of
the Contract. We guarantee monthly payments will be made as long as
at least one of the named persons is living. There is no minimum
number of payments. Monthly payment amounts are available if you ask
for them.
OPTION 4. ANNUITY PLAN. The contract value can be applied to any
other annuitization plan that we choose to offer on the annuity start date.
Annuity payments under Option 4 may be fixed or variable. If variable and
subject to the Investment Company Act of 1940, it will comply with the
requirements of such Act.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts
still due as provided in the annuity agreement between you and Golden
American. The amounts we will pay are determined as follows:
(1) For Option 1, or any remaining guaranteed payments under
Option 2, we will continue payments. Under Options 1 and 2,
the discounted values of the remaining guaranteed payments
may be paid in a single sum. This means we deduct the
amount of the interest each remaining guaranteed payment
would have earned had it not been paid out early. The
discount interest rate is never less than 3% for Option 1
and 3.50% for Option 2 per year. We will, however, base the
discount
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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.
We will also send you copies of any shareholder reports of the investment
portfolios in which Account B invests, as well as any other reports,
notices or documents we are required by law to furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any
payment or determination of values on any business day (1) when the
New York Stock Exchange is closed; (2) when trading on the New York
Stock Exchange is restricted; (3) when an emergency exists as
determined by the SEC so that the sale of securities held in Account B
may not reasonably occur or so that the Company may not reasonably
determine the value of Account B's net assets; or (4) during any other
period when the SEC so permits for the protection of security holders.
We have the right to delay payment of amounts from a Fixed Interest
Allocation for up to 6 months.
IN CASE OF ERRORS IN YOUR APPLICATION
If an age or sex given in the application or enrollment form is
misstated, the amounts payable or benefits provided by the Contract
shall be those that the premium payment would have bought at the
correct age or sex.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a
loan but 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 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 will be allocated during the free look period to a
subaccount specially designated by the Company for this purpose
(currently, the Liquid Asset subaccount). We may, in
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our discretion, require that premiums designated for investment in
the subaccounts from all other states as well as premiums designated
for a Fixed Interest Allocation be allocated to the specially designated
subaccount during the free look period. Your Contract is void as of
the day we receive your Contract and cancellation request. We
determine your contract value at the close of business on the day we
receive your written request. If you keep your Contract after the
free look period, we will put your money in the subaccount(s) chosen
by you, based on the accumulation unit value next computed for each
subaccount, and/or in the Fixed Interest Allocation chosen by you.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any
surrender, administration, and mortality and expense risk charges.
We may also change the minimum initial and additional premium
requirements, or offer an alternative or reduced death benefit.
SELLING THE CONTRACT
Directed Services, Inc. is the principal underwriter and distributor
of the Contract as well as for other contracts issued through Account
B and other separate accounts of Golden American. We pay Directed
Services for acting as principal underwriter under a distribution
agreement which in turn pays the writing agent. The principal address
of Directed Services is 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
Directed Services enters into sales agreements with broker-dealers to
sell the Contracts through registered representatives who are licensed
to sell securities and variable insurance products. These broker-
dealers are registered with the SEC and are members of the National
Association of Securities Dealers, Inc. Directed Services receives a
maximum of 6.5% commission, and passes through 100% of the commission
to the broker-dealer whose registered representative sold the
Contract.
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|---------------------------------------------------------|
| UNDERWRITER COMPENSATION |
|---------------------------------------------------------|
| NAME OF | AMOUNT OF | OTHER |
| PRINCIPAL | COMMISSION TO BE | COMPENSATION |
| UNDERWRITER | PAID | Reimbursement of |
| | Maximum of 6.5% | any |
| Directed | of any initial | covered expenses |
| Services, Inc. | or additional | incurred |
| | premium payments | by registered |
| | except when | representatives |
| | combined | in |
| | with some annual | connection with |
| | trail | the distribution |
| | commissions. | of the |
| | | Contracts. |
|---------------------------------------------------------|
Certain sales agreements may provide for a combination of a certain
percentage of commission at the time of sale and an annual trail
commission (which when combined could exceed 6.5% of total premium
payments).
We do not pay any additional commissions on the sale or exercise of
any of the optional benefit riders offered in this prospectus.
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OTHER INFORMATION
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VOTING RIGHTS
We will vote the shares of a Trust owned by Account B according to
your instructions. However, if the Investment Company Act of 1940 or
any related regulations should change, or if interpretations of it or
related regulations should change, and we decide that we are permitted
to vote the shares of a Trust in our own right, we may decide to do
so.
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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's
meeting. We will ask you for voting instructions by mail at least 10
days before the meeting. If we do not receive your instructions in
time, we will vote the shares in the same proportion as the
instructions received from all contracts in that subaccount. We will
also vote shares we hold in Account B which are not attributable to
contract owners in the same proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware.
We are also subject to the insurance laws and regulations of all
jurisdictions where we do business. The variable Contract offered by
this prospectus has been approved where required by those
jurisdictions. We are required to submit annual statements of our
operations, including financial statements, to the Insurance
Departments of the various jurisdictions in which we do business to
determine solvency and compliance with state insurance laws and
regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be involved in
lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been
sought and/or material settlement payments have been made. We believe
that currently there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Company or
Account B.
LEGAL MATTERS
The legal validity of the Contracts was passed on by Myles R. Tashman,
Esquire, Executive Vice President, General Counsel and Secretary of
Golden American. Sutherland Asbill & Brennan LLP of Washington, D.C.
has provided advice on certain matters relating to federal securities
laws.
EXPERTS
The audited financial statements of Golden American Life Insurance
Company and Account B appearing in this prospectus or in the Statement
of Additional Information and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing in this prospectus or in the Statement of
Additional Information and in the Registration Statement and are
included or incorporated by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and
auditing.
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FEDERAL TAX CONSIDERATIONS
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The following summary provides a general description of the federal
income tax considerations associated with this Contract and does not
purport to be complete or to cover all tax situations. This
discussion is not intended as tax advice. You should consult your
counsel or other competent tax advisers for more complete information.
This discussion is based upon our understanding of the present federal
income tax laws. We do not make any representations as to the
likelihood of continuation of the present federal income tax laws or
as to how they may be interpreted by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or
purchased on a tax-qualified basis. Qualified Contracts are designed
for use by individuals whose premium payments are comprised solely of
proceeds from and/or contributions under retirement plans that are
intended to qualify as plans entitled to special income tax treatment
under Sections 401(a), 403(b), 408, or 408A of the Code. The ultimate
effect of federal income taxes on the amounts held under a Contract,
or annuity payments, depends on the type of retirement plan, on the
tax and employment status of the individual concerned, and on our tax
status. In addition,
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certain requirements must be satisfied in
purchasing a qualified Contract with proceeds from a tax-qualified
plan and receiving distributions from a qualified Contract in order to
continue receiving favorable tax treatment. Some retirement plans are
subject to distribution and other requirements that are not
incorporated into our Contract administration procedures. Contract
owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions with respect
to the Contract comply with applicable law. Therefore, you should
seek competent legal and tax advice regarding the suitability of a
Contract for your particular situation. The following discussion
assumes that qualified Contracts are purchased with proceeds from
and/or contributions under retirement plans that qualify for the
intended special federal income tax treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the
investments of a variable account be "adequately diversified" in order
for non-qualified Contracts to be treated as annuity contracts for federal
income tax purposes. It is intended that Account B, through the
subaccounts, will satisfy these diversification requirements.
In certain circumstances, owners of variable annuity contracts have
been considered for federal income tax purposes to be the owners of
the assets of the separate account supporting their contracts due to
their ability to exercise investment control over those assets. When
this is the case, the contract owners have been currently taxed on
income and gains attributable to the separate account assets. There
is little guidance in this area, and some features of the Contracts,
such as the flexibility of a contract owner to allocate premium
payments and transfer contract values, have not been explicitly
addressed in published rulings. While we believe that the Contracts
do not give contract owners investment control over Account B assets,
we reserve the right to modify the Contracts as necessary to prevent a
contract owner from being treated as the owner of the Account B assets
supporting the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity
contract for federal income tax purposes, the Code requires any non-
qualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of your
death. The non-qualified Contracts contain provisions that are
intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued.
We intend to review such provisions and modify them if necessary to
assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise. See "Death
Benefit Choices" for additional information on required distributions
from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as
annuity contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will
generally not be taxed on increases in the value of a Contract until
a distribution occurs or until annuity payments begin. (For these
purposes, the agreement to assign or pledge any portion of the
contract value, and, in the case of a qualified Contract, any portion
of an interest in the qualified plan, generally will be treated as a
distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a
natural person generally must include in income any increase in the
excess of the contract value over the "investment in the contract"
(generally, the premiums or other consideration you paid for the contract
less any non-taxable 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.
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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.
Other exceptions may be applicable under certain circumstances and
special rules may be applicable in connection with the exceptions
enumerated above. A tax adviser should be consulted with regard to
exceptions from the penalty tax.
ANNUITY PAYMENTS. Although tax consequences may vary depending on
the payment option elected under an annuity contract, a portion of
each annuity payment is generally not taxed and the remainder is taxed
as ordinary income. The non-taxable portion of an annuity payment is
generally determined in a manner that is designed to allow you to
recover your investment in the Contract ratably on a tax-free basis
over the expected stream of annuity payments, as determined when
annuity payments start. Once your investment in the Contract has been
fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from
a Contract because of your death or the death of the annuitant.
Generally, such amounts are includible in the income of recipient as
follows: (i) if distributed in a lump sum, they are taxed in the same
manner as a surrender of the Contract, or (ii) if distributed under a
payment option, they are taxed in the same way as annuity payments.
TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT.
A transfer or assignment of ownership of a Contract, the designation
of an annuitant, the selection of certain dates for commencement of
the annuity phase, or the exchange of a Contract may result in certain
tax consequences to you that are not discussed herein. A contract
owner contemplating any such transfer, assignment or exchange, should
consult a tax advisor as to the tax consequences.
WITHHOLDING. Annuity distributions are generally subject to
withholding for the recipient's federal income tax liability.
Recipients can generally elect, however, not to have tax withheld from
distributions.
MULTIPLE CONTRACTS. All 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.
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TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified
plans. The tax rules applicable to participants in these qualified
plans vary according to the type of plan and the terms and
contributions of the plan itself. Special favorable tax treatment may
be available for certain types of contributions and distributions.
Adverse tax consequences may result from: contributions in excess of
specified limits; distributions before age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Therefore, no attempt is made to provide more than
general information about the use of the Contracts with the various
types of qualified retirement plans. Contract owners, annuitants, and
beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms
and conditions of the Contract, but we shall not be bound by the terms
and conditions of such plans to the extent such terms contradict the
Contract, unless the Company consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same
manner as under a non-qualified Contract. When a withdrawal from a
qualified Contract occurs, a pro rata portion of the amount received
is taxable, generally based on the ratio of the contract owner's
investment in the Contract (generally, the premiums or other
consideration paid for the Contract) to the participant's total
accrued benefit balance under the retirement plan. For qualified
Contracts, the investment in the Contract can be zero. For Roth IRAs,
distributions are generally not taxed, except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires
that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the
contract owner (or plan participant) (i) reaches age 70 1/2 or (ii)
retires, and must be made in a specified form or manner. If the plan
participant is a "5 percent owner" (as defined in the Code),
distributions generally must begin no later than April 1 of the
calendar year following the calendar year in which the contract owner
(or plan participant) reaches age 70 1/2. For IRAs described in
Section 408, distributions generally must commence no later than 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.
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 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.
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Notwithstanding (a) and (b) above, if the sole contract owner's
beneficiary is the deceased owner's surviving spouse, then such spouse
may elect to continue the Contract under the same terms as before the
contract owner's death. Upon receipt of such election from the spouse
at our Customer Service Center: (1) all rights of the spouse as
contract owner's beneficiary under the Contract in effect prior to
such election will cease; (2) the spouse will become the owner of the
Contract and will also be treated as the contingent annuitant, if none
has been named and only if the deceased owner was the annuitant; and
(3) all rights and privileges granted by the Contract or allowed by
Golden American will belong to the spouse as contract owner of the
Contract. This election will be deemed to have been made by the
spouse if such spouse makes a premium payment to the Contract or fails
to make a timely election as described in this paragraph. If the
owner's beneficiary is a nonspouse, the distribution provisions
described in subparagraphs (a) and (b) above, will apply even if the
annuitant and/or contingent annuitant are alive at the time of the
contract owner's death.
If we do not receive an election from a nonspouse owner's beneficiary
within the 1-year period after the contract owner's date of death,
then we will pay the death benefit to the owner's beneficiary in a
cash payment within five years from date of death. We will determine
the death benefit as of the date we receive proof of death. We will
make payment of the proceeds on or before the end of the 5-year period
starting on the owner's date of death. Such cash payment will be in
full settlement of all our liability under the Contract.
If the contract owner dies after the annuity start date, we will
continue to distribute any benefit payable at least as rapidly as
under the annuity option then in effect. All of the contract owner's
rights granted under the Contract or allowed by us will pass to the
contract owner's beneficiary.
If the Contract has joint owners we will consider the date of death of
the first joint owner as the death of the contract owner and the
surviving joint owner will become the contract owner of the Contract.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Section 401(a) of the Code permits corporate employers to establish
various types of retirement plans for employees, and permits self-
employed individuals to establish these plans for themselves and their
employees. These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse
tax or other legal consequences to the plan, to the participant, or to
both may result if this Contract is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such benefits
before transfer of the Contract. Employers intending to use the
Contract with such plans should seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement
Annuity" or "IRA." These IRAs are subject to limits on the amount
that can be contributed, the deductible amount of the contribution,
the persons who may be eligible, and the time when distributions
commence. Also, distributions from certain other types of qualified
retirement plans may be "rolled over" or transferred on a tax-deferred
basis into an IRA. There are significant restrictions on rollover or
transfer contributions from Savings Incentive Match Plans (SIMPLE),
under which certain employers may provide contributions to IRAs on
behalf of their employees, subject to special restrictions. Employers
may establish Simplified Employee Pension (SEP) Plans to provide IRA
contributions on behalf of their employees. Sales of the Contract for
use with IRAs may be subject to special requirements of the IRS.
ROTH IRAS
Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible, and must be made
in cash or as a rollover or transfer from another Roth IRA or other
IRA. A rollover from or conversion of an IRA to a Roth IRA may be
subject to tax, and other special rules may apply. Distributions from
a Roth IRA generally are not taxed, except that, once aggregate
distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years
starting with the year in which the first contribution is made to any
Roth IRA.
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TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section
501(c)(3) organizations and public schools to exclude from their gross
income the premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These
premium payments may be subject to FICA (social security) tax.
Distributions of (1) salary reduction contributions made in years
beginning after December 31, 1988; (2) earnings on those
contributions; and (3) earnings on amounts held as of the last year
beginning before January 1, 1989, are not allowed prior to age 59 1/2,
separation from service, death or disability. Salary reduction
contributions may also be distributed upon hardship, but would
generally be subject to penalties.
ENHANCED DEATH BENEFIT
The Contract includes an Enhanced Death Benefit that in some cases may
exceed the greater of the premium payments or the contract value. The
Internal Revenue Service has not ruled whether an Enhanced Death
Benefit could be characterized as an incidental benefit, the amount of
which is limited in any Code section 401(a) pension or profit-sharing
plan or Code section 403(b) tax sheltered annuity. Employers using
the Contract may want to consult their tax adviser regarding such
limitation. Further, the Internal Revenue Service has not addressed
in a ruling of general applicability whether a death benefit provision
such as the Enhanced Death Benefit provision in the Contract comports
with IRA or Roth IRA qualification requirements.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax
consequences under the Contracts are not exhaustive, and special rules
are provided with respect to other tax situations not discussed in
this prospectus. Further, the federal income tax consequences
discussed herein reflect our understanding of current law, and the law
may change. Federal estate and state and local estate, inheritance
and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each
contract owner or recipient of the distribution. A competent tax
adviser should be consulted for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the Contracts could
change by legislation or other means. It is also possible that any
change could be retroactive (that is, effective before the date of the
change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Contract.
[Shaded Section Header]
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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.
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<TABLE>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
Post-Merger | Post-Acquisition
--------------------------------------------|---------------------------------
For the Period For For the Period | For the Period For the Period
January 1, 1999 the Year October 25, | January 1, August 14, 1996
through Ended 1997 through | 1997 through 1996 through
September 30, December 31, December 31, | October 24, December 31,
1999 1998 1997 | 1997 1996
------------ ------------ -------------- | -------------- ---------------
<S> <C> <C> <C> | <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges....... $ 55,195 $ 39,119 $ 3,834 | $18,288 $ 8,768
Net Income before |
Federal Income Tax.... $ 7,269 $ 10,353 $ (279) | $ (608) $ 570
Net Income (Loss)....... $ 3,551 $ 5,074 $ (425) | $ 729 $ 350
Total Assets............ $7,312,027 $4,752,533 $2,446,395 | N/A $1,677,899
Total Liabilities....... $6,858,151 $4,398,639 $2,219,082 | N/A $1,537,415
Total Stockholder's |
Equity................ $ 453,876 $ 353,894 $ 227,313 | N/A $ 140,484
</TABLE>
<TABLE>
(IN THOUSANDS)
Pre-Acquisition
---------------------------------------
For the Period
January 1, For the Years
1996 through Ended December 31,
August 13, ----------------------
1996 1995 1994
-------------- ---------- ----------
<S> <C> <C> <C>
Annuity and Interest
Sensitive Life
Product Charges....... $12,259 $ 18,388 $ 17,519
Net Income before
Federal Income Tax.... $ 1,736 $ 3,364 $ 2,222
Net Income (Loss)....... $ 3,199 $ 3,364 $ 2,222
Total Assets............ N/A $1,203,057 $1,044,760
Total Liabilities....... N/A $1,104,932 $ 955,254
Total Stockholder's
Equity................ N/A $ 98,125 $ 89,506
</TABLE>
BUSINESS ENVIRONMENT
The current business and regulatory environment remains
challenging for the insurance industry. The variable annuity
competitive environment is intense and is dominated by a number of
large variable product companies with strong distribution, name
recognition and wholesaling capabilities. Increasing competition
from traditional insurance carriers as well as banks and mutual
fund companies offer consumers many choices. However, overall
demand for variable products remains strong for several reasons
including: strong stock market performance over the last five
years; relatively low interest rates; an aging U. S. population
that is increasingly concerned about retirement and estate
planning, as well as maintaining their standard of living in
retirement; and potential reductions in government and employer-
provided benefits at retirement as well as lower public confidence
in the adequacy of those benefits.
In October of 1997, Golden American introduced three new variable
annuity products (GoldenSelect Access, GoldenSelect ES II and
GoldenSelect Premium Plus) which have contributed significantly to
sales.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze Golden
American Life Insurance Company's ("Golden American") consolidated
results of operations. In addition, some analysis and information
regarding financial condition and liquidity and capital resources
has also been provided. This analysis should be read jointly with
the consolidated financial statements, related notes and the
Cautionary Statement Regarding Forward-Looking Statements, which
appear elsewhere in the financial report. Golden American reports
financial
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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 OPERATIONS
MERGER. On October 23, 1997, Equitable of Iowa Companies'
("Equitable") shareholders approved an Agreement and Plan of
Merger ("Merger Agreement") dated July 7, 1997 among Equitable,
PFHI Holdings, Inc. ("PFHI") and ING Groep N.V. ("ING"). On
October 24, 1997, PFHI, a Delaware corporation, acquired all of
the outstanding capital stock of Equitable according to the Merger
Agreement. PFHI is a wholly owned subsidiary of ING, a global
financial services holding company based in The Netherlands.
Equitable, an Iowa corporation, in turn owned all the outstanding
capital stock of Equitable Life Insurance Company of Iowa
("Equitable Life") and Golden American and their wholly owned
subsidiaries. In addition, Equitable owned all the outstanding
capital stock of Locust Street Securities, Inc., Equitable
Investment Services, Inc. (subsequently dissolved), Directed
Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds
Distributor, Inc.). In exchange for the outstanding capital stock
of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock and assumed approximately $400 million
in debt. As a result of this transaction, Equitable of Iowa
Companies was merged into PFHI, which was simultaneously renamed
Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware
corporation.
For financial statement purposes, the change in control of the
Companies through the ING merger was accounted for as a purchase
effective October 25, 1997. This merger resulted in a new basis of
accounting reflecting estimated fair values of assets and
liabilities at the merger date. As a result, the Companies'
financial statements for periods after October 24, 1997 are
presented on the Post-Merger new basis of accounting.
The purchase price was allocated to EIC and its subsidiaries with
$227.6 million allocated to the Companies. Goodwill of $1.4
billion was established for the excess of the merger cost over the
fair value of the assets and liabilities of EIC with $151.1
million attributed to the Companies. Goodwill resulting
from the merger is being amortized over 40 years on a straight-line
basis. The carrying value will be reviewed periodically for any
indication of impairment in value.
CHANGE IN CONTROL--ACQUISITION. On August 13, 1996, Equitable
acquired all of the outstanding capital stock of BT Variable, Inc.
("BT Variable") and its wholly owned subsidiaries, Golden American
and DSI. After the acquisition, the BT Variable, Inc. name was
changed to EIC Variable, Inc. On April 30, 1997, EIC Variable,
Inc. was liquidated and its investments in Golden American and DSI
were transferred to Equitable, while the remainder of its net
assets were contributed to Golden American. On December 30, 1997,
EIC Variable, Inc. was dissolved.
For financial statement purposes, the change in control of Golden
American through the acquisition of BT Variable was accounted for
as a purchase effective August 14, 1996. This acquisition resulted
in a new basis of accounting reflecting estimated fair values of
assets and liabilities at the acquisition date. As a result, the
Companies' financial statements for the period August 14, 1996
through October 24, 1997 are presented on the Post-Acquisition
basis of accounting and for August 13, 1996 and prior periods are
presented on the Pre-Acquisition basis of accounting.
The purchase price was allocated to the three companies purchased
- - BT Variable, DSI, and Golden American. The allocation of the
purchase price to Golden American was approximately $139.9
million. Goodwill of $41.1 million was established for the excess
of the acquisition cost over the fair value of the assets and
liabilities and attributed to Golden American. At June 30, 1997,
goodwill was increased by $1.8 million due to the adjustment of
the value of a receivable existing at the acquisition date. Before
the ING merger, goodwill resulting from the acquisition was being
amortized over 25 years on a straight-line basis.
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<TABLE>
THE FIRST NINE MONTHS OF 1999 COMPARED TO THE SAME PERIOD OF 1998
PREMIUMS.
PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Variable annuity premiums:
Separate account................ $1,783.5 64.9% $702.1 $1,081.4
Fixed account................... 539.4 55.6 192.8 346.6
-------- ---- ------ --------
Total variable annuity premiums... 2,322.9 62.7 894.9 1,428.0
Variable life premiums............ 7.0 (38.9) (4.4) 11.4
-------- ---- ------ --------
Total premiums.................... $2,329.9 61.9% $890.5 $1,439.4
======== ==== ====== ========
</TABLE>
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 income and
product charges.
Variable annuity separate account premiums increased 64.9% during the
first nine months of 1999. The fixed account portion of the Companies'
variable annuity premiums increased 55.6% during the first nine months
of 1999. These increases resulted from increased sales of the Premium
Plus variable annuity product.
Premiums, net of reinsurance, for variable products from two
significant broker/dealers each having at least ten percent of total
sales for the nine months ended September 30, 1999 totaled $664.2
million, or 29% of total premiums ($142.6 million, or 10%, from the
one significant broker/dealer for the nine months ended September 30,
1998).
<TABLE>
REVENUES.
PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Annuity and interest sensitive
life product charges............ $ 55.2 104.5% $ 28.2 $ 27.0
Management fee revenue............ 6.8 107.4 3.5 3.3
Net investment income............. 42.7 45.7 13.4 29.3
Realized gains(losses) on
investments..................... (2.2) (607.5) (2.6) 0.4
Other income...................... 7.4 55.0 2.6 4.8
------- ------ ------ ------
Total premiums.................... $ 109.9 69.6% $ 45.1 $ 64.8
======= ====== ====== ======
</TABLE>
Total revenues increased 69.6% in the first nine months of 1999 from
the same period in 1998. Annuity and interest sensitive life product
charges increased 104.5% in the first nine months of 1999 due to
additional fees earned from the increasing block of business
in the 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 $6.8 million and $3.3
million for the first nine months of 1999 and 1998, respectively.
Net investment income increased 45.7% in the first nine months of 1999
due to growth in invested assets from September 30, 1998. The
Companies had $2.2 million of realized losses resulting from the
writedown of two fixed maturities in the second quarter of 1999 and
from the sale of investments in the first nine months of 1999,
compared to gains of $0.4 million in the same period of 1998. Other
income increased $2.6 million to $7.4 million in the first nine months
of 1999 due primarily to income received due to a modified coinsurance
50
<PAGE>
<PAGE>
agreement with an unaffiliated reinsurer, which was offset by a
reduction in the Companies' deferred policy acquisition costs.
EXPENSES. Total insurance benefits and expenses increased $44.5
million, or 84.6%, to $97.0 million in the first nine months of 1999.
Interest credited to account balances increased $61.3 million, or
95.6%, to $125.4 million in the first nine months of 1999. The extra
credit bonus on the Premium Plus variable annuity product increased
$49.9 million to $85.7 million at September 30, 1999 resulting in an
increase in interest credited during the first nine months of 1999
compared to the same period in 1998. The bonus interest on the fixed
account increased $2.6 million to $7.6 million at September 30, 1999
resulting in an increase in interest credited during the first nine
months of 1999 compared to the same period in 1998. The remaining
increase in interest credited relates to higher account balances
associated with the Companies' fixed account option within the
variable products.
Commissions increased $49.6 million, or 58.4%, to $134.6 million in
the first nine months of 1999. Insurance taxes, state licenses, and
fees increased $0.9 million, or 32.3%, to $3.5 million in the first
nine months of 1999. 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. Most costs incurred as the result of sales have been deferred,
thus having very little impact on current earnings.
General expenses increased $24.1 million, or 102.5%, to $47.6 million
in the first nine months of 1999. Management expects general expenses
to continue to increase in 1999 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 and Equitable Life, an affiliate, for certain advisory,
computer, and other resources and services provided by Golden
American.
The Companies' previous balances of deferred policy acquisition costs
("DPAC"), value of purchased insurance in force ("VPIF"), and unearned
revenue reserve were eliminated and an asset of $44.3 million
representing VPIF was established for all policies in force at the
merger date. During the first nine months of 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
the first nine months of 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. Amortization of DPAC increased
$15.7 million, or 390.7%, in the first nine months of 1999. This
increase resulted from growth in policy acquisition costs deferred
from $133.6 million at September 30, 1998 to $244.8 million at
September 30, 1999, which was generated by expenses associated with
the large sales volume experienced since September 30, 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 September 30, 1999 is $1.1 million
for the remainder of 1999, $4.3 million in 2000, $4.0 million in 2001,
$3.6 million in 2002, $3.2 million in 2003, and $2.4 million in 2004.
Actual amortization may vary based upon changes in assumptions and
experience.
Amortization of goodwill during the first nine months of 1999 totaled
$2.8 million, unchanged from the first nine months of 1998. Goodwill
resulting from the merger is being amortized on a straight-line basis
over 40 years.
Interest expense on the $25 million surplus note issued in December
1996 and expiring December 2026 was $1.5 million in the first nine
months of 1999, unchanged from the same period of 1998. Interest
expense on the $60 million surplus note issued in December 1998 and
expiring December 2028 was $3.3 million in the first nine months of
1999. Golden American also paid $0.7 million in the first nine months
of 1999 compared to $1.3 million in the same period of 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 $0.1 million for the first
nine months of 1999. In addition, Golden American paid interest of
51
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<PAGE>
$0.2 million during the first quarter of 1998 on the line of
credit with Equitable, which was repaid with a capital contribution
from the Parent and with funds borrowed from ING AIH.
INCOME. Net income for the first nine months of 1999 was $3.6
million, a decrease of $1.3 million from net income of $4.9 million in
the same period of 1998.
Comprehensive loss for the first nine months of 1999 was $18,000, a
decrease of $5.5 million from comprehensive income of $5.5 million in
the same period of 1998.
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition
activity for 1997.
PREMIUMS.
<TABLE>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions) |
<S> <C> <C> <C> | <C>
Variable annuity |
premiums: |
Separate account.... $1,513.3 $291.2 $111.0 | $180.2
Fixed account....... 588.7 318.0 60.9 | 257.1
-------- ------ ------ | ------
2,102.0 609.2 171.9 | 437.3
Variable life |
premiums............ 13.8 15.6 1.2 | 14.4
-------- ------ ------ | ------
Total premiums........ $2,115.8 $624.8 $173.1 | $451.7
======== ====== ====== | ======
</TABLE>
For the Companies' variable contracts, premiums collected are not
reported as revenues, but are reported as deposits to insurance
liabilities. Revenues for these products are recognized over time in
the form of investment income and product charges.
Variable annuity separate account premiums increased 419.7% in 1998
primarily due to increased sales of the Premium Plus product
introduced in October of 1997 and the increased sales levels of the
Companies' other products. The fixed account portion of the Companies'
variable annuity premiums increased 85.1% in 1998. Variable life
premiums decreased 11.4% in 1998. Total premiums increased 238.7% in
1998.
During 1998, the Companies' sales were further diversified among
broker/dealers. Premiums, net of reinsurance, for variable products
from two significant broker/dealers having at least ten percent of
total sales for the year ended December 31, 1998 totaled $580.7
million, or 27% of premiums ($328.2 million, or 53% from two
significant broker/dealers for the year ended December 31, 1997).
52
<PAGE>
<PAGE>
REVENUES.
<TABLE>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions) |
<S> <C> <C> <C> | <C>
Annuity and interest |
sensitive life |
product charges...... $39.1 $22.1 $3.8 | $18.3
Management fee |
revenue.............. 4.8 2.8 0.5 | 2.3
Net investment |
income............... 42.5 26.8 5.1 | 21.7
Realized gains (losses) |
on investments....... (1.5) 0.1 -- | 0.1
Other income........... 5.6 0.7 0.3 | 0.4
----- ----- ---- | -----
$90.5 $52.5 $9.7 | $42.8
===== ===== ==== | =====
</TABLE>
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.
53
<PAGE>
<PAGE>
EXPENSES.
<TABLE>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions) |
<S> <C> <C> <C> | <C>
Insurance benefits |
and expenses: |
Annuity and interest |
sensitive life |
benefits: |
Interest credited to |
account balances.. $94.9 $26.7 $7.4 | $19.3
Benefit claims |
incurred in excess |
of account |
balances.......... 2.1 0.1 -- | 0.1
Underwriting, |
acquisition, and |
insurance expense: |
Commission.......... 121.2 36.3 9.4 | 26.9
General Expenses.... 37.6 17.3 3.4 | 13.9
Insurance taxes..... 4.1 2.3 0.5 | 1.8
Policy acquisition |
costs deferred (197.8) (42.7) (13.7) | (29.0)
Amortization: |
Deferred policy |
acquisition |
costs........... 5.1 2.6 0.9 | 1.7
Value of purchased |
insurance in |
force........... 4.7 6.1 0.9 | 5.2
Goodwill............ 3.8 2.0 0.6 | 1.4
------ ----- ----- | -----
$ 75.7 $50.7 $ 9.4 | $41.3
====== ===== ===== | =====
</TABLE>
Total insurance benefits and expenses increased 49.2%, or $25.0
million, in 1998 from $50.7 million in 1997. Interest credited to
account balances increased 255.4%, or $68.2 million, in 1998 from
$26.7 in 1997. The extra credit bonus on the Premium Plus product
introduced in October of 1997 generated a $51.6 million increase in
interest credited during 1998 compared to 1997. The remaining increase
in interest credited related to higher account balances associated
with the Companies' fixed account option within its variable products.
Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3
million in 1997. Insurance taxes increased 77.0%, or $1.8 million, in
1998 from $2.3 million in 1997. Changes in commissions and insurance
taxes are generally related to changes in the level of variable
product sales. Insurance taxes are impacted by several other factors,
which include an increase in FICA taxes primarily due to bonuses. Most
costs 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
54
<PAGE>
<PAGE>
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.
1997 COMPARED TO 1996
The following analysis combines Post-Merger and Post-Acquisition
activity for 1997 and Post-Acquisition and Pre-Acquisition activity
for 1996 for comparison purposes. Such a comparison does not
recognize the impact of the purchase accounting and goodwill
amortization except for the periods after August 13, 1996.
PREMIUMS.
<TABLE>
POST-MERGER | COMBINED | POST-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
October 25, 1997 | For the Year | January 1, 1997
through | ended | through
December 31, 1997 | December 31, 1997 | October 24, 1997
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Variable annuity | |
premiums: | |
Separate account............. $111.0 | $291.2 | $180.2
Fixed account................ 60.9 | 318.0 | 257.1
------ | ------ | ------
171.9 | 609.2 | 437.3
Variable life premiums......... 1.2 | 15.6 | 14.4
------ | ------ | ------
Total premiums................. $173.1 | $624.8 | $451.7
====== | ====== | ======
</TABLE>
55
<PAGE>
<PAGE>
<TABLE>
POST-ACQUISITION | COMBINED | PRE-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
August 14, 1996 | For the Year | January 1, 1996
through | ended | through
December 31, 1996 | December 31, 1996 | August 13, 1996
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Variable annuity | |
premiums: | |
Separate account............. $ 51.0 | $182.4 | $131.4
Fixed account................ 118.3 | 245.3 | 127.0
------ | ------ | ------
169.3 | 427.7 | 258.4
Variable life premiums......... 3.6 | 14.1 | 10.5
------ | ------ | ------
Total premiums................. $172.9 | $441.8 | $268.9
====== | ====== | ======
</TABLE>
Variable annuity separate account and variable life premiums increased
59.6% and 10.1%, respectively in 1997. During 1997, stock market
returns, a relatively low interest rate environment and flat yield
curve have made returns provided by variable annuities and mutual funds
more attractive than fixed rate products such as certificates of
deposits and fixed annuities. The fixed account portion of the
Companies' variable annuity premiums increased 29.7% in 1997 due to
the Companies' marketing emphasis on fixed rates during the second
and third quarters. Premiums, net of reinsurance, for variable
products from two significant broker/dealers having at least ten
percent of total sales for the year ended December 31, 1997, totaled
$328.2 million, or 53% of premiums ($298.0 million or 67% from two
significant broker/dealers for the year ended December 31, 1996).
REVENUES.
<TABLE>
POST-MERGER | COMBINED | POST-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
October 25, 1997 | For the Year | January 1, 1997
through | ended | through
December 31, 1997 | December 31, 1997 | October 24, 1997
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Annuity and interest sensitive | |
life product charges......... $3.8 | $22.1 | $18.3
Management fee revenue......... 0.5 | 2.8 | 2.3
Net investment income.......... 5.1 | 26.8 | 21.7
Realized gains (losses) on | |
investments.................. -- | 0.1 | 0.1
Other Income................... 0.3 | 0.7 | 0.4
---- | ----- | -----
$9.7 | $52.5 | $42.8
==== | ===== | =====
</TABLE>
56
<PAGE>
<PAGE>
<TABLE>
POST-ACQUISITION | COMBINED | PRE-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
August 14, 1996 | For the Year | January 1, 1996
through | ended | through
December 31, 1996 | December 31, 1996 | August 13, 1996
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Annuity and interest sensitive | |
life product charges......... $ 8.8 | $21.0 | $12.2
Management fee revenue......... 0.9 | 2.3 | 1.4
Net investment income.......... 5.8 | 10.8 | 5.0
Realized gains (losses) on | |
investments.................. -- | (0.4) | (0.4)
Other income 0.5 | 0.6 | 0.1
----- | ----- | -----
$16.0 | $34.3 | $18.3
===== | ===== | =====
</TABLE>
Total revenues increased 53.3%, or $18.2 million, to $52.5 million in
1997. Annuity and interest sensitive life product charges increased
5.2%, or $1.1 million in 1997 due to additional fees earned from the
increasing block of business under management in the Separate Accounts
and an increase in the collection of surrender charges.
Golden American provides certain managerial and supervisory services
to DSI. This fee, calculated as a percentage of average assets in the
variable separate accounts, was $2.8 million for 1997 and $2.3 million
for 1996.
Net investment income increased 148.3%, or $16.0 million, to $26.8
million in 1997 from $10.8 million in 1996 due to growth in invested
assets. During 1997, the Company had net realized gains on the
disposal of investments, which were the result of voluntary sales, of
$0.1 million compared to net realized losses of $0.4 million in 1996.
EXPENSES.
<TABLE>
POST-MERGER | COMBINED | POST-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
October 25, 1997 | For the Year | January 1, 1997
through | ended | through
December 31, 1997 | December 31, 1997 | October 24, 1997
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Insurance benefits and | |
expenses: | |
Annuity and interest | |
sensitive life benefits: | |
Interest credited to account | |
balances................... $ 7.4 | $ 26.7 | $ 19.3
Benefit claims incurred in | |
excess of account balances. -- | 0.1 | 0.1
Underwriting, acquisition and | |
insurance expenses: | |
Commissions.................. 9.4 | 36.3 | 26.9
General expenses............. 3.4 | 17.3 | 13.9
Insurance taxes.............. 0.5 | 2.3 | 1.8
Policy acquisition costs | |
deferred................... (13.7) | (42.7) | (29.0)
Amortization: | |
Deferred policy acquisition | |
costs...................... 0.9 | 2.6 | 1.7
Present value of in force | |
acquired................... 0.9 | 6.1 | 5.2
Goodwill..................... 0.6 | 2.0 | 1.4
------ | ------ | ------
$ 9.4 | $ 50.7 | $ 41.3
====== | ====== | ======
</TABLE>
57
<PAGE>
<PAGE>
<TABLE>
POST-ACQUISITION | COMBINED | PRE-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
August 14, 1996 | For the Year | January 1, 1996
through | ended | through
December 31, 1996 | December 31, 1996 | August 13, 1996
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Insurance benefits and | |
expenses: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances.................. $ 5.7 | $ 10.1 | $ 4.4
Benefit claims incurred in | |
excess of account | |
balances.................. 1.3 | 2.2 | 0.9
Underwriting, acquisition and | |
insurance expenses: | |
Commissions................. 9.9 | 26.5 | 16.6
General expenses............ 5.9 | 15.3 | 9.4
Insurance taxes............. 0.7 | 1.9 | 1.2
Policy acquisition costs.... | |
deferred (11.7) | (31.0) | (19.3)
Amortization: | |
Deferred policy acquisition | |
costs..................... 0.2 | 2.6 | 2.4
Present value of in force | |
acquired.................. 2.7 | 3.7 | 1.0
Goodwill.................... 0.6 | 0.6 | --
------ | ------ | ------
$ 15.3 | $ 31.9 | $ 16.6
====== | ====== | ======
</TABLE>
Total insurance benefits and expenses increased 59.3%, or $18.8
million, in 1997 from $31.9 million in 1996. Interest credited to
account balances increased 164.4%, or $16.6 million, in 1997 as a
result of higher account balances associated with the Company's fixed
account option within its variable products.
Commissions increased 37.3%, or $9.8 million, in 1997 from $26.5
million in 1996. Insurance taxes increased 23.3%, or $0.4 million, in
1997 from $1.9 million in 1996. Increases and decreases in
commissions and insurance taxes are generally related to changes in
the level of variable product sales.
Insurance taxes are also impacted by several other factors which include
an increase in FICA taxes primarily due to bonuses and an increase in
state licenses and fees. Most costs incurred as the result of new sales
were deferred, thus having very little impact on earnings.
General expenses increased 12.6%, or $2.0 million, in 1997 from $15.3
million in 1996 due in part to certain expenses associated with the
merger occurring on October 24, 1997. In addition, the Company uses a
network of wholesalers to distribute its products and the salaries of
these wholesalers are included in general expenses. The portion of
these salaries and related expenses which vary with sales production
levels are deferred, thus having little impact on earnings. This
increase in general expenses was partially offset by reimbursements
received from Equitable Life, an affiliate, for certain advisory,
computer and other resources and services provided by Golden American.
During the second quarter of 1997, present value of in force acquired
("PVIF") was unlocked by $2.3 million to reflect narrower current
spreads than the gross profit model assumed. The Company's deferred
policy acquisition costs ("DPAC"), previous balance of PVIF and
unearned revenue reserve, as of the merger date, were eliminated and
an asset of $44.3 million representing PVIF was established for all
policies in force at the merger date. The amortization of PVIF and
DPAC increased $2.4 million, or 37.1%, in 1997. Based on current
conditions and assumptions as to the impact of future events on
acquired policies in force, the expected approximate net amortization
for the next five years, relating to the PVIF as of December 31, 1997,
is $6.2 million in 1998, $6.0 million in 1999, $5.6 million in 2000,
$5.0 million in 2001 and $4.2 million in 2002.
Amortization of goodwill for the year ended December 31, 1997 totaled
$2.0 million compared to $0.6 million for the year ended December 31,
1996.
58
<PAGE>
<PAGE>
Interest expense on the $25 million surplus note issued December 1996
was $2.0 million for the year ended December 31, 1997. Interest on
any line of credit borrowings was charged at the rate of Equitable's
monthly average aggregate cost of short-term funds plus 1.00%. During
1997, the Company paid $0.6 million to Equitable for interest on the
line of credit.
INCOME. Net income on a combined basis for 1997 was $0.3 million, a
decrease of $3.2 million, or 91.4%, from 1996.
FINANCIAL CONDITION
RATINGS. During 1998, the Companies' ratings were upgraded by
Standard & Poor's Rating Services ("Standard & Poor's") from AA to
AA+. During the first quarter of 1999, the Companies' ratings were
upgraded by Duff & Phelps Credit Rating Company from AA+ to AAA.
INVESTMENTS. The financial statement carrying value and amortized
cost basis of the Companies' total investment portfolio grew 8.7% and
10.5%, respectively, during the first nine months of 1999. All of the
Companies' investments, other than mortgage loans on real estate, are
carried at fair value in the Companies' financial statements. As such,
growth in the carrying value of the Companies' investment portfolio
included changes in unrealized appreciation and depreciation of fixed
maturities as well as growth in the cost basis of these securities.
Growth in the cost basis of the Companies' investment portfolio
resulted from the investment of premiums from the sale of the
Companies' fixed account options. The Companies manage the growth of
insurance operations in order to maintain adequate capital ratios. To
support the fixed account options of the Companies' variable insurance
products, cash flow was invested primarily in fixed maturities and
short-term investments.
At September 30, 1999 and December 31, 1998, the Companies had no
investments in default. At September 30, 1999 and December 31, 1998,
the Companies' investment portfolio had a yield of 6.6% and 6.4%,
respectively.
The Companies estimate the total investment portfolio, excluding
policy loans, had a fair value approximately equal to 98.0%
of amortized cost value at September 30, 1999 (100.2% at December
31, 1998).
Fixed Maturities: At September 30, 1999, the Companies had fixed
maturities with an amortized cost of $815.0 million and an estimated
fair value of $798.7 million. At December 31, 1998, the Companies had
fixed maturities with an amortized cost of $739.8 million and an
estimated fair value of $742.0 million.
The Companies classify 100% of securities as available for sale. At
September 30, 1999, net unrealized depreciation on fixed maturities of
$16.3 million was comprised of gross appreciation of $0.8 million and
gross depreciation of $17.1 million. Net unrealized holding losses on
these securities, net of adjustments to VPIF, DPAC, and deferred
income taxes of $4.0 million, was included in stockholder's equity at
September 30, 1999. At December 31, 1998 net unrealized appreciation
of fixed maturities of $2.2 million was comprised of gross
appreciation of $6.7 million and gross depreciation of $4.5 million.
Net unrealized holding gains on these securities, net of adjustments
to VPIF, DPAC, and deferred income taxes of $1.0 million was included
in stockholder's equity at December 31, 1998.
The individual securities in the Companies' fixed maturities portfolio
(at amortized cost) include investment grade securities, which include
securities issued by the U.S. government, its agencies, and
corporations, that are rated at least A- by Standard & Poor's ($528.0
million or 64.8% at September 30, 1999 and $477.4 million or 64.5% at
December 31, 1998), that are rated BBB+ to BBB- by Standard & Poor's
($138.0 million or 16.9% at September 30, 1999 and $124.0 million or
16.8% at December 31, 1998) and below investment grade securities
which are securities issued by corporations that are rated BB+ to CCC-
by Standard & Poor's ($72.3 million or 8.9% at September 30, 1999 and
$51.6 million or 7.0% at December 31, 1998). Securities not rated by
Standard & Poor's had a National Association of Insurance
Commissioners ("NAIC") rating of 1, 2, 3 or 4 ($76.7 million or 9.4%
at September 30, 1999 and $86.8 million or 11.7% at December 31,
1998). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.6% at September 30, 1999 and
6.5% at December 31, 1998.
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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 September 30, 1999, the amortized cost value of the Companies'
total investment in below investment grade securities, excluding
mortgage-backed securities, was $73.7 million, or 7.4%, of the
Companies' investment portfolio ($52.7 million, or 5.9%, at December
31, 1998). 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 September 30, 1999, the yield at amortized cost on the
Companies' below investment grade portfolio was 7.8% compared to 6.6%
for the Companies' investment grade corporate bond portfolio. AAt
December 31, 1998, the yield at amortized cost on the Companies' below
investment grade portfolio was 7.9% compared to 6.4% for the
Companies' investment grade corporate bond portfolio. The Companies
estimate the fair value of the below investment grade portfolio was
$70.5 million, or 95.6% of amortized cost value, at September 30, 1999
($51.7 million, or 98.1% of amortized cost value, at December 31,
1998).
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default
by the borrower is significantly greater with respect to below
investment grade securities than with other corporate debt securities.
Below investment grade securities are generally unsecured and are
often subordinated to other creditors of the issuer. Also, issuers of
below investment grade securities usually have higher levels of debt
and are more sensitive to adverse economic conditions, such as a
recession or increasing interest rates, than are investment grade
issuers. The Companies attempt to reduce the overall risk in the below
investment grade portfolio, as in all investments, through careful
credit analysis, strict investment policy guidelines, and
diversification by company and by industry.
The Companies analyze the investment portfolio, including below
investment grade securities, at least quarterly in order to determine
if the Companies' ability to realize the carrying value on any
investment has been impaired. For debt and equity securities, if
impairment in value is determined to be other than temporary (i.e. if
it is probable the Companies will be unable to collect all amounts due
according to the contractual terms of the security), the cost basis of
the impaired security is written down to fair value, which becomes the
new cost basis. The amount of the write-down is included in earnings
as a realized loss. Future events may occur, or additional or updated
information may be received, which may necessitate future write-downs
of securities in the Companies' portfolio. Significant write-downs in
the carrying value of investments could materially adversely affect
the Companies' net income in future periods.
During the nine months ended September 30, 1999 and Ifor the year
ended December 31, 1998, fixed maturities designated as available for
sale with a combined amortized cost of $170.6 million and $145.3
million, respectively, were called or repaid by their issuers. In
total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $2.2 million and $0.5 million, for the first
nine months of 1999 and for the year ended December 31, 1998,
respectively.
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 realizeable 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 realizeable value of $1.1 million.
Equity Securities: At September 30, 1999 and December 31, 1998,
Eequity securities represented 1.5% and 1.6%, respectively, of the
Companies' investment portfolio. At September 30, 1999 and December
31, 1998, the Companies owned equity securities with a cost of $14.4
million and an estimated fair value of $13.7 million and $11.5
million, respectively. At September 30, 1999, net unrealized
depreciation of equity securities of $0.7 million was comprised of
gross appreciation of $0.3 million and gross depreciation of
$1.0 million at December 31, 1998 net unrealized depreciation of
equity securities was comprised entirely of
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gross depreciation of $2.9 million . Equity securities are primarily
comprised of investments in shares of the mutual funds underlying the
Companies' registered separate accounts.
Mortgage Loans on Real Estate: Mortgage loans on real estate
represented 9.5% and 10.9% of the Companies' investment portfolio at
September 30, 1999 and at December 31, 1998, respectively. Mortgages
outstanding at amortized cost were $93.9 million September 30, 1999
with an estimated fair value of $91.2 million. Mortgages outstanding
were $97.3 million at December 31, 1998 with an estimated fair value
of $99.8 million. At September 30, 1999, the Companies' mortgage loan
portfolio included 57 loans with an average size of $1.6 million and
average seasoning of 0.8 years if weighted by the number of loans. At
December 31, 1998, Tthe Companies' mortgage loan portfolio includeds
57 loans with an average size of $1.7 million and average seasoning of
0.9 years if weighted by the number of loans. The Companies' mortgage
loans 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
1998 and 1997), Utah (11% in 1998, 13% in 1997) and Georgia (10% in
1998, 11% in 1997). There are no other concentrations of mortgage
loans in any state exceeding ten percent at December 31, 1998 and
1997. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office
buildings (36% in 1998, 43% in 1997), industrial buildings (32% in
1998, 33% in 1997) and retail facilities (20% in 1998, 15% in 1997).
As of September 30, 1999, there have been no significant changes to
the concentrations of mortgage loans on real estate compared to December
31, 1998. At September 30, 1999 and December 31, 1998, the yield on
the Companies' mortgage loan portfolio was 7.3%.
At September 30, 1999 and December 31, 1998, 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 U.S. The insurance subsidiaries of EIC have
experienced a historically low default rate in their mortgage loan
portfolios.
OTHER ASSETS. Accrued investment income increased $2.3 million during
the first nine months of 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 products.
DPAC represents certain deferred costs of acquiring insurance
business, principally first year commissions and interest bonuses,
extra credit bonuses and other expenses related to the production of
new business after the merger. The Companies' previous balances of
DPAC and VPIF were eliminated as of the merger date, and an asset
representing VPIF was established for all policies in force at the
merger date. VPIF is amortized into income in proportion to the
expected gross profits of in force acquired business in a manner
similar to DPAC amortization. Any expenses which vary directly with
the sales of the Companies' products are deferred and amortized. At
September 30, 1999, the Companies had DPAC and VPIF balances of $439.2
million and $33.0 million ($205.0 million and $36.0 million,
respectively at December 31, 1998). During the first nine months of
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 $5.7 million, or 77.1%, during the
first nine months of 1999, due to the purchase of furniture and other
equipment for Golden American's new offices in West Chester,
Pennsylvania. Property and equipment increased $5.8 million during
1998, due to installation of a new policy administration system,
introduction of an imaging system as well as the growth in the
business.
Goodwill totaling $151.1 million, representing the excess of the
acquisition cost over the fair value of net assets acquired, was
established at the merger date. Accumulated amortization of goodwill
as of September 30, 1999 and December 31, 1998 was $7.2 million and
$4.4 million, respectively.
Other assets increased $35.8 million during the first nine months of
1999 due mainly to an increase in a receivable from the separate
account. Other assets increased $5.5 million during 1998 due mainly
to an increase in amounts due from an unaffiliated reinsurer under a
modified coinsurance agreement.
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At September 30, 1999, the Companies had $5.6 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 sales of the Companies' variable
annuity products, net of redemptions. At December 31, 1998, the
Companies had $3.4 billion of separate account assets compared to $1.6
billion at December 31, 1997. The increase in separate account assets
resulted from market appreciation and growth in sales of the
Companies' variable annuity products, net of redemptions.
At September 30, 1999, the Companies had total assets of $7.3 billion,
a 53.9% increase from December 31, 1998. At December 31, 1998,
the Companies had total assets of $4.8 billion, an increase of 94.3%
from December 31, 1997.
LIABILITIES. In conjunction with the volume of variable annuity
sales, the Companies' total liabilities increased $2.5 billion, or
55.9%, during the first nine months of 1999 and totaled $6.9 billion
at September 30, 1999. At September 30, 1999, future policy benefits
for annuity and interest sensitive life products increased $128.3
million, or 14.6%, to $1.0 billion reflecting premium growth in the
Companies' fixed account options of its variable products, net of
transfers to the separate accounts. Market appreciation, increased
transfer activity, and premiums, net of redemptions, accounted for the
$2.2 billion, or 64.9%, increase in separate account liabilities to
$5.6 billion at September 30, 1999.
In conjunction with the volume of variable annuity sales, the
Companies' total liabilities increased $2.2 billion, or 98.2%, during
1998 and totaled $4.4 billion at December 31, 1998. Future policy
benefits for annuity and interest sensitive life products increased
$375.8 million, or 74.4%, to $881.1 million reflecting premium growth
in the Companies' fixed account option of its variable products.
Market appreciation and premium growth, net of redemptions, accounted
for the $1.7 billion, or 106.3%, increase in separate account
liabilities to $3.4 billion at December 31, 1998.
On 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, 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.
At September 30, 1999, other liabilities increased $47.5 million from
$32.6 million at December 31, 1998, due primarily to increases in
securities payables and remittances to be applied.
At December 31, 1998, other liabilities increased $15.3 million from
$17.3 million at December 31, 1997, due primarily to increases in
accounts payable, outstanding checks, guaranty fund assessment
liability, and pension liability.
The effects of inflation and changing prices on the Companies'
financial position are not material since insurance assets and
liabilities are both primarily monetary and remain in balance. An
effect of inflation, which has been low in recent years, is a decline
in stockholder's equity when monetary assets exceed monetary
liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $100.0
million, or 28.8%, from December 31, 1998 to $447.6 million at
September 30, 1999 due to capital contributions from the Parent.
Additional paid-in capital increased $122.6 million, or 54.5%, from
December 31, 1997 to $347.6 million at December 31, 1998 primarily due
to capital contributions from the Parent.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Companies to generate sufficient cash
flows to meet the cash requirements of 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
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operating expenses, interest and extra premium credits, investment
purchases, repayment of debt, as well as withdrawals and surrenders.
Net cash used in operating activities was $60.0 million in the first
nine months of 1999 compared to $22.7 million in the same period of
1998. Net cash used in operating activities was $63.9 million in 1998
compared to $4.8 million in 1997. 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. The 1998 increase in net cash used in
operating activities resulted principally from the introduction of
Golden American's extra premium credit product in October 1997. In
1998, $54.4 million in extra premium credits was added to contract
holders' account values versus $2.8 million in 1997.
Net cash used in investing activities was $111.3 million during the
first nine months of 1999 as compared to $224.5 million in the same
period of 1998. This decrease is primarily due to greater net
purchases of fixed maturities, equity securities, and mortgage loans
on real estate during the first nine months of 1998 than in the same
period of 1999. Net purchases of fixed maturities reached $79.7
million during the first nine months of 1999 versus $199.0 million in
the same period of 1998. Net sales of mortgage loans on real estate
were $3.2 million during the first nine months of 1999 compared to net
purchases of $13.2 million during the first nine months of 1998.
Net cash used in investing activities was $390.0 million during 1998
as compared to $198.5 million in 1997. This increase is primarily due
to greater net purchases of fixed maturities resulting from an
increase in funds available from net fixed account deposits. Net
purchases of fixed maturities reached
$331.3 million in 1998 versus $135.3 million in 1997. Net purchases
of mortgage loans on real estate, on the other hand, declined to $12.6
million from $51.2 at December 31, 1997in the prior year. In 1998,
net purchases of short-term investments were unusually high due to
the investment of the remaining proceeds of Golden American's $60.0
million surplus note issued on December 30, 1998.
Net cash provided by financing activities was $177.5 million during
the first nine months of 1999 compared to $245.1 million during the
same period of 1998. In the first nine months of 1999, net cash
provided by financing activities was positively impacted by net fixed
account deposits of $441.7 million compared to $300.0 million in the
same period of 1998. This increase was offset by net reallocations to
the Companies' separate accounts, which increased to $439.2 million
from $163.5 million during the prior year, and by a decrease in net
borrowings of $54.8 million in the first nine months of 1999 compared
to the first nine months of 1998. In the first nine months of 1999,
another important source of cash provided by financing activities was
$100.0 million in capital contributions from the Parent compared to
$53.8 million in the first nine months of 1998. In addition, another
source of cash provided by financing activities during the third
quarter of 1999 was $75.0 million in proceeds from a surplus note
with ING AIH.
Net cash provided by financing activities was $439.5 million during
1998 as compared to $218.6 million during the prior year. In 1998, net
cash provided by financing activities was positively impacted by net
fixed account deposits of $520.8 million compared to $303.6 million in
1997. This increase was partially offset by net reallocations to the
Companies' separate accounts, which increased to $239.7 million from
$110.1 million during the prior year. In 1998, other important sources
of cash provided by financing activities were $98.4 million of capital
contributions from the Parent and $60.0 million of proceeds from the
issuance of a surplus note on December 30, 1998. The Companies have
used part of the proceeds of the surplus note to repay outstanding
short-term debt.
The Companies' liquidity position is managed by maintaining adequate
levels of liquid assets, such as cash or cash equivalents and short-
term investments. Additional sources of liquidity include borrowing
facilities to meet short-term cash requirements. Golden American
maintains a $65.0 million reciprocal loan agreement with ING AIH,
which expires on December 31, 2007. In addition, the Companies
have an $85.0 million revolving note facility with SunTrust Bank,
Atlanta, which expires on July 31, 2000. Management believes that
these sources of liquidity are adequate to meet the Companies'
short-term cash obligations.
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Based on current trends, the Companies expect to continue to use net
cash in operating activities, given the continued growth of the
variable annuity products. It is anticipated that a continuation of
capital contributions from the Parent and the issuance of additional
surplus notes will cover these net cash outflows. ING is committed to
the sustained growth of Golden American. During 1999, ING will
maintain Golden American's statutory capital and surplus at the end of
each quarter at a level such that: 1) the ratio of Total Adjusted
Capital divided by Company Action Level Risk Based Capital exceeds
300%; 2) the ratio of Total Adjusted Capital (excluding surplus notes)
divided by Company Action Level Risk Based Capital exceeds 200%; and
3) Golden American's statutory capital and surplus exceeds the
"Amounts Accrued for Expense Allowances Recognized in Reserves" as
disclosed on page 3, Line 13A of Golden American's Statutory
Statement.
During the first quarter of 1999, Golden American's operations were
moved to a new site in West Chester, Pennsylvania. During the third
quarter of 1999, Golden American occupied an additional 20,000 square
feet and currently occupies 85,000 square feet of leased space, its
affiliate occupies 20,000 square feet, and it has made commitments for
an additional 20,000 square feet to be occupied by itself or its
affiliates during the fourth quarter of 1999. Previously, Golden
American's home office operations were housed in leased locations in
Wilmington, Delaware and various locations in Pennsylvania, which were
leased on a short-term basis for use in the transition to the new
office building. Golden American's New York subsidiary is housed in
leased space in New York, New York. The Companies intend to spend
approximately $1.0 million on capital needs during the remainder of
1999.
The ability of Golden American to pay dividends to its Parent is
restricted. Prior approval of insurance regulatory authorities is
required for payment of dividends to the stockholder which exceed an
annual limit. During 1999, Golden American cannot pay dividends to its
Parent without prior approval of statutory authorities.
Under the provisions of the insurance laws of the State of New York,
First Golden cannot distribute any dividends to its stockholder,
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
any dividends to Golden American during 1999.
The NAIC's risk-based capital requirements require insurance companies
to calculate and report information under a risk-based capital
formula. These requirements are intended to allow insurance regulators
to monitor the capitalization of insurance companies based upon the
type and mixture of risks inherent in a company's operations. The
formula includes components for asset risk, liability risk, interest
rate exposure and other factors. The Companies have complied with the
NAIC's risk-based capital reporting requirements. Amounts reported
indicate the Companies have total adjusted capital well above all
required capital levels.
Reinsurance: At September 30, 1999 and at December 31, 1998, Golden
American had reinsurance treaties with four unaffiliated reinsurers
and one affiliated reinsurer covering a significant portion of the
mortality risks under its variable contracts. Golden American remains
liable to the extent its reinsurers do not meet their obligations
under the reinsurance agreements.
MARKET RISK AND RISK MANAGEMENT
Asset/liability management is integrated into many aspects of the
Companies' operations, including investment decisions, product
development and crediting rates determination. As part of the risk
management process, different economic scenarios are modeled,
including cash flow testing required for insurance regulatory
purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include
contractholder behavior and the variable separate accounts'
performance.
Contractholders bear the majority of the investment risks related
to the variable products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed
by contractholders, not by the Companies (subject to, among other
things, certain minimum guarantees). The
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Companies' products also
provide certain minimum death benefits that depend on the
performance of the variable separate accounts. Currently the
majority of death benefit risks are reinsured, which protects the
Companies from adverse mortality experience and prolonged capital
market decline.
A surrender, partial withdrawal, transfer or annuitization made
prior to the end of a guarantee period from the fixed account may
be subject to a market value adjustment. As the majority of the
liabilities in the fixed account are subject to market value
adjustment, the Companies do not face a material amount of market
risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can
generate predictable, steady rates of return. The portfolio
management strategy for the fixed account considers the assets
available for sale. This enables the Companies to respond to
changes in market interest rates, changes in prepayment risk,
changes in relative values of asset sectors and individual
securities and loans, changes in credit quality outlook and other
relevant factors. The objective of portfolio management is to
maximize returns, taking into account interest rate and credit
risks as well as other risks. The Companies' asset/liability
management discipline includes strategies to minimize exposure to
loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no
material solvency risk to the Companies. With respect to a 10%
drop in equity values from year-end 1998 levels, variable separate
account funds, which represent 85% of the in force as of
September 30, 1999, pass the risk in underlying fund performance
to the contract holder (except for certain minimum guarantees that
are mostly reinsured). With respect to interest rate movements
up or down 100 basis points from year-end 1998 levels, the
remaining 15% of the in force as of September 30, 1999 are fixed
account funds and almost all of these have market value adjustments
which provide significant protection against changes in interest
rates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other
oral or written statement by the Companies or any of their
officers, directors or employees is qualified by the fact that
actual results of the Companies may differ materially from such
statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance,
which may affect the ability of the Companies to sell their
products, the market value and liquidity of the Companies'
investments and the lapse rate of the Companies' policies,
notwithstanding product design features intended to enhance
persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations which
may affect the 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.
6. To the extent third parties are unable to transact business in
the Year 2000 and thereafter, the Companies' operations could
be adversely affected.
OTHER INFORMATION
SEGMENT INFORMATION. During the period since the acquisition by
Bankers Trust, September 30, 1992 to date of this Prospectus,
Golden American's operations consisted of one business segment,
the sale of annuity and life insurance products. Golden American
and its affiliate DSI are party to in excess of 140 sales
agreements with broker-dealers, three of whom, Locust Street
Securities, Inc., Vestax Securities
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Corporation, and Multi-Financial Securities Corporation, are affiliates
of Golden American. As of September 30, 1999, two broker-dealers produce
10% or more of Golden American's product sales.
REINSURANCE. Golden American reinsures its mortality risk
associated with the Contract's guaranteed death benefit with one
or more appropriately licensed insurance companies. Golden
American also, effective June 1, 1994, entered into a reinsurance
agreement on a modified coinsurance basis with an affiliate of a
broker-dealer which distributes Golden American's products with
respect to 25% of the business produced by that broker-dealer.
RESERVES. In accordance with the life insurance laws and
regulations under which Golden American operates, it is obligated
to carry on its books, as liabilities, actuarially determined
reserves to meet its obligations on outstanding Contracts.
Reserves, based on valuation mortality tables in general use in
the United States, where applicable, are computed to equal amounts
which, together with interest on such reserves computed annually
at certain assumed rates, make adequate provision according to
presently accepted actuarial standards of practice, for the
anticipated cash flows required by the contractual obligations and
related expenses of Golden American.
COMPETITION. Golden American is engaged in a business that is
highly competitive because of the large number of stock and mutual
life insurance companies and other entities marketing insurance
products comparable to those of Golden American. There are
approximately 2,350 stock, mutual and other types of insurers in
the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
SERVICE AGREEMENTS. Beginning in 1994 and continuing until August
13, 1996, Bankers Trust (Delaware), a subsidiary of Bankers Trust
New York Corporation, and Golden American became parties to a service
agreement pursuant to which Bankers Trust (Delaware) agreed to provide
certain accounting, actuarial, tax, underwriting, sales, management and
other services to Golden American. Expenses incurred by Bankers Trust
(Delaware)in relation to this service agreement were reimbursed by Golden
American on an allocated cost basis. Charges billed to Golden American by
Bankers Trust (Delaware) pursuant to the service agreement for 1996 through
its termination as of August 13, 1996 were $0.5 million.
Pursuant to a service agreement between Golden American and Equitable
Life, Equitable Life provides certain administrative, financial and
other services to Golden American. Equitable Life billed Golden
American and its subsidiary First Golden American Life Insurance
Company of New York ("First Golden"), $0.9 million, $1.1 million,
and $29,000 for the first nine months of 1999 and the years ended
December 31, 1998 and 1997, 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 $6.8 million,
$4.8 million, $2.8 million and $2.3 million for the first nine months
of 1999, and the years of 1998, 1997 and 1996, respectively.
Since January 1, 1998, Golden American and First Golden have had an
asset management agreement with ING Investment Management LLC ("ING
IM"), an affiliate, in which ING IM provides asset management and
accounting services for a fee, payable quarterly. For the first nine
months of 1999 and for the year ended December 31, 1998, Golden
American and First Golden incurred fees of $1.6 million and $1.5 million,
respectively, under this agreement. Prior to 1998, Golden American and
First Golden had a service agreement with Equitable Investment Services,
Inc. ("EISI"), an affiliate, in which EISI provided investment
management services. Golden American and First Golden paid fees of
$1.0 million for 1997 and $72,000 for the period from August 14,
1996 through December 31, 1996, respectively.
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Since 1997, Golden American has provided certain advisory, computer
and other resources and services to Equitable Life. Revenues for these
services totaled $0.9 million for the first nine months of 1999,
$5.8 million for 1998 and $4.3 million for 1997.
The Companies provide resources and services to DSI. Revenues for
these services totaled $0.8 million for the first nine months of 1999.
Golden American provides resources and services to ING Mutual Funds
Management Co., LLC, an affiliate. Revenues for these services
totaled $0.4 million for the first nine months of 1999 and $2.1
million for 1998.
DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as
the principal underwriter (as defined in the Securities Act of 1933
and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of September 30,
1999 and December 31, 1998, are sold primarily through two
broker/dealer institutions. For the nine months ended September 30,
1999 and the years 1998, 1997 and 1996, commissions paid by Golden
American to DSI (including commissions paid by First Golden)
aggregated $130.4 million, $117.5 million, $36.4 million and $27.1
million, respectively.
EMPLOYEES. Golden American, as a result of its Service Agreement
with Bankers Trust (Delaware) and EIC Variable, had very few
direct employees. Instead, various management services were
provided by Bankers Trust (Delaware), EIC Variable and Bankers
Trust New York Corporation, as described above under "Service
Agreement." The cost of these services were allocated to Golden
American. Since August 14, 1996, Golden American has hired
individuals to perform various management services and has looked
to Equitable of Iowa and its affiliates for certain other
management services.
Certain officers of Golden American are also officers of DSI, and
their salaries are allocated among both companies. Certain
officers of Golden American are also officers of other Equitable
of Iowa subsidiaries. See "Directors and Executive Officers."
PROPERTIES. Golden American's principal office is located at 1475
Dunwoody Drive, West Chester, Pennsylvania 19380, where all of
Golden American's records are maintained. This office space is
leased.
STATE REGULATION. Golden American is subject to the laws of the
State of Delaware governing insurance companies and to the
regulations of the Delaware Insurance Department (the "Insurance
Department"). A detailed financial statement in the prescribed
form (the "Annual Statement") is filed with the Insurance
Department each year covering Golden American's operations for the
preceding year and its financial condition as of the end of that
year. Regulation by the Insurance Department includes periodic
examination to determine contract liabilities and reserves so that
the Insurance Department may certify
that these items are correct. Golden American's books and accounts are
subject to review by the Insurance Department at all times. A full
examination of Golden American's operations is conducted periodically
by the Insurance Department and under the auspices of the NAIC.
In addition, Golden American is subject to regulation under the
insurance laws of all jurisdictions in which it operates. The
laws of the various jurisdictions establish supervisory agencies
with broad administrative powers with respect to various matters,
including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms,
establishing reserve requirements, fixing maximum interest rates
on life insurance contract loans and minimum rates for
accumulation of surrender values, prescribing the form and content
of required financial statements and regulating the type and
amounts of investments permitted. Golden American is required to
file the Annual Statement with supervisory agencies in each of the
jurisdictions in which it does business, and its operations and
accounts are subject to examination by these agencies at regular
intervals.
The NAIC has adopted several regulatory 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
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adequacy monitoring system and Golden American, see "Management's
Discussion and Analysis Results of Operations"
In addition, many states regulate affiliated groups of insurers,
such as Golden American, and its affiliates, under insurance
holding company legislation. Under such laws, inter-company
transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending
on the size of the transfers and payments in relation to the
financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for
contract owner losses incurred by other insurance companies which
have become insolvent. Most of these laws provide that an
assessment may be excused or deferred if it would threaten an
insurer's own financial strength. For information regarding
Golden American's estimated liability for future guaranty fund
assessments, see Note 11 of Notes to Financial Statements.
Although the federal government generally does not directly
regulate the business of insurance, federal initiatives often have
an impact on the business in a variety of ways. Certain insurance
products of Golden American are subject to various federal
securities laws and regulations. In addition, current and
proposed federal measures which may significantly affect the
insurance business include regulation of insurance company
solvency, employee benefit regulation, removal of barriers
preventing banks from engaging in the insurance business, tax law
changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
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 (50) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (51) 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 (34) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant
Secretary
William L. Lowe (35) 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 (54) 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. The
principal positions of Golden American's directors and senior
executive officers for the past five years are listed below:
Mr. Barnett Chernow became President and Director of Golden American
and President of First Golden in April 1998. From 1993 to 1998, Mr.
Chernow served as Executive Vice President of Golden American. He was
elected to serve as Executive Vice President and Director of First
Golden in September 1996.
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
68
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<PAGE>
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 in January
2000. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999.
Mr. Phillip R. Lowery became a Director of Golden American in
April 1999. He has served as Executive Vice President and Chief
Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined Golden American in December, 1997 as
Executive Vice President. From 1982 through November 1997, he held
several positions with the Endeavor Group and was President upon
his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief
Financial Officer of Golden American in September 1998. From
August, 1984 to September, 1998 he has held various positions with
ING companies in The Netherlands.
Ms. Patricia M. Corbett was elected Treasurer of Golden American
in December 1998. She joined Equitable Life Insurance Company of
Iowa in 1987 and is currently Treasurer and Assistant Vice
President of Equitable Life and USG Annuity & Life Company.
Mr. David L. Jacobson joined Golden American in November 1993 as
Senior Vice President and Assistant Secretary.
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.
Mr. William L. Lowe joined Equitable Life as Vice President, Sales
& Marketing in January 1994. He became a Senior Vice President,
Sales & Marketing, of Golden American in August 1997. He was also
President of Equitable of Iowa Securities Network, Inc. until
October 1998.
Mr. Steven G. Mandel joined Golden American in October 1988 and
became Senior Vice President and Chief Information Officer in
June 1998.
Mr. Ronald R. Blasdell joined Golden American in February 1994 and
became Senior Vice President, Project Implementation in June 1998.
Mr. Gary Haynes joined Golden American in April 1999 and became
Senior Vice President, Operations in April 1999.
COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief
Executive Officer of Golden American as well as the annual salary
and bonus for the next five highly compensated executive officers
for the fiscal year ended December 31, 1998. Certain executive
officers of Golden American are also officers of DSI. The salaries
of such individuals are allocated between Golden American and DSI.
Executive officers of Golden American are also officers of DSI.
The salaries of such individuals are allocated between Golden
American and DSI pursuant to an arrangement among these companies.
Throughout 1995 and until August 13, 1996, Terry L. Kendall served
as a Managing Director at Bankers Trust New York Corporation.
Compensation amounts for Terry L. Kendall which are reflected
throughout these tables prior to August 14, 1996 were not charged
to Golden American, but were instead absorbed by Bankers Trust New
York Corporation.
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EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the
annual salary and bonus for Golden American's Chief Executive
Officers and the five other most highly compensated executive
officers for the fiscal year ended December 31, 1998. As of
the date of this prospectus 1999 data was not yet available.
<TABLE>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
------------------- ------------------------ ------------
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) OPTIONS(3)
- ------------------ ---- ------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow, 1998 $284,171 $105,375 8,000
President 1997 $234,167 $ 31,859 $277,576 4,000
1996 $207,526 $150,000 $ 7,755(4)
James R. McInnis, 1998 $250,004 $626,245 2,000
Executive Vice
President
Keith Glover, 1998 $250,000 $145,120 3,900
Executive Vice
President
Myles R. Tashman, 1998 $189,337 $ 54,425 3,500
Executive Vice 1997 $181,417 $ 25,000 $165,512 5,000
President, 1996 $176,138 $ 90,000 $ 5,127(4)
General Counsel
and Secretary
Stephen J. Preston, 1998 $173,870 $ 32,152 3,500
Executive Vice 1997 $160,758 $ 16,470
President 1996 $156,937 $ 58,326
and Chief Actuary
Paul R. Schlaack, 1998 $406,730 $210,600
Former Chairman 1997 $351,000 $249,185 $1,274,518 19,000 $15,000
and Vice President 1996 $327,875 $249,185 $ 245,875 19,000 $15,000
Terry L. Kendall, 1998 $145,237 $181,417
Former President 1997 $362,833 $ 80,365 $ 644,844 16,000
and CEO 1996 $288,298 $400,000 $11,535(4)
</TABLE>
(1) The amount shown relates to bonuses paid in 1998, 1997
and 1996.
(2) Restricted stock awards granted to executive officers
vested on October 24, 1997 with the change in control of
Equitable of Iowa.
(3) Awards comprised of qualified and non-qualified stock
options. All options were granted with an exercise price equal
to the then fair market value of the underlying stock. All
options vested with the change in control of Equitable of Iowa
and were cashed out for the difference between $68.00 and the
exercise price.
(4) In 1996, Contributions were made by the Company on behalf
of the employee to PartnerShare, the deferred compensation
plan sponsored by Bankers Trust New York Corporation and its
affiliates for the benefit of all Bankers Trust employees, in
February of 1996 to employees on record as of December 31,
1996, after an employee completed one year of service with the
company. This contribution could be in the form of deferred
compensation and/or a cash payment. In 1996, Mr. Kendall
received $9,000 of deferred compensation and $2,535 of cash
payment from the plan; Mr. Chernow received $6,000 of
deferred compensation and $1,755 of cash payment from the
plan; Mr. Tashman received $4,000 of deferred compensation and
$1,127 of cash payment from the plan.
70
<PAGE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR (1998)
<TABLE> POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM (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 8,000 11.99 $60.518 5/26/2003 $164,016 $362,433
James R. McInnis 2,000 3.00 $60.518 5/26/2003 $ 41,004 $ 90,608
Keith Glover 3,900 5.85 $60.518 5/26/2003 $ 79,958 $176,686
Myles R. Tashman 3,500 5.25 $60.518 5/26/2003 $ 71,758 $158,564
Stephen J. Preston 3,500 5.25 $60.518 5/26/2003 $ 71,758 $158,564
</TABLE>
(1) Stock appreciation rights granted on May 26, 1998 to the
officers of Golden American have a three-year vesting period
and an expiration date as shown.
(2) The base price was equal to the fair market value of
ING's stock on on the date of grant.
(3) Total dollar gains based on indicated rates of
appreciation of share price over a the five year term of the
rights.
Directors of Golden American receive no additional compensation
for serving as a director.
71
<PAGE>
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[Shaded Section Header]
- --------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------
For the Nine Months Ended September 30, 1999
72
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at
fair value (cost: 1999 -- $815,027;
1998 -- $739,772) $ 798,708 $ 741,985
Equity securities, at fair value (cost: 13,679 11,514
1999 -- $14,437; 1998 -- $14,437)
Mortgage loans on real estate 93,884 97,322
Policy loans 13,454 11,772
Short-term investments 66,519 41,152
---------- ----------
Total investments 986,244 903,745
Cash and cash equivalents 12,908 6,679
Due from affiliates 1,460 2,983
Accrued investment income 11,896 9,645
Deferred policy acquisition costs 439,176 204,979
Value of purchased insurance in force 32,984 35,977
Current income taxes recoverable 204 628
Deferred income tax asset 29,690 31,477
Property and equipment, less allowances
for depreciation of $2,807 in 1999
and $801 in 1998 13,017 7,348
Goodwill, less accumulated amortization
of $7,242 in 1999 and $4,408 in 1998 143,886 146,719
Other assets 42,072 6,239
Separate account assets 5,598,490 3,396,114
---------- ----------
Total assets $7,312,027 $4,752,533
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products $1,009,382 $881,112
Unearned revenue reserve 5,855 3,840
Other policy claims and benefits 15 --
---------- ----------
1,015,252 884,952
Surplus notes 160,000 85,000
Due to affiliates 4,328 --
Other liabilities 80,081 32,573
Separate account liabilities 5,598,490 3,396,114
---------- ----------
6,858,151 4,398,639
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share,
authorized, issued, 2,500 2,500
and outstanding 250,000 shares
Additional paid-in capital 447,640 347,640
Accumulated other comprehensive loss (4,464) (895)
Retained earnings 8,200 4,649
---------- ----------
Total stockholder's equity 453,876 353,894
---------- ----------
Total liabilities and stockholder's
equity $7,312,027 $4,752,533
========== ==========
See accompanying notes.
</TABLE> 73
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months ended Months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Annuity and interest sensitive
life product charges $ 55,195 $ 26,984
Management fee revenue 6,755 3,257
Net investment income 42,671 29,296
Realized gains (losses) on
investments (2,215) 436
Other income 7,448 4,805
--------- --------
109,854 64,778
Insurance benefits and expenses:
Annuity and interest sensitive
life benefits:
Interest credited to account 125,404 64,110
balances
Benefit claims incurred in 3,452 862
excess of account balances
Underwriting, acquisition, and
insurance expenses:
Commissions 134,585 84,958
General expenses 47,551 23,480
Insurance taxes, state 3,545 2,680
licenses, and fees
Policy acquisition costs (244,840) (133,616)
deferred
Amortization:
Deferred policy acquisition 19,699 4,014
costs
Value of purchased insurance 4,803 3,252
in force
Goodwill 2,834 2,834
--------- --------
97,033 52,574
Interest expense 5,552 3,033
--------- --------
102,585 55,607
--------- --------
Income before income taxes 7,269 9,171
Income taxes 3,718 4,294
--------- --------
Net income $ 3,551 $ 4,877
========= ========
See accompanying notes.
</TABLE> 74
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months ended Months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (60,026) $ (22,666)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities -- available for sale 170,548 92,707
Mortgage loans on real estate 4,241 3,145
Short-term investments -- net -- 2,575
---------- ----------
174,789 98,427
Acquisition of investments:
Fixed maturities -- available for sale (250,277) (291,687)
Equity securities -- (10,000)
Mortgage loans on real estate (1,034) (16,390)
Policy loans -- net (1,682) (1,385)
Short term investments -- net (25,367) --
---------- ----------
(278,360) (319,462)
Net purchase of property and equipment (7,700) (3,470)
---------- ----------
Net cash used in investing activities (111,271) (224,505)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement 488,950 242,847
borrowings
Repayment of reciprocal loan agreement (488,950) (202,847)
borrowings
Proceeds from revolving note payable 131,595 20,082
Repayment of revolving note payable (131,595) --
Proceeds from surplus note 75,000 --
Repayment of line of credit borrowings -- (5,309)
Receipts from annuity and interest
sensitive life policies credited
to account balances 540,464 350,385
Return of account balances on annuity
and interest sensitive life policies (98,715) (50,370)
Net reallocations to Separate Accounts (439,223) (163,455)
Contributions from parent 100,000 53,750
---------- ----------
Net cash provided by financing 177,526 245,083
activities
---------- ----------
Increase (decrease) in cash and cash
equivalents 6,229 (2,088)
Cash and cash equivalents at beginning
of period 6,679 21,039
---------- ----------
Cash and cash equivalents at end of
period $ 12,908 $ 18,951
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 5,078 $ 3,493
Taxes 10 80
Non-cash financing activities:
Non-cash adjustment to additional paid
in capital for adjusted merger costs -- 143
Non-cash contribution of capital from
parent to repay line of credit
borrowings -- 18,750
See accompanying notes.
</TABLE> 75
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the financial
statements do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All adjustments
were of a normal recurring nature, unless otherwise noted in Management's
Discussion and Analysis and the Notes to Financial Statements. Operating
results for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999. These financial statements should be read in
conjunction with the financial statements and related notes included in
the Golden American Life Insurance Company's annual report on Form 10-K
for the year ended December 31, 1998.
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"). On October 24, 1997, PFHI
Holdings, 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 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., a Delaware corporation.
FAIR VALUES
Estimated fair values of publicly traded fixed maturities for 1999 are as
reported by an independent pricing service.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $75,508,000 and $32,198,000 for the nine months
ended September 30, 1999 and 1998, respectively. Total statutory capital
and surplus was $285,674,000 at September 30, 1999 and $183,045,000 at
December 31, 1998.
RECLASSIFICATIONS
Certain amounts in the September 30, 1998 and December 31, 1998 financial
statements have been reclassified to conform to the September 30, 1999
financial statement presentation.
2. COMPREHENSIVE INCOME
As of January 1, 1998, the Companies adopted the Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Companies' net income or stockholder's
equity. SFAS No. 130 requires unrealized gains or losses on the
76
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<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
2. COMPREHENSIVE INCOME (continued)
Companies' available for sale securities (net of adjustments for value of
purchased insurance in force ("VPIF"), deferred policy acquisition costs
("DPAC"), and deferred income taxes) to be included in other
comprehensive income.
During the third quarter and first nine months of 1999, other
comprehensive income (loss) for the Companies amounted to $2,059,000 and
$(18,000), respectively ($2,426,000 and $5,478,000, respectively, for the
same periods of 1998). Included in these amounts are other comprehensive
income (loss) for First Golden of $(14,000) and $(258,000) for the third
quarter and first nine months of 1999, respectively ($601,000 and
$1,174,000, respectively, for the same periods of 1998). 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 $(460,000) and
$(2,512,000) during the third quarter and first nine months of 1999,
respectively ($263,000 and $388,000, respectively, for the same periods
of 1998). Such amounts, which have been measured through the date of
sale, are net of income taxes and adjustments for VPIF and DPAC totaling
$(38,000) and $297,000 for the third quarter and first nine months of
1999, respectively ($40,000 and $48,000, respectively, for the same
periods of 1998).
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 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.
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 and expenses to
DSI totaling $50,131,000 in the third quarter and $130,419,000 for the
first nine months of 1999 ($32,104,000 and $82,548,000, respectively, for
the same periods of 1998).
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
third quarter and first nine months of 1999, the fee was $2,659,000 and
$6,755,000, respectively ($1,234,000 and $3,257,000, respectively, for
the same periods of 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 third quarter and first nine months of
1999, the Companies incurred fees of $523,000 and
77
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<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
4. RELATED PARTY TRANSACTIONS (continued)
$1,637,000, respectively, under this agreement ($341,000 and $1,013,000,
respectively, for the same periods of 1998).
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. As Golden American's risk based capital level was
above required amounts, no annual fee was payable at June 30, 1999 or
1998.
Golden American provides certain advisory, computer and other resources
and services to Equitable Life. Revenues for these services, which
reduce general expenses incurred by Golden American, totaled $237,000 in
the third quarter of 1999 and $898,000 for the first nine months of 1999
($1,524,000 and $5,091,000, respectively, for the same periods of 1998).
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 $50,000 in the
third quarter of 1999 and $855,000 for the first nine months of 1999
($261,000 and $575,000, respectively, for the same periods of 1998).
The Companies provide resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies,
totaled $276,000 in the third quarter of 1999 and $759,000 for the first
nine months of 1999 ($19,000 and $57,000, respectively, for the same
periods of 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 $159,000 in
the third quarter of 1999 and $376,000 for the first nine months of
1999.
For the third quarter of 1999, the Companies received 7.8% of total
premiums (9.7% in the same period of 1998), net of reinsurance, for
variable products sold through four affiliates, Locust Street Securities,
Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI, and Multi-
Financial Securities Corporation ("Multi-Financial") of $46,600,000,
$12,900,000, $0, and $11,000,000, respectively ($34,600,000, $14,200,000,
$1,800,000, and $4,100,000, respectively, for the same period of 1998).
For the first nine months of 1999, the Companies received 9.5% of total
premiums (10.0% in the same period of 1998), net of reinsurance, from
LSSI, Vestax, DSI, and Multi-Financial of $121,900,000, $72,000,000,
$2,300,000, and $24,400,000, respectively ($92,700,000, $30,000,000,
$10,700,000, and $10,000,000, respectively, for the same period of 1998).
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
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
78
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
4. RELATED PARTY TRANSACTIONS (continued)
$397,000 in the third quarter of 1999 and $633,000 for the
first nine months of 1999 ($505,000 and $1,269,000, respectively, for the
same periods of 1998). At September 30, 1999, 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 first quarter of 1998. The
outstanding balance was paid by a capital contribution from the Parent
and with funds borrowed from ING AIH.
SURPLUS NOTES: 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 no interest
expense in the third quarter of 1999.
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 $1,088,000 in the third quarter of 1999 and
$3,263,000 for the first nine months of 1999.
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 $516,000 in the third quarter of 1999 and $1,547,000 for the
first nine months of 1999, unchanged from the same periods of 1998. As a
result of the merger, the surplus note is now payable to EIC.
STOCKHOLDER'S EQUITY: During the third quarter of 1999 and the first
nine months of 1999, Golden American received capital contributions from
its Parent of $20,000,000 and $100,000,000, respectively ($0 and
$72,500,000, respectively, for the same periods of 1998).
5. COMMITMENTS AND CONTINGENCIES
REINSURANCE: At September 30, 1999, Golden American had reinsurance
treaties with four unaffiliated reinsurers and one affiliated reinsurer
covering a significant portion of the mortality risks under its variable
contracts. Golden American remains liable to the extent its reinsurers do
not meet their obligations under the reinsurance agreements. At September
30, 1999 and 1998, the Companies had a net receivable of $14,041,000 and
$6,539,000, respectively, for reserve credits, reinsurance claims, or
other receivables from these reinsurers comprised of $2,268,000 and
$257,000, respectively, for claims recoverable from reinsurers, $918,000
and $451,000, respectively, for a payable for reinsurance premiums and
$12,691,000 and $6,733,000, respectively, for a receivable from an
unaffiliated reinsurer. Included in the accompanying financial
statements are net considerations to reinsurers of $2,638,000 in the
third quarter of 1999 and $6,656,000 for the first nine months of 1999
compared to $1,293,000 and $3,259,000, respectively, for the same periods
in 1998. Also included in the accompanying financial statements are net
policy benefits of
79
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
5. COMMITMENTS AND CONTINGENCIES (continued)
$2,569,000 in the third quarter of 1999 and $4,008,000 for the first
nine months of 1999 compared to $1,272,000 and $2,096,000, respectively,
for the same periods in 1998.
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.
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 $208,000 and $598,000 in the third quarter and first nine
months of 1998, respectively. At September 30, 1999, the Companies have
an undiscounted reserve of $2,444,000 to cover estimated future
assessments (net of related anticipated premium tax credits) and have
established an asset totaling $586,000 for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe
this reserve is sufficient to cover expected future guaranty fund
assessments based upon previous premiums and known insolvencies at this
time.
LITIGATION: The Companies, like other insurance companies, may be named
or otherwise involved in lawsuits, including class action lawsuits 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 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. The Companies' asset growth,
net investment income, and cash flow are primarily generated from the
sale of variable products and associated future policy benefits and
separate account liabilities. Substantial changes in tax laws that would
make these products less attractive to consumers and extreme fluctuations
in interest rates or stock market returns, which may result in higher
lapse experience than assumed, could cause a severe impact on the
Companies' financial condition. Two broker/dealers, each having at least
ten percent of total sales, generated 29% of the Companies' sales during
the first nine months of 1999 (10% by one broker/dealer in the same
period of 1998). The Premium Plus variable annuity product generated 78%
of the Companies' sales during the first nine months of 1999 (59% in the
same period of 1998).
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 quarter and nine months ended
September 30, 1999, the Companies paid interest expense of $55,000 and
$109,000, respectively ($6,000 for the same periods of 1998). At
September 30, 1999, the Companies did not have any borrowings under this
agreement.
80
<PAGE>
<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
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, 1998 and
1997, and the related consolidated statements of operations,
changes in stockholder's equity, and cash flows for the year ended
December 31, 1998 and for the periods from October 25, 1997
through December 31, 1997, January 1, 1997 through October 24,
1997, August 14, 1996 through December 31, 1996 and January 1,
1996 through August 13, 1996. These financials are the
responsibility of the Companies' management. Our responsibility
is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Golden American Life Insurance Company at December 31,
1998 and 1997, and the consolidated results of its operations and
its cash flows for the year ended December 31, 1998 and for the
periods from October 25, 1997 through December 31, 1997, January
1, 1997 through October 24, 1997, August 14, 1996 through December
31, 1996 and January 1, 1996 through August 13, 1996 in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1999
81
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for
sale, at fair value (cost:
1998 - $739,772; 1997 -
$413,288)...................... $ 741,985 $ 414,401
Equity securities, at fair value
(cost: 1998 - $14,437; 1997 -
$4,437)........................ 11,514 3,904
Mortgage loans on real estate.... 97,322 85,093
Policy loans..................... 11,772 8,832
Short-term investments........... 41,152 14,460
---------- ----------
Total investments.................. 903,745 526,690
Cash and cash equivalents.......... 6,679 21,039
Due from affiliates................ 2,983 827
Accrued investment income.......... 9,645 6,423
Deferred policy acquisition costs.. 204,979 12,752
Value of purchased insurance in
force............................ 35,977 43,174
Current income taxes recoverable... 628 272
Deferred income tax asset.......... 31,477 36,230
Property and equipment, less
allowances for depreciation
of $801 in 1998 and $97 in 1997.. 7,348 1,567
Goodwill, less accumulated
amortization of $4,408 in 1998
and $630 in 1997................. 146,719 150,497
Other assets....................... 6,239 755
Separate account assets............ 3,396,114 1,646,169
---------- ----------
Total assets....................... $4,752,533 $2,446,395
========== ==========
</TABLE>
See accompanying notes.
82
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products......................... $ 881,112 $ 505,304
Unearned revenue reserve........... 3,840 1,189
Other policy claims and benefits... -- 10
---------- ----------
884,952 506,503
Line of credit with affiliate....... -- 24,059
Surplus notes....................... 85,000 25,000
Due to affiliates................... -- 80
Other liabilities................... 32,573 17,271
Separate account liabilities........ 3,396,114 1,646,169
---------- ----------
4,398,639 2,219,082
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share,
authorized,issued and outstanding
250,000 shares................... 2,500 2,500
Additional paid-in capital......... 347,640 224,997
Accumulated other comprehensive
income (loss).................... (895) 241
Retained earnings (deficit)........ 4,649 (425)
---------- ----------
Total stockholder's equity.......... 353,894 227,313
---------- ----------
Total liabilities and stockholder's
equity............................ $4,752,533 $2,446,395
========== ==========
</TABLE>
See accompanying notes.
83
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
REVENUES: | |
Annuity and interest sensitive | |
life product charges........ $ 39,119 $ 3,834 | $ 18,288 $ 8,768 | $12,259
Management fee revenue....... 4,771 508 | 2,262 877 | 1,390
Net investment income........ 42,485 5,127 | 21,656 5,795 | 4,990
Realized gains (losses) on | |
investments................. (1,491) 15 | 151 42 | (420)
Other income................. 5,569 236 | 426 486 | 70
--------- -------- | -------- ------- | -------
90,453 9,720 | 42,783 15,968 | 18,289
| |
| |
INSURANCE BENEFITS AND EXPENSES: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances..................... 94,845 7,413 | 19,276 5,741 | 4,355
Benefit claims incurred in | |
excess of account balances... 2,123 -- | 125 1,262 | 915
Underwriting, acquisition | |
and insurance expenses: | |
Commissions.................. 121,171 9,437 | 26,818 9,866 | 16,549
General expenses............. 37,577 3,350 | 13,907 5,906 | 9,422
Insurance taxes.............. 4,140 450 | 1,889 672 | 1,225
Policy acquisition costs | |
deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300)
Amortization: | |
Deferred policy acquisition | |
costs..................... 5,148 892 | 1,674 244 | 2,436
Value of purchased insurance | |
in force.................. 4,724 948 | 5,225 2,745 | 951
Goodwill.................... 3,778 630 | 1,398 589 | --
--------- --------- | -------- ------ | -------
75,710 9,442 | 41,309 15,313 | 16,553
| |
Interest expense............... 4,390 557 | 2,082 85 | --
--------- --------- | -------- ------ | -------
80,100 9,999 | 43,391 15,398 | 16,553
--------- --------- | -------- ------ | -------
Income (loss) before income | |
taxes........................ 10,353 (279) | (608) 570 | 1,736
| |
Income taxes................... 5,279 146 | (1,337) 220 | (1,463)
--------- --------- | -------- ------ | -------
Net income (loss).............. $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199
========= ========= | ======== ======= | ========
</TABLE>
See accompanying notes.
84
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
Accumulated
Redeemable Additional Other Retained Total
Common Preferred Paid-in Comprehensive Earnings Stockholder's
Stock Stock Capital Income (Loss) (Deficit) Equity
------------------------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996........ $2,500 $50,000 $ 45,030 $ 658 $ (63) $ 98,125
Comprehensive income:
Net income...................... -- -- -- -- 3,199 3,199
Change in net unrealized
investment gains (losses)..... -- -- -- (1,175) -- (1,175)
---------
Comprehensive income............. 2,024
Preferred stock dividends........ -- -- -- -- (719) (719)
------ ------- -------- ------- ------ ---------
Balance at August 13, 1996........ $2,500 $50,000 $ 45,030 $ (517) $2,417 $ 99,430
====== ======= ======== ======== ====== =========
</TABLE>
<TABLE>
------------------------------------------------------------------------------
POST-ACQUISITION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996........ $2,500 $50,000 $ 87,372 -- -- $139,872
Comprehensive income:
Net income...................... -- -- -- -- $ 350 350
Change in net unrealized
investment gains (losses)...... -- -- -- $ 262 -- 262
--------
Comprehensive income............. 612
Contribution of preferred stock
to additional paid-in capital... -- (50,000) 50,000 -- -- --
------ ------- -------- ------- ------ --------
Balance at December 31, 1996...... 2,500 -- 137,372 262 350 140,484
Comprehensive income:
Net income...................... -- -- -- -- 729 729
Change in net unrealized
investment gains (losses)...... -- -- -- 1,543 -- 1,543
--------
Comprehensive income............. 2,272
Contribution of capital.......... -- -- 1,121 -- -- 1,121
------ ------- -------- ------- ------ --------
Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
====== ======= ======== ====== ====== ========
</TABLE>
<TABLE>
------------------------------------------------------------------------------
POST-MERGER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 25, 1997....... $2,500 -- $224,997 -- -- $227,497
Comprehensive loss:
Net loss....................... -- -- -- -- $ (425) (425)
Change in net unrealized
investment gains (losses)...... -- -- -- $ 241 -- 241
--------
Comprehensive loss............... (184)
------ ------- -------- ------- ------ --------
Balance at December 31, 1997...... 2,500 -- 224,997 241 (425) 227,313
Comprehensive income:
Net income...................... -- -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses)...... -- -- -- (1,136) -- (1,136)
--------
Comprehensive income............. 3,938
Contribution of capital.......... -- -- 122,500 -- -- 122,500
Other............................ -- -- 143 -- -- 143
------ ------- -------- ------- ------ --------
Balance at December 31, 1998...... $2,500 -- $347,640 $ (895) $4,649 $353,894
====== ======= ======== ======= ====== ========
</TABLE>
See accompanying notes.
85
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
OPERATING ACTIVITIES | |
Net income (loss)............ $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199
Adjustments to reconcile net | |
income (loss) to net cash | |
provided by (used in) | |
operations: | |
Adjustments related to annuity | |
and interest sensitive life | |
products: | |
Interest credited and other | |
charges on interest | |
sensitive products........ 94,690 7,361 | 19,177 5,106 | 4,472
Change in unearned | |
revenues.................. 2,651 1,189 | 3,292 2,063 | 2,084
Decrease (increase) in | |
accrued investment income.. (3,222) 1,205 | (3,489) (877) | (2,494)
Policy acquisition costs | |
deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300)
Amortization of deferred | |
policy acquisition costs... 5,148 892 | 1,674 244 | 2,436
Amortization of value of | |
purchased insurance in | |
force...................... 4,724 948 | 5,225 2,745 | 951
Change in other assets, | |
other liabilities and | |
accrued income taxes....... 9,891 4,205 | (8,944) (96) | 4,672
Provision for depreciation | |
and amortization........... 8,147 1,299 | 3,203 1,242 | 703
Provision for deferred | |
income taxes............... 5,279 146 | 316 220 | (1,463)
Realized (gains) losses on | |
investments................ 1,491 (15) | (151) (42) | 420
--------- -------- | -------- -------- | ---------
Net cash provided by (used | |
in)operating activities..... (63,923) 3,127 | (7,971) (757) | (4,320)
| |
INVESTING ACTIVITIES | |
Sale, maturity or repayment | |
of investments: | |
Fixed maturities - available | |
for sale 145,253 9,871 | 39,622 47,453 | 55,091
Mortgage loans on real | |
estate..................... 3,791 1,644 | 5,828 40 | --
Short-term investments-net.. -- -- | 11,415 2,629 | 354
--------- -------- | -------- -------- | ---------
149,044 11,515 | 56,865 50,122 | 55,445
Acquisition of investments: | |
Fixed maturities - available | |
for sale................... (476,523) (29,596) | (155,173) (147,170) | (184,589)
Equity securities........... (10,000) (1) | (4,865) (5) | --
Mortgage loans on real | |
estate..................... (16,390) (14,209) | (44,481) (31,499) | --
Policy loans - net.......... (2,940) (328) | (3,870) (637) | (1,977)
Short-term investments-net.. (26,692) (13,244) | -- -- | --
--------- -------- | -------- -------- | ---------
(532,545) (57,378) | (208,389) (179,311) | (186,566)
Purchase of property and | |
equipment................... (6,485) (252) | (875) (137) | --
--------- -------- | -------- -------- | ---------
Net cash used in investing | |
activities.................. (389,986) (46,115) | (152,399) (129,326) | (131,121)
</TABLE>
See accompanying notes.
86
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
FINANCING ACTIVITIES | |
Proceeds from issuance of | |
surplus note................ $ 60,000 -- | -- $ 25,000 | --
Proceeds from reciprocal loan | |
agreement borrowings........ 500,722 -- | -- -- | --
Repayment of reciprocal loan | |
agreement borrowings........ (500,722) -- | -- -- | --
Proceeds from revolving | |
note payable................ 108,495 -- | -- -- | --
Repayment of revolving note | |
payable..................... (108,495) -- | -- -- | --
Proceeds from line of credit | |
borrowings.................. -- $10,119 | $ 97,124 -- | --
Repayment of line of credit | |
borrowings................... -- (2,207) | (80,977) -- | --
Receipts from annuity and | |
interest sensitive life | |
policies credited to | |
account balances............ 593,428 62,306 | 261,549 116,819 | $149,750
Return of account balances | |
on annuity and interest | |
sensitive life policies..... (72,649) (6,350) | (13,931) (3,315) | (2,695)
Net reallocations to Separate | |
Accounts (239,671) (17,017) | (93,069) (10,237) | (8,286)
Contributions of capital by | |
parent...................... 98,441 -- | 1,011 -- | --
Dividends paid on preferred | |
stock....................... -- -- | -- -- | (719)
Net cash provided by | |
financing activities........ 439,549 46,851 | 171,707 128,267 | 138,050
| |
Increase (decrease) in cash | |
and cash equivalents........ (14,360) 3,863 | 11,337 (1,816) | 2,609
Cash and cash equivalents at | |
beginning of period......... 21,039 17,176 | 5,839 7,655 | 5,046
Cash and cash equivalents at | |
end of period............... $ 6,679 $21,039 | $ 17,176 $ 5,839 | $ 7,655
| |
SUPPLEMENTAL DISCLOSURE | |
OF CASH FLOW INFORMATION | |
Cash paid during the period | |
for: | |
Interest.................... $ 4,305 $ 295 | $ 1,912 -- | --
Income taxes................ 99 -- | 283 -- | --
Non-cash financing activities: | |
Non-cash adjustment to | |
additional paid-in capital | |
for adjusted merger costs.. 143 -- | -- -- | --
Contribution of property and | |
equipment from EIC Variable, | |
Inc. net of $353 of | |
accumulated depreciation... -- -- | 110 -- | --
Contribution of capital from | |
parent to repay line of | |
credit borrowings.......... 24,059 -- | -- -- | --
</TABLE>
See accompanying notes.
87
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned
subsidiary, First Golden American Life Insurance Company of New
York ("First Golden," and with Golden American, collectively, the
"Companies"). All significant intercompany accounts and
transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa
Companies, Inc., offers variable insurance products and is
licensed as a life insurance company in the District of Columbia
and all states except New York. On January 2, 1997 and December
23, 1997, First Golden became licensed to sell insurance products
in New York and Delaware, respectively. The Companies' products
are marketed by broker/dealers, financial institutions and
insurance agents. The Companies' primary customers are consumers
and corporations.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of
Equitable of Iowa Companies ("Equitable") according to the terms
of an Agreement and Plan of Merger ("Merger Agreement") dated July
7, 1997 among Equitable, PFHI and ING Groep N.V. ("ING"). PFHI is
a wholly owned subsidiary of ING, a global financial services
holding company based in The Netherlands. As a result of this
transaction, Equitable was merged into PFHI, which was
simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or
the "Parent"), a Delaware corporation. See Note 6 for additional
information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable, Inc. (subsequently known as EIC
Variable, Inc.) and its wholly owned subsidiaries, Golden American
and Directed Services, Inc. ("DSI") from Whitewood Properties
Corporation ("Whitewood"). See Note 7 for additional information
regarding the acquisition.
For financial statement purposes, the ING merger was accounted for
as a purchase effective October 25, 1997 and the change in control
of Golden American through the acquisition of BT Variable, Inc.
was accounted for as a purchase effective August 14, 1996. The
merger and acquisition resulted in new bases of accounting
reflecting estimated fair values of assets and liabilities at
their respective dates. As a result, the Companies' financial
statements for the periods after October 24, 1997 are presented on
the Post-Merger new basis of accounting, for the period August 14,
1996 through October 24, 1997 are presented on the Post-
Acquisition basis of accounting, and for August 13, 1996 and prior
periods are presented on the Pre-Acquisition basis of accounting.
88
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
INVESTMENTS
Fixed Maturities: The Companies account for their investments
under the Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires fixed maturities to be designated as
either "available for sale," "held for investment" or "trading."
Sales of fixed maturities designated as "available for sale" are
not restricted by SFAS No. 115. Available for sale securities are
reported at fair value and unrealized gains and losses on these
securities are included directly in stockholder's equity, after
adjustment for related changes in value
of purchased insurance in force ("VPIF"), deferred policy acquisition
costs ("DPAC") and deferred income taxes. At December 31, 1998 and 1997,
all of the Companies' fixed maturities are designated as available
for sale, although the Companies are not precluded from designating
fixed maturities as held for investment or trading at some future date.
Securities determined to have a decline in value that is other
than temporary are written down to estimated fair value, which
becomes the new cost basis by a charge to realized losses in the
Companies' Statements of Operations. Premiums and discounts are
amortized/accrued utilizing a method which results in a constant
yield over the securities' expected lives. Amortization/accrual of
premiums and discounts on mortgage and other asset-backed
securities incorporates a prepayment assumption to estimate the
securities' expected lives.
Equity Securities: Equity securities are reported at estimated
fair value if readily marketable. The change in unrealized
appreciation and depreciation of marketable equity securities (net
of related deferred income taxes, if any) is included directly in
stockholder's equity. Equity securities determined to have a
decline in value that is other than temporary are written down to
estimated fair value, which then becomes the new cost basis by a
charge to realized losses in the Companies' Statements of
Operations.
Mortgage Loans: Mortgage loans on real estate are reported at cost
adjusted for amortization of premiums and accrual of discounts. If
the value of any mortgage loan is determined to be impaired (i.e.,
when it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to
the present value of expected future cash flows from the loan
discounted at the loan's effective interest rate, or to the loan's
observable market price, or the fair value of the underlying
collateral. The carrying value of impaired loans is reduced by the
establishment of a valuation allowance which is adjusted at each
reporting date for significant changes in the calculated value of
the loan. Changes in this valuation allowance are charged or
credited to income.
Other Investments: Policy loans are reported at unpaid principal.
Short-term investments are reported at cost, adjusted for
amortization of premiums and accrual of discounts.
Realized Gains and Losses: Realized gains and losses are
determined on the basis of specific identification and average
cost methods for manager initiated and issuer initiated disposals,
respectively.
Fair Values: Estimated fair values, as reported herein, of
conventional mortgage-backed securities not actively traded in a
liquid market and publicly traded fixed maturities are estimated
using a third party pricing system. This pricing system uses a
matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities. Fair
values of private placement bonds are estimated using a matrix
that assumes a spread (based on interest rates and a risk
assessment of the bonds) over U.S. Treasury bonds. Estimated fair
values of equity securities which consist of the Companies'
investment in its registered separate accounts are based upon the
quoted fair value of the securities comprising the individual
portfolios underlying the separate accounts.
89
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the
Companies consider all demand deposits and interest-bearing
accounts not related to the investment function to be cash
equivalents. All interest-bearing accounts classified as cash
equivalents have original maturities of three months or less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally
first year commissions and interest bonuses, extra credit bonuses
and other expenses related to the production of new business, have
been deferred. Acquisition costs for variable annuity and variable
life products are being amortized generally in proportion to the
present value (using the assumed crediting rate) of expected
future gross profits. This amortization is adjusted
retrospectively when the Companies revise their estimate of
current or future gross profits to be realized from a group of
products. DPAC is adjusted to reflect the pro forma impact of
unrealized gains and losses on fixed maturities the Companies have
designated as "available for sale" under SFAS No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and the acquisition, a portion of the
purchase price related to each transaction was allocated to the
right to receive future cash flows from existing insurance
contracts. This allocated cost represents VPIF which reflects the
value of those purchased policies calculated by discounting
actuarially determined expected future cash flows at the discount
rate determined by the purchaser. Amortization of VPIF is charged
to expense in proportion to expected gross profits of the
underlying business. This amortization is adjusted retrospectively
when the Companies revise the estimate of current or future gross
profits to be realized from the insurance contracts acquired. VPIF
is adjusted to reflect the pro forma impact of unrealized gains
and losses on available for sale fixed maturities. See Notes 6 and
7 for additional information on VPIF resulting from the merger and
acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements,
office furniture, certain other equipment and capitalized computer
software and are not considered to be significant to the
Companies' overall operations. Property and equipment are reported
at cost less allowances for depreciation. Depreciation expense is
computed primarily on the basis of the straight-line method over
the estimated useful lives of the assets.
GOODWILL
Goodwill was established as a result of the merger and is being
amortized over 40 years on a straight-line basis. Goodwill
established as a result of the acquisition was being amortized
over 25 years on a straight-line basis. See Notes 6 and 7 for
additional information on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for divisions with fixed interest
guarantees of the variable products are established utilizing the
retrospective deposit accounting method. Policy reserves represent
the premiums received plus accumulated interest, less mortality
and administration charges. Interest credited to these policies
ranged from 3.00% to 10.00% during 1998, 3.30% to 8.25% during
1997 and 4.00% to 7.25% during 1996. The unearned revenue reserve
represents unearned distribution fees. These distribution fees
have been deferred and are amortized over the life of the
contracts in proportion to expected gross profits.
90
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the
accompanying Balance Sheets represent funds separately
administered principally for variable annuity and variable life
contracts. Contractholders, rather than the Companies, bear the
investment risk for the variable products. At the direction of the
contractholders, the separate accounts invest the premiums from
the sale of variable products in shares of specified mutual funds.
The assets and liabilities of the separate accounts are clearly
identified and segregated from other assets and liabilities of the
Companies. The portion of the separate account assets equal to the
reserves and other liabilities of variable annuity and variable
life contracts cannot be charged with liabilities arising out of
any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the
underlying investments and generally represent contractholder
investment values maintained in the accounts. Variable separate
account liabilities represent account balances for the variable
annuity and variable life contracts invested in the separate
accounts; the fair value of these liabilities is equal to their
carrying amount. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are
not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable products
consist of charges applicable to each contract for mortality and
expense risk, cost of insurance, contract administration and
surrender charges. In addition, some variable annuity and all
variable life contracts provide for a distribution fee collected
for a limited number of years after each premium deposit. Revenue
recognition of collected distribution fees is amortized over the
life of the contract in proportion to its expected gross profits.
The balance of unrecognized revenue related to the distribution
fees is reported as an unearned revenue reserve.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate.
Deferred tax assets or liabilities are adjusted to reflect the pro
forma impact of unrealized gains and losses on equity securities
and fixed maturities the Companies have designated as available
for sale under SFAS No. 115. Changes in deferred tax assets or
liabilities resulting from this SFAS No. 115 adjustment are
charged or credited directly to stockholder's equity. Deferred
income tax expenses or credits reflected in the Companies'
Statements of Operations are based on the changes in the deferred
tax asset or liability from period to period (excluding the SFAS
No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is
restricted. Prior approval of insurance regulatory authorities is
required for payment of dividends to the stockholder which exceed
an annual limit. During 1999, Golden American cannot pay dividends
to its Parent without prior approval of statutory authorities.
Under the provisions of the insurance laws of the State of New
York, First Golden cannot distribute any dividends to its
stockholder unless a notice of its intent to declare a dividend
and the amount of the dividend has been filed at least thirty days
in advance of the proposed declaration. If the Superintendent
finds the financial condition of First Golden does not warrant the
distribution, the Superintendent may disapprove the distribution
by giving written notice to First Golden within thirty days after
the filing.
91
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
SEGMENT REPORTING
As of December 31, 1998, the Companies adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 superseded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way public business enterprises
report information about operating segments in annual financial
statements and requires enterprises to report selected information
about operating segments in interim financial reports. SFAS No.
131 also establishes standards for related disclosures about
products and services, geographic areas and major customers.
The Companies manage their business as one segment, the sale of
variable products designed to meet customer needs for tax-
advantaged methods of saving for retirement and protection from
unexpected death. Variable products are sold to consumers and
corporations throughout the United States. The adoption of SFAS
No. 131 did not affect the results of operations or financial
position of the Companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions affecting the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
Management is required to utilize historical experience and
assumptions about future events and circumstances in order to
develop estimates of material reported amounts and disclosures.
Included among the material (or potentially material) reported
amounts and disclosures that require extensive use of estimates
and assumptions are (1) estimates of fair values of investments in
securities and other financial instruments, as well as fair values
of policyholder liabilities, (2) policyholder liabilities, (3)
deferred policy acquisition costs and value of purchased insurance
in force, (4) fair values of assets and liabilities recorded as a
result of merger and acquisition transactions, (5) asset valuation
allowances, (6) guaranty fund assessment accruals, (7) deferred
tax benefits (liabilities) and (8) estimates for commitments and
contingencies including legal matters, if a liability is
anticipated and can be reasonably estimated. Estimates and
assumptions regarding all of the proceeding are inherently subject
to change and are reassessed periodically. Changes in estimates
and assumptions could materially impact the financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the periods ended
within the years ended December 31, 1997 and 1996 have been
reclassified to conform to the December 31, 1998 financial
statement presentation.
2. BASIS OF FINANCIAL REPORTING
The financial statements of the Companies differ from related
statutory-basis financial statements principally as follows: (1)
acquisition costs of acquiring new business are deferred and
amortized over the life of the policies rather than charged to
operations as incurred; (2) an asset representing the present
value of future cash flows from insurance contracts acquired was
established as a result of the merger/acquisition and is amortized
and charged to expense; (3) future policy benefit reserves for
divisions with fixed interest guarantees of the variable products
are based on full account values, rather than the greater of cash
surrender value or amounts derived from discounting methodologies
utilizing statutory interest rates; (4) reserves are reported
before reduction for reserve credits related to
reinsurance ceded and a receivable is established, net of an allowance
for uncollectible amounts, for these credits rather than presented net
of these credits; (5) fixed maturity investments are designated as
"available for sale" and valued at fair value
92
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
2. BASIS OF FINANCIAL REPORTING (continued)
with unrealized
appreciation/depreciation, net of adjustments to value of
purchased insurance in force, deferred policy acquisition costs
and deferred income taxes (if applicable), credited/charged
directly to stockholder's equity rather than valued at amortized
cost; (6) the carrying value of fixed maturities is reduced to
fair value by a charge to realized losses in the Statements of
Operations when declines in carrying value are judged to be other
than temporary, rather than through the establishment of a formula-
determined statutory investment reserve (carried as a liability),
changes in which are charged directly to surplus; (7) deferred
income taxes are provided for the difference between the financial
statement and income tax bases of assets and liabilities; (8) net
realized gains or losses attributed to changes in the level of
interest rates in the market are recognized when the sale is
completed rather than deferred and amortized over the remaining
life of the fixed maturity security; (9) a liability is
established for anticipated guaranty fund assessments, net of
related anticipated premium tax credits, rather than capitalized
when assessed and amortized in accordance with procedures
permitted by insurance regulatory authorities; (10) revenues for
variable products consist of policy charges applicable to each
contract for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges
assessed rather than premiums received; (11) the financial
statements of Golden American's wholly owned subsidiary are
consolidated rather than recorded at the equity in net assets;
(12) surplus notes are reported as liabilities rather than as
surplus; and (13) assets and liabilities are restated to fair
values when a change in ownership occurs, with provisions for
goodwill and other intangible assets, rather than continuing to be
presented at historical cost.
The net loss for Golden American as determined in accordance with
statutory accounting practices was $68,002,000 in 1998, $428,000
in 1997 and $9,188,000 in 1996. Total statutory capital and
surplus was $183,045,000 at December 31, 1998 and $76,914,000 at
December 31, 1997.
93
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities............. $35,224 $4,443 | $18,488 $5,083 | $4,507
Equity securities............ -- 3 | -- 103 | --
Mortgage loans on | |
real estate................. 6,616 879 | 3,070 203 | --
Policy loans................. 619 59 | 482 78 | 73
Short-term | |
investments................. 1,311 129 | 443 441 | 341
Other, net................... 246 (154) | 24 2 | 22
Funds held in | |
escrow...................... -- -- | -- -- | 145
------- ------ | ------- ------ | ------
Gross investment | |
income...................... 44,016 5,359 | 22,507 5,910 | 5,088
Less investment | |
expenses.................... (1,531) (232) | (851) (115) | (98)
------- ------ | ------- ------ | ------
Net investment | |
income...................... $42,485 $5,127 | $21,656 $5,795 | $4,990
======= ====== | ======= ====== | ======
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities: | |
available for sale.......... $(1,428) $25 | $151 $42 | $(420)
Mortgage loans............... (63) (10) | -- -- | --
------- --- | ---- --- | -----
Realized gains (losses) | |
on investments.............. $(1,491) $15 | $151 $42 | $(420)
======= === | ==== === | =====
</TABLE>
94
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
The change in unrealized appreciation (depreciation) of securities
at fair value is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities: | |
Available for sale.......... $1,100 $(3,494) | $4,197 $2,497 | $(3,045)
Held for investment......... -- -- | -- -- | (90)
Equity securities............ (2,390) (68) | (462) (4) | (2)
------ ------- | ------ ------ | -------
Unrealized appreciation | |
(depreciation) of | |
securities.................. $(1,290) $(3,562) | $3,735 $2,493 | $(3,137)
======= ======= | ====== ====== | =======
</TABLE>
At December 31, 1998 and December 31, 1997, amortized cost, gross
unrealized gains and losses and estimated fair values of fixed
maturities, all of which are designated as available for sale, are
as follows:
<TABLE>
POST-MERGER
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. government and governmental
agencies and authorities............. $ 13,568 $ 182 $ (8) $ 13,742
Foreign governments................... 2,028 8 -- 2,036
Public utilities...................... 67,710 546 (447) 67,809
Corporate securities.................. 365,569 4,578 (2,658) 367,489
Other asset-backed securities......... 99,877 281 (1,046) 99,112
Mortgage-backed securities............ 191,020 1,147 (370) 191,797
-------- ------ ------- --------
Total................................. $739,772 $6,742 $(4,529) $741,985
======== ====== ======= ========
DECEMBER 31, 1997
U.S. government and governmental
agencies and authorities............ $ 5,705 $ 5 $ (1) $ 5,709
Foreign governments................... 2,062 -- (9) 2,053
Public utilities...................... 26,983 55 (4) 27,034
Corporate securities.................. 259,798 1,105 (242) 260,661
Other asset-backed securities......... 3,155 32 -- 3,187
Mortgage-backed securities............ 115,585 202 (30) 115,757
-------- ------ ------- --------
Total................................. $413,288 $1,399 $ (286) $414,401
======== ====== ======= ========
</TABLE>
95
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
At December 31, 1998, net unrealized investment gains on fixed
maturities designated as available for sale totaled $2,213,000.
Appreciation of $1,005,000 was included in stockholder's equity at
December 31, 1998 (net of an adjustment of $203,000 to VPIF, an
adjustment of $455,000 to DPAC and deferred income taxes of
$550,000). Short-term investments with maturities of 30 days or
less have been excluded from the above schedules. Amortized cost
approximates fair value for these securities.
Amortized cost and estimated fair value of fixed maturities
designated as available for sale, by contractual maturity, at
December 31, 1998 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
POST-MERGER
---------------------------
Amortized Estimated
December 31, 1998 Cost Fair Value
- ----------------------------------------------------------------------
(Dollars in thousands)
Due within one year...................... $ 50,208 $ 50,361
Due after one year through five years.... 310,291 311,943
Due after five years through ten years... 78,264 78,541
Due after ten years...................... 10,112 10,231
448,875 451,076
Other asset-backed securities............ 99,877 99,112
Mortgage-backed securities............... 191,020 191,797
-------- --------
Total.................................... $739,772 $741,985
======== ========
An analysis of sales, maturities and principal repayments of the
Companies' fixed maturities portfolio is as follows:
<TABLE>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
POST-MERGER
For the year ended December 31, 1998:
Scheduled principal repayments,
calls and tenders...................... $102,504 $ 60 $ (3) $102,561
Sales................................... 43,204 518 (1,030) 42,692
-------- ---- ------- --------
Total................................... $145,708 $578 $(1,033) $145,253
======== ==== ======= ========
For the period October 25, 1997 through
December 31, 1997:
Scheduled principal repayments,
calls and tenders..................... $ 6,708 $ 2 -- $ 6,710
Sales.................................. 3,138 23 -- 3,161
-------- ---- ------- --------
Total.................................. $ 9,846 $ 25 -- $ 9,871
======== ==== ======= ========
</TABLE>
96
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
<TABLE>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
POST- ACQUISITION
For the period January 1, 1997 through
October 24, 1997:
Scheduled principal repayments,
calls and tenders..................... $25,419 -- -- $25,419
Sales.................................. 14,052 $153 $ (2) 14,203
------- ---- ---- -------
Total.................................. $39,471 $153 $ (2) $39,622
======= ==== ==== =======
For the period August 14, 1996 through
December 31, 1996:
Scheduled principal repayments,
calls and tenders.................... $ 1,612 -- -- $ 1,612
Sales................................. 45,799 $115 $(73) 45,841
------- ---- ---- -------
Total................................. $47,411 $115 $(73) $47,453
======= ==== ==== =======
PRE-ACQUISITION
For the period January 1, 1996 through
August 13, 1996:
Scheduled principal repayments,
calls and tenders.................... $ 1,801 -- -- $ 1,801
Sales................................. 53,710 $152 $(572) 53,290
------- ---- ----- -------
Total................................. $55,511 $152 $(572) $55,091
======= ==== ===== =======
</TABLE>
Investment Valuation Analysis: The Companies analyze the
investment portfolio at least quarterly in order to determine if
the carrying value of any investment has been impaired. The
carrying value of debt and equity securities is written down to
fair value by a charge to realized losses when an impairment in
value appears to be other than temporary. During the year ended
December 31, 1998, Golden American recognized a loss on two fixed
maturity investments of $973,000. During 1997 and 1996, no
investments were identified as having an other than temporary
impairment.
Investments on Deposit: At December 31, 1998 and 1997, affidavits
of deposits covering bonds with a par value of $6,470,000 and
$6,605,000, respectively, were on deposit with regulatory
authorities pursuant to certain statutory requirements.
Investment Diversifications: The Companies' investment policies
related to the investment portfolio require diversification by
asset type, company and industry and set limits on the amount
which can be invested in an individual issuer. Such policies are
at least as restrictive as those set forth by regulatory
authorities. The following percentages relate to holdings at
December 31, 1998 and December 31, 1997. Fixed maturities included
investments in basic industrials (26% in 1998, 30% in 1997),
conventional mortgage-backed securities (25% in 1998, 13% in
1997), financial companies (19% in 1998, 24% in 1997), other asset-
backed securities (11% in 1998) and various government bonds and
government or agency mortgage-backed securities (5% in 1998, 17%
in 1997). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as
California (12% in 1998 and 1997), Utah (11% in 1998,
97
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
13% in 1997)
and Georgia (10% in 1998, 11% in 1997). There are no other
concentrations of mortgage loans in any state exceeding ten
percent at December 31, 1998 and 1997. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (36% in 1998, 43% in
1997), industrial buildings (32% in 1998, 33% in 1997) and retail
facilities (20% in 1998, 15% in 1997). Equity securities are not
significant to the Companies' overall investment portfolio.
No investment in any person or its affiliates (other than bonds
issued by agencies of the United States government) exceeded ten
percent of stockholder's equity at December 31, 1998.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Companies adopted the SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no
impact on the Companies' net income or stockholder's equity. SFAS
No. 130 requires unrealized gains or losses on the Companies'
available for sale securities (net of VPIF, DPAC and deferred
income taxes) to be included in other comprehensive income. Prior
to the adoption of SFAS No. 130, unrealized gains (losses) were
reported separately in stockholder's equity. Prior year financial
statements have been reclassified to conform to the requirements
of SFAS No. 130.
Total comprehensive income (loss) for the Companies includes
$1,015,000 for the year ended December 31, 1998 for First Golden
($159,000, $536,000 and $(57,000), respectively, for the periods
October 25, 1997 through December 31, 1997, January 1, 1997
through October 24, 1997 and December 17, 1996 through December
31, 1996). Other comprehensive income excludes net investment
gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These
amounts total $(2,133,000) in 1998. Such amounts, which have been
measured through the date of sale, are net of income taxes and
adjustments to VPIF and DPAC totaling $705,000 in 1998.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of estimated fair value of all
financial instruments, including both assets and liabilities
recognized and not recognized in a company's balance sheet, unless
specifically exempted. SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,"
requires additional disclosures about derivative financial
instruments. Most of the Companies' investments, investment
contracts and debt fall within the standards' definition of a
financial instrument. Fair values for the Companies' insurance
contracts other than investment contracts are not required to be
disclosed. In cases where quoted market prices are not available,
estimated fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accounting, actuarial and
regulatory bodies are continuing to study the methodologies to be
used in developing fair value information, particularly as it
relates to such things as liabilities for insurance contracts.
Accordingly, care should be exercised in deriving conclusions
about the Companies' business or financial condition based on the
information presented herein.
The Companies closely monitor the composition and yield of invested
assets, the duration and interest credited on insurance liabilities
and resulting interest spreads and timing of cash flows. These amounts
are taken into consideration in the Companies' overall management
of interest rate risk, which attempts to minimize exposure to changing
interest rates through the matching of investment cash flows with amounts
expected to be due under insurance contracts. These assumptions may not
result in values consistent with those obtained through an actuarial
appraisal of the Companies' business or values that might arise in
a negotiated transaction.
98
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
The following compares carrying values as shown for financial
reporting purposes with estimated fair values:
<TABLE>
POST-MERGER
-----------------------------------------------
December 31, 1998 December 31, 1997
---------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- --------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available
for sale...................... $ 741,985 $ 741,985 $ 414,401 $ 414,401
Equity securities.............. 11,514 11,514 3,904 3,904
Mortgage loans on real estate.. 97,322 99,762 85,093 86,348
Policy loans................... 11,772 11,772 8,832 8,832
Short-term investments......... 41,152 41,152 14,460 14,460
Cash and cash equivalents...... 6,679 6,679 21,039 21,039
Separate account assets........ $3,396,114 $3,396,114 $1,646,169 $1,646,169
LIABILITIES
Annuity products............... 869,009 827,597 493,181 469,714
Surplus notes.................. 85,000 90,654 25,000 28,837
Line of credit with affiliate.. -- -- 24,059 24,059
Separate account liabilities... 3,396,114 3,396,114 1,646,169 1,646,169
</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 system. This pricing system uses a matrix calculation
assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities.
Equity Securities: Estimated fair values of equity securities,
which consist of the Companies' investment in the portfolios
underlying its separate accounts, are based upon the quoted fair
value of individual securities comprising the individual
portfolios. For equity securities not actively traded, estimated
fair values are based upon values of issues of comparable returns
and quality.
Mortgage Loans on Real Estate: Fair values are estimated by
discounting expected cash flows, using interest rates currently
offered for similar loans.
Policy Loans: Carrying values approximate the estimated fair value
for policy loans.
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
99
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
without life contingencies are stated at cash surrender value,
the cost the Companies would incur to extinguish the liability.
Surplus Notes: Estimated fair value of the Companies' surplus
notes were based upon discounted future cash flows using a
discount rate approximating the Companies' return on invested
assets.
Line Of Credit With Affiliate: Carrying value reported in the
Companies' historical cost basis balance sheet approximates
estimated fair value for this instrument.
Separate Account Liabilities: Separate account liabilities are
reported at full account value in the Companies' historical cost
balance sheet. Estimated fair values of separate account
liabilities are equal to their carrying amount.
6. MERGER
Transaction: On October 23, 1997, Equitable's shareholders
approved the Merger Agreement dated July 7, 1997 among Equitable,
PFHI and ING. On October 24, 1997, PFHI, a Delaware corporation,
acquired all of the outstanding capital stock of Equitable
according to the Merger Agreement. PFHI is a wholly owned
subsidiary of ING, a global financial services holding company
based in The Netherlands. Equitable, an Iowa corporation, in turn,
owned all the outstanding capital stock of Equitable Life
Insurance Company of Iowa ("Equitable Life") and Golden American
and their wholly owned subsidiaries. In addition, Equitable owned
all the outstanding capital stock of Locust Street Securities,
Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently
dissolved), DSI, Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds
Distributor, Inc.). In exchange for the outstanding capital stock
of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock and assumed approximately $400 million
in debt. As a result of this transaction, Equitable was merged
into PFHI, which was simultaneously renamed Equitable of Iowa
Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation.
All costs of the merger, including expenses to terminate certain
benefit plans, were paid by the Parent.
Accounting Treatment: The merger was accounted for as a purchase
resulting in a new basis of accounting, reflecting estimated fair
values for assets and liabilities at October 24, 1997. The
purchase price was allocated to EIC and its subsidiaries with
$227,497,000 allocated to the Companies. Goodwill was established
for the excess of the merger cost over the fair value of the net
assets and attributed to EIC and its subsidiaries including Golden
American and First Golden. The amount of goodwill allocated to the
Companies relating to the merger was $151,127,000 at the merger
date and is being amortized over 40 years on a straight-line
basis. The carrying value of goodwill will be reviewed
periodically for any indication of impairment in value. The
Companies' DPAC, previous balance of VPIF and unearned revenue
reserve, as of the merger date, were eliminated and a new asset of
$44,297,000 representing VPIF was established for all policies in
force at the merger date.
Value of Purchased Insurance In Force: As part of the merger, a
portion of the acquisition cost was allocated to the right to
receive future cash flows from insurance contracts existing with
the Companies at the merger date. This allocated cost represents
VPIF reflecting the value of those purchased policies calculated
by discounting the actuarially determined expected future cash
flow at the discount rate determined by ING.
100
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
6. Merger (continued)
An analysis of the VPIF asset is as follows:
POST-MERGER
-------------------------------------
For the period
For the year October 25, 1997
ended through
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Beginning balance................. $43,174 $44,297
-------- --------
Imputed interest.................. 2,802 1,004
Amortization...................... (7,753) (1,952)
Changes in assumptions of
timing of gross profits.......... 227 --
-------- --------
Net amortization.................. (4,724) (948)
Adjustment for unrealized gains
on available for sale
securities....................... (28) (175)
Adjustment for other receivables
and merger costs................. (2,445) --
-------- --------
Ending balance.................... $35,977 $43,174
======= =======
Interest is imputed on the unamortized balance of VPIF at a rate
of 7.38% for the year ended December 31, 1998 and 7.03% for the
period October 25, 1997 through December 31, 1997. The
amortization of VPIF, net of imputed interest, is charged to
expense. VPIF decreased $2,664,000 in the second quarter of 1998
to adjust the value of other receivables at merger date and
increased $219,000 in the first quarter of 1998 as a result of an
adjustment to the merger costs. VPIF is adjusted for the
unrealized gains (losses) on available for sale securities; such
changes are included directly in stockholder's equity. Based on
current conditions and assumptions as to the impact of future
events on acquired policies in force, the expected approximate net
amortization relating to VPIF as of December 31, 1998 is
$4,300,000 in 1999, $4,000,000 in 2000, $3,900,000 in 2001,
$3,700,000 in 2002 and $3,300,000 in 2003. Actual amortization may
vary based upon changes in assumptions and experience.
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
101
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
7. Acquisition (continued)
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.
An analysis of the VPIF asset is as follows:
<TABLE>
POST-ACQUISITION | PRE-ACQUISITION
------------------------------------|----------------
For the period For the period | For the period
January 1, 1997 August 14,1996 | January 1, 1996
through through | through
October 24, 1997 December 31, 1996 | August 13, 1996
---------------- ----------------- | ---------------
(Dollars in thousands)
<S> <C> <C> | <C>
Beginning balance................ $83,051 $85,796 | $6,057
------- ------- | ------
Imputed interest................. 5,138 2,465 | 273
Amortization..................... (12,656) (5,210) | (1,224)
Changes in assumption of | ------
timing of gross profits......... 2,293 -- | --
------- ------- |
Net amortization................. (5,225) (2,745) | (951)
Adjustment for unrealized gains |
(losses) on available for sale |
securities...................... (373) -- | 11
------- ------- | ------
Ending balance $77,453 $83,051 | $5,117
======= ======= | ======
</TABLE>
Pre-Acquisition VPIF represents the remaining value assigned to in
force contracts when Bankers Trust purchased Golden American from
Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual
Benefit") on September 30, 1992.
Interest was imputed on the unamortized balance of VPIF at rates
of 7.70% to 7.80% for the period August 14, 1996 through October
24, 1997. The amortization of VPIF net of imputed interest was
charged to expense. VPIF was also adjusted for the unrealized
gains (losses) on available for sale securities; such changes were
included directly in stockholder's equity.
8. INCOME TAXES
Golden American files a consolidated federal income tax return.
Under the Internal Revenue Code, a newly acquired insurance
company cannot file as part of its parent's consolidated tax
return for 5 years.
At December 31, 1998, the Companies have net operating loss
("NOL") carryforwards for federal income tax purposes of
approximately $50,917,000. Approximately $5,094,000, $3,354,000
and $42,469,000 of these NOL carryforwards are available to offset
future taxable income of the Companies through the years 2011,
2012 and 2013, respectively.
102
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
8. INCOME TAXES(continued)
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated
financial statements is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Current..................... -- -- | $ 12 -- | --
Deferred.................... $5,279 $146 | (1,349) $220 | $(1,463)
------ ---- | |
$5,279 $146 | $(1,337) $220 | $(1,463)
====== ==== | ======= ==== | =======
</TABLE>
The effective tax rate on income (loss) before income taxes is
different from the prevailing federal income tax rate. A
reconciliation of this difference is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
| |
Income (loss) before | |
income taxes.............. $10,353 $(279) | $ ( 608) $570 | $1,736
======= ===== | ======= ==== | ======
Income tax (benefit) at | |
federal statutory rate.... $ 3,624 $ (98) | $ (213) $200 | $ 607
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards........... -- -- | -- -- | (1,214)
Goodwill amortization..... 1,322 220 | -- -- | --
Compensatory stock | |
option and restricted | |
stock expense............ -- -- | (1,011) -- | --
Meals and | |
entertainment............ 157 23 | 53 20 | --
Other items............... 176 1 | (166) -- | --
Change in valuation | |
allowance................. -- -- | -- -- | (856)
=------ ----- | ------- ---- | -------
Income tax expense | |
(benefit)................. $ 5,279 $ 146 | $(1,337) $220 | $(1,463)
======= ===== | ======= ==== | =======
</TABLE>
103
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
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, 1998 and 1997 is as follows:
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of
securities at fair value.......... $ 691 --
Future policy benefits............. 66,273 $27,399
Deferred policy acquisition costs.. -- 4,558
Goodwill........................... 16,323 17,620
Net operating loss carryforwards... 17,821 3,044
Other.............................. 1,272 1,548
-------- -------
102,380 54,169
Deferred tax liabilities:
Net unrealized appreciation of
securities at fair value.......... -- (130)
Fixed maturity securities.......... (1,034) (1,665)
Deferred policy acquisition costs.. (55,520) --
Mortgage loans on real estate...... (845) (845)
Value of purchased insurance in
force............................. (12,592) (15,172)
Other.............................. (912) (127)
-------- --------
(70,903) (17,939)
-------- --------
Deferred income tax asset........... $ 31,477 $ 36,230
======== ========
The Companies are required to establish a "valuation allowance"
for any portion of the deferred tax assets management believes
will not be realized. In the opinion of management, it is more
likely than not the Companies will realize the benefit of the
deferred tax assets; therefore, no such valuation allowance has
been established.
9. RETIREMENT PLANS
Defined Benefit Plans: In 1998 and 1997, the Companies were
allocated their share of the pension liability associated with
their employees. The Companies' employees are covered by the
employee retirement plan of an affiliate, Equitable Life. Further,
Equitable Life sponsors a defined contribution plan that is
qualified under Internal Revenue Code Section 401(k). The
following tables summarize the benefit obligations and the funded
status for pension benefits over the two-year period ended
December 31, 1998:
104
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
9. RETIREMENT PLANS (continued)
1998 1997
-------- ------
(Dollars in thousands)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1............ $ 956 $192
Service cost............................... 1,138 682
Interest cost.............................. 97 25
Actuarial loss............................. 2,266 57
Benefit payments........................... (3) --
------ ----
Benefit obligation at December 31.......... $4,454 $956
====== ====
1998 1997
-------- ------
(Dollars in thousands)
FUNDED STATUS
Funded status at December 31............... $(4,454) $(956)
Unrecognized net loss...................... 2,266 --
------- -----
Net amount recognized...................... $(2,188) $(956)
======= =====
During 1998 and 1997, the Companies' plan assets were held by
Equitable Life, an affiliate.
The weighted-average assumptions used in the measurement of the
Companies' benefit obligation are as follows:
1998 1997
------ ------
DECEMBER 31
Discount rate................................ 6.75% 7.25%
Expected return on plan assets............... 9.50 9.00
Rate of compensation increase................ 4.00 5.00
The following table provides the net periodic benefit cost for the
fiscal years 1998 and 1997:
<TABLE>
POST-MERGER | POST-ACQUISITION
------------------------------------ | ----------------
For the period | For the period
For the year October 25,1997 | January 1,1997
ended through | through
December 31, 1998 December 31, 1997 | October 24, 1997
----------------- ----------------- | ----------------
(Dollars in thousands)
<S> <C> <C> | <C>
Service cost................ $1,138 $114 | $568
Interest cost............... 97 10 | 15
Amortization of net loss.... -- -- | 1
------ ---- | ----
Net periodic benefit cost... $1,235 $124 | $584
====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or settlements
during 1998 or 1997.
105
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
9. RETIREMENT PLANS (continued)
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $4,454,000,
$3,142,000 and $0, respectively, as of December 31, 1998 and
$956,000, $579,000 and $0, respectively, as of December 31, 1997.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI acts as the principal underwriter (as
defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) and distributor of the variable insurance
products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies'
variable insurance products and appoint representatives of the
broker/dealers as agents. For the year ended December 31, 1998 and
for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the Companies paid
commissions to DSI totaling $117,470,000, $9,931,000 and
$26,419,000, respectively ($9,995,000 for the period August 14,
1996 through December 31, 1996 and $17,070,000 for the period
January 1, 1996 through August 13, 1996).
Golden American provides certain managerial and supervisory
services to DSI. The fee paid by DSI for these services is
calculated as a percentage of average assets in the variable
separate accounts. For the year ended December 31, 1998 and for
the periods October 25, 1997 through December 31, 1997 and January
1, 1997 through October 24, 1997, the fee was $4,771,000, $508,000
and $2,262,000, respectively. For the periods August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13,
1996 the fee was $877,000 and $1,390,000, respectively.
Effective January 1, 1998, the Companies have an asset management
agreement with ING Investment Management LLC ("ING IM"), an
affiliate, in which ING IM provides asset management services.
Under the agreement, the Companies record a fee based on the value
of the assets under management. The fee is payable quarterly. For
the year ended December 31, 1998, the Companies incurred fees of
$1,504,000 under this agreement.
Prior to 1998, the Companies had a service agreement with
Equitable Investment Services, Inc. ("EISI"), an affiliate, in
which EISI provided investment management services. Payments for
these services totaled $200,000, $768,000 and $72,000 for the
periods October 25, 1997 through December 31, 1997, January 1,
1997 through October 24, 1997 and August 14, 1996 through December
31, 1996, respectively.
Golden American has a guaranty agreement with Equitable Life, an
affiliate. In consideration of an annual fee, payable June 30,
Equitable Life guarantees to Golden American that it will make
funds available, if needed, to Golden American to pay the
contractual claims made under the provisions of Golden American's
life insurance and annuity contracts. The agreement is not, and
nothing contained therein or done pursuant thereto by Equitable
Life shall be deemed to constitute, a direct or indirect guaranty
by Equitable Life of the payment of any debt or other obligation,
indebtedness or liability, of any kind or character whatsoever, of
Golden American. The agreement does not guarantee the value of the
underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been
invested. The calculation of the annual fee is based on risk based
capital. As Golden American's risk based capital level was above
required amounts, no annual fee was payable in 1998 or in 1997.
Golden American provides certain advisory, computer and other
resources and services to Equitable Life. Revenues for these
services, which reduced general expenses incurred by Golden
American, totaled $5,833,000 for the year ended December 31, 1998
($1,338,000 and $2,992,000 for the periods October 25, 1997 through
December 31, 1997 and January 1, 1997 through October 24, 1997,
respectively). No services were provided by Golden American in 1996.
106
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
10. 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
$1,058,000 for the year ended December 31, 1998 ($13,000 and
$16,000 for the periods October 25, 1997 through December 31, 1997
and January 1, 1997 through October 24, 1997, respectively).
First Golden provides resources and services to DSI. Revenues for
these services, which reduce general expenses incurred by the
Companies, totaled $75,000 in 1998.
For the year ended December 31, 1998, the Companies had premiums,
net of reinsurance, for variable products from four affiliates,
Locust Street Securities, Inc., Vestax Securities Corporation, DSI
and Multi-Financial Securities Corporation of $122,900,000,
$44,900,000, $13,600,000 and $13,400,000, respectively. The
Companies had premiums, net reinsurance, for variable products
from three affiliates, Locust Street Securities, Inc., Vestax
Securities Corporation and DSI of $9,300,000, $1,900,000 and
$2,100,000 respectively, for the period October 25, 1997 through
December 31, 1997 ($16,900,000, $1,200,000 and $400,000 for the
period January 1, 1997 through October 24, 1997, respectively).
Reciprocal Loan Agreement: Golden American maintains a reciprocal
loan agreement with ING America Insurance Holdings, Inc. ("ING
AIH"), a Delaware corporation and affiliate, to facilitate the
handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement which became effective January
1, 1998 and expires December 31, 2007, Golden American and ING AIH
can borrow up to $65,000,000 from one another. Prior to lending
funds to ING AIH, Golden American must obtain the approval of the
State of Delaware Department of Insurance. Interest on any Golden
American borrowings is charged at the rate of ING AIH's cost of
funds for the interest period plus 0.15%. Interest on any ING AIH
borrowings is charged at a rate based on the prevailing interest
rate of U.S. commercial paper available for purchase with a
similar duration. Under this agreement, Golden American incurred
interest expense of $1,765,000 in 1998. At December 31, 1998,
Golden American did not have any borrowings or receivables from
ING AIH under this agreement.
Line of Credit: Golden American maintained a line of credit
agreement with Equitable to facilitate the handling of unusual
and/or unanticipated short-term cash requirements. Under this
agreement which became effective December 1, 1996 and expired
December 31, 1997, Golden American could borrow up to $25,000,000.
Interest on any borrowings was charged at the rate of Equitable's
monthly average aggregate cost of short-term funds plus 1.00%.
Under this agreement, Golden American incurred interest expense of
$211,000 for the year ended December 31, 1998 ($213,000 for the
period October 25, 1997 through December 31, 1997, $362,000 for
the period January 1, 1997 through October 24, 1997 and $85,000
for the period August 14, 1996 through December 31, 1996). The
outstanding balance was paid by a capital contribution.
Surplus Notes: On December 30, 1998, Golden American issued a
7.25% surplus note in the amount of $60,000,000 to Equitable Life.
The note matures on December 29, 2028. The note and related
accrued interest is subordinate to payments due to policyholders,
claimant and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of
Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred no interest in 1998.
On December 17, 1996, Golden American issued an 8.25% surplus note
in the amount of $25,000,000 to Equitable. The note matures on
December 17, 2026. The note and related accrued interest is
subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of
debtors of Golden American. Any payment of principal made is
subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling
$2,063,000 in 1998 ($344,000 and $1,720,000 for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997
through
107
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
10. RELATED PARTY TRANSACTIONS (continued)
October 24, 1997, respectively). On December 17, 1996,
Golden American contributed the $25,000,000 to First Golden
acquiring 200,000 shares of common stock (100% of outstanding
stock) of First Golden.
Stockholder's Equity: On September 23, 1996, EIC Variable, Inc.
contributed $50,000,000 of Preferred Stock to the Companies'
additional paid-in capital. During 1998, Golden American received
$122,500,000 of capital contributions from its Parent.
11. COMMITMENTS AND CONTINGENCIES
Contingent Liability: In a transaction that closed on September
30, 1992, Bankers Trust acquired from Mutual Benefit, in
accordance with the terms of an Exchange Agreement, all of the
issued and outstanding capital stock of Golden American and DSI
and certain related assets for consideration with an aggregate
value of $13,200,000 and contributed them to BT Variable. The
transaction involved settlement of pre-existing claims of Bankers
Trust against Mutual Benefit. The ultimate value of these claims
has not yet been determined by the Superior Court of New Jersey
and, prior to August 13, 1996, was contingently supported by a
$5,000,000 note payable from Golden American and a $6,000,000
letter of credit from Bankers Trust. Bankers Trust estimated the
contingent liability due from Golden American amounted to $439,000
at August 13, 1996. At August 13, 1996, the balance of the escrow
account established to fund the contingent liability was
$4,293,000.
On August 13, 1996, Bankers Trust made a cash payment to Golden
American in an amount equal to the balance of the escrow account
less the $439,000 contingent liability discussed above. In
exchange, Golden American irrevocably assigned to Bankers Trust
all of Golden American's rights to receive any amounts to be
disbursed from the escrow account in accordance with the terms of
the Exchange Agreement. Bankers Trust also irrevocably agreed to
make all payments becoming due under the Golden American note and
to indemnify Golden American for any liability arising from the
note.
Reinsurance: At December 31, 1998, the Companies had reinsurance
treaties with four unaffiliated reinsurers and one affiliated
reinsurer covering a significant portion of the mortality risks
under variable contracts. The Companies remain liable to the
extent reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life
mortality risks were $111,552,000 and $96,686,000 at December 31,
1998 and 1997, respectively. At December 31, 1998, the Companies
have a net receivable of $7,470,000 for reserve credits,
reinsurance claims or other receivables from these reinsurers
comprised of $439,000 for claims recoverable from reinsurers,
$543,000 for a payable for reinsurance premiums and $7,574,000 for
a receivable from an unaffiliated reinsurer. Included in the
accompanying financial statements are net considerations to
reinsurers of $4,797,000, $326,000, $1,871,000, $875,000 and
$600,000 and net policy benefits recoveries of $2,170,000,
$461,000, $1,021,000, $654,000 and $1,267,000 for the year ended
December 31, 1998 and for the periods October 25, 1997 through
December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996
through August 13, 1996, respectively.
Effective June 1, 1994, Golden American entered into a modified
coinsurance agreement with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects
of the treaty which increased income by $1,022,000, $265,000,
$335,000, $10,000 and $56,000 for the year ended December 31, 1998
and for the periods October 25, 1997 through December 31, 1997,
January 1, 1997 through October 24, 1997, August 14, 1996 through
December 31, 1996 and January 1, 1996 through August 13, 1996,
respectively.
Guaranty Fund Assessments: Assessments are levied against the
Companies by life and health guaranty associations in most states
in which the Companies are licensed to cover losses of
policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially recovered through a
reduction
108
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
11. COMMITMENTS AND CONTINGENCIES (continued)
in future premium taxes. The Companies cannot predict
whether and to what extent legislative initiatives may affect the
right to offset. The associated cost for a particular insurance
company can vary significantly based upon its fixed account
premium volume by line of business and state premiums as well as
its potential for premium tax offset. The Companies have
established an undiscounted reserve to cover such assessments and
regularly reviews information regarding known failures and revises
its estimates of future guaranty fund assessments. Accordingly,
the Companies accrued and charged to expense an additional
$1,123,000 for the year ended December 31, 1998, $141,000 for the
period October 25, 1997 through December 31, 1997, $446,000 for
the period January 1, 1997 through October 24, 1997, $291,000 for
the period August 14, 1996 through December 31, 1996 and $480,000
for the period January 1, 1996 through August 13, 1996. At
December 31, 1998, the Companies have an undiscounted reserve of
$2,446,000 to cover estimated future assessments (net of related
anticipated premium tax credits) and has established an asset
totaling $586,000 for assessments paid which may be recoverable
through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund
assessments, based upon previous premiums, and known insolvencies
at this time.
Litigation: The Companies, like other insurance companies, may be
named or otherwise involved in lawsuits, including class action
lawsuits. In some class action and other lawsuits involving
insurers, substantial damages have been sought and/or material
settlement payments have been made. The Companies currently
believe no pending or threatened lawsuits exist that are
reasonably likely to have a material adverse impact on the
Companies.
Vulnerability from Concentrations: The Companies have various
concentrations in its investment portfolio (see Note 3 for further
information). The Companies' asset growth, net investment income
and cash flow are primarily generated from the sale of variable
products and associated future policy benefits and separate
account liabilities. Substantial changes in tax laws that would
make these products less attractive to consumers and extreme
fluctuations in interest rates or stock market returns which may
result in higher lapse experience than assumed could cause a
severe impact to the Companies' financial condition. Two
broker/dealers generated 27% of the Companies' sales (53% by two
broker/dealers during 1997).
Leases: The Companies lease their home office space, certain
other equipment and capitalized computer software under operating
leases which expire through 2018. During the year ended December
31, 1998 and for the periods October 25, 1997 through December 31,
1997, January 1, 1997 through October 24, 1997, August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13,
1996, rent expense totaled $1,241,000, $39,000, $331,000, $147,000
and $247,000, respectively. At December 31, 1998, minimum rental
payments due under all non-cancelable operating leases with
initial terms of one year or more are: 1999 - $1,528,000;
2000 - $1,429,000; 2001 - $1,240,000; 2002 - $1,007,000;
2003 - $991,000 and 2004 and thereafter - $5,363,000.
Revolving Note Payable: To enhance short-term liquidity, the
Companies have established a revolving note payable effective July
27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta
(the "Bank"). The note was approved by the Boards of Directors of
Golden American and First Golden on August 5, 1998 and September
29, 1998, respectively. The total amount the Companies may have
outstanding is $85,000,000, of which Golden American and First
Golden have individual credit sublimits of $75,000,000 and
$10,000,000, respectively. The note accrues interest at an annual
rate equal to: (1) the cost of funds for the Bank for the period
applicable for the advance plus 0.25% or (2) a rate quoted by the
Bank to the Companies for the advance. The terms of the agreement
require the Companies to maintain the minimum level of Company
Action Level Risk Based Capital as established by applicable state
law or regulation. During the year ended December 31, 1998, the
Companies incurred interest expense of $352,000. At December 31,
1998, the Companies did not have any borrowings under this
agreement.
109
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ITEM PAGE
Introduction 1
Description of Golden American Life Insurance Company 1
Safekeeping of Assets 1
The Administrator 1
Independent Auditors 1
Distribution of Contracts 2
Performance Information 2
IRA Withdrawal Option 6
Other Information 6
Financial Statements of Separate Account B 6
Appendix Description of Bond Ratings A-1
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE
STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER
THE PROSPECTUS. 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
106297 DVA Plus Form 1 (02/00)
111
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Investors, Large Cap Value and All Cap subaccounts
which did not commenced operations as of December 31, 1998, 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
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $14.54 489,531 $7,118 |
| 1997 14.02 227,427 3,188 |
| 1996 13.51 76,505 1,033 |
| 1995 13.03 37,887 494 |
| 10/2/95 12.89 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.33 334,799 $4,796 |
| 1997 13.83 116,454 1,611 |
| 1996 13.35 84,960 1,134 |
| 1995 12.89 62,084 801 |
| 10/2/95 12.76 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
LIMITED MATURITY BOND
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $17.02 263,074 $4,478 |
| 1997 16.13 139,323 2,247 |
| 1996 15.31 83,927 1,285 |
| 1995 14.86 26,976 401 |
| 10/2/95 14.49 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $16.77 143,896 $2,413 |
| 1997 15.91 78,553 1,250 |
| 1996 15.13 46,293 701 |
| 1995 14.71 11,834 174 |
| 10/2/95 14.35 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
GLOBAL FIXED INCOME
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $13.17 6,337 $83 |
| 5/1/98 12.17 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $13.09 6,154 $81 |
| 5/1/98 12.11 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $13.00 38,751 $504 |
| 5/1/98 12.04 -- -- |
|-------------------------------------------------------------|
A1
<PAGE>
<PAGE>
TOTAL RETURN
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $17.83 676,433 $10,989 |
| 1997 16.18 224,763 3,636 |
| 1/20/97 13.76 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $17.72 422,146 $7,479 |
| 1997 16.10 140,222 2,258 |
| 1/20/97 13.76 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $17.60 2,547,293 $44,830 |
| 1997 16.02 720,866 11,548 |
| 1/20/97 13.76 -- -- |
|-------------------------------------------------------------|
FULLY MANAGED
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $20.84 544,623 $11,351 |
| 1997 19.93 418,686 8,345 |
| 1996 17.50 203,891 3,568 |
| 1995 15.23 49,153 748 |
| 10/2/95 14.77 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $20.53 441,532 $9,066 |
| 1997 19.66 341,016 6,706 |
| 1996 17.29 173,475 2,999 |
| 1995 15.07 13,988 211 |
| 10/2/95 14.62 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $20.23 2,262,811 $45,711 |
| 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 -- -- |
|-------------------------------------------------------------|
EQUITY INCOME
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.27 395,764 $8,812 |
| 1997 20.83 328,740 6,847 |
| 1996 17.96 289,954 5,207 |
| 1995 16.72 104,463 1,747 |
| 10/2/95 16.10 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $21.94 299,456 $6,569 |
| 1997 20.55 223,101 4,585 |
| 1996 17.75 150,732 2,675 |
| 1995 16.55 21,073 348 |
| 10/2/95 15.94 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
RISING DIVIDENDS
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.79 1,199,087 $27,323 |
| 1997 20.22 795,203 16,079 |
| 1996 15.77 297,973 4,699 |
| 1995 13.24 22,934 304 |
| 10/2/95 12.16 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $22.61 1,050,285 $23,747 |
| 1997 20.09 739,017 14,847 |
| 1996 15.69 355,191 5,575 |
| 1995 13.19 36,100 476 |
| 10/2/95 12.12 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
A2
<PAGE>
<PAGE>
CAPITAL GROWTH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $17.08 537,480 $9,180 |
| 1997 15.45 325,440 5,027 |
| 1996 12.50 50,199 627 |
| 9/3/96 10.94 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $17.01 444,973 $7,569 |
| 1997 15.41 226,587 3,491 |
| 1996 12.49 38,037 475 |
| 9/3/96 10.94 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
GROWTH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $16.36 362,210 $5,926 |
| 1997 13.06 161,235 2,106 |
| 1/20/97 11.99 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $16.29 284,480 $4,636 |
| 1997 13.03 132,596 1,728 |
| 1/20/97 11.99 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $16.22 1,635,638 $26,538 |
| 1997 12.99 718,807 9,340 |
| 1/20/97 11.99 -- -- |
|-------------------------------------------------------------|
VALUE EQUITY
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $18.41 454,942 $8,377 |
| 1997 18.36 372,681 6,843 |
| 1996 14.61 181,354 2,649 |
| 1995 13.37 34,272 458 |
| 10/2/95 12.43 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $18.31 500,101 $9,155 |
| 1997 18.28 410,757 7,509 |
| 1996 14.57 249,994 3,642 |
| 1995 13.36 23,394 313 |
| 10/2/95 12.41 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
RESEARCH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $23.03 437,189 $10,068 |
| 1997 18.95 223,067 4,227 |
| 1/20/97 16.43 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $22.89 335,512 $7,680 |
| 1997 18.87 142,676 2,692 |
| 1/20/97 16.43 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $22.73 2,179,744 $49,533 |
| 1997 18.77 786,122 14,752 |
| 1/20/97 16.43 -- -- |
|-------------------------------------------------------------|
A3
<PAGE>
<PAGE>
MANAGED GLOBAL
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $15.02 649,216 $9,753 |
| 1997 11.76 525,356 6,180 |
| 1996 10.62 226,224 2,402 |
| 1995 9.58 26,722 256 |
| 10/2/95 9.32 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.88 512,728 $7,631 |
| 1997 11.67 438,611 5,120 |
| 1996 10.55 231,774 2,446 |
| 1995 9.53 27,492 262 |
| 10/2/95 9.28 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
CAPITAL APPRECIATION
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $24.75 413,115 $10,233 |
| 1997 22.24 353,774 7,868 |
| 1996 17.46 162,558 2,839 |
| 1995 14.71 24,117 355 |
| 10/2/95 14.31 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $24.50 370,619 $9,080 |
| 1997 22.05 286,892 6,326 |
| 1996 17.34 174,592 3,028 |
| 1995 14.63 16,369 239 |
| 10/2/95 14.23 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
MID-CAP GROWTH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.60 173,070 $3,912 |
| 1997 18.64 85,870 1,600 |
| 1996 15.77 29,878 471 |
| 9/3/96 14.64 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $22.43 183,243 $4,109 |
| 1997 18.52 112,382 2,081 |
| 1996 15.70 28,223 443 |
| 9/3/96 14.64 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
STRATEGIC EQUITY
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $14.30 508,588 $7,272 |
| 1997 14.36 406,747 5,840 |
| 1996 11.81 370,536 4,374 |
| 1995 10.01 76,095 762 |
| 10/2/95 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.23 589,815 $8,393 |
| 1997 14.31 534,105 7,643 |
| 1996 11.78 231,567 2,729 |
| 1995 10.01 47,478 475 |
| 10/2/95 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
A4
<PAGE>
<PAGE>
SMALL CAP
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $15.44 446,934 $6,900 |
| 1997 12.92 401,090 5,183 |
| 1996 11.86 198,338 2,352 |
| 1/2/96 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $15.37 525,379 $8,074 |
| 1997 12.88 445,138 5,735 |
| 1996 11.84 227,347 2,692 |
| 1/2/96 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
REAL ESTATE
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.07 170,494 $3,763 |
| 1997 25.82 173,241 4,473 |
| 1996 21.30 54,229 1,155 |
| 1995 15.94 2,716 43 |
| 10/2/95 15.06 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $21.74 125,630 $2,731 |
| 1997 25.48 113,110 2,882 |
| 1996 21.04 42,710 899 |
| 1995 15.78 2,910 46 |
| 10/2/95 14.91 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
HARD ASSETS
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $14.50 146,678 $2,126 |
| 1997 20.85 154,417 3,219 |
| 1996 19.89 94,213 1,873 |
| 1995 15.11 24,828 375 |
| 10/2/95 14.86 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.28 74,676 $1,067 |
| 1997 20.57 81,681 1,680 |
| 1996 19.65 43,232 850 |
| 1995 14.96 2,847 42 |
| 10/2/95 14.71 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
DEVELOPING WORLD
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $ 7.29 617 $5 |
| 5/1/98 10.42 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $ 7.28 12,180 $89 |
| 5/1/98 10.42 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $ 7.27 49,393 $359 |
| 5/1/98 10.42 -- -- |
|-------------------------------------------------------------|
A5
<PAGE>
<PAGE>
EMERGING MARKETS
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $6.56 266,800 $1,751 |
| 1997 8.75 249,197 2,182 |
| 1996 9.78 97,857 957 |
| 1995 9.23 15,670 145 |
| 10/2/95 9.50 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $6.51 249,607 $1,625 |
| 1997 8.70 215,512 1,875 |
| 1996 9.74 102,267 995 |
| 1995 9.20 12,465 115 |
| 10/2/95 9.47 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
PIMCO HIGH YIELD BOND
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $10.09 213,774 $2,157 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $10.08 118,295 $1,192 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $10.07 630,858 $6,353 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
PIMCO STOCKSPLUS GROWTH AND INCOME
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $11.12 112,706 $1,253 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $11.11 53,016 $192 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $11.10 474,542 $5,268 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
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 $124,230
( $100,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0825 ) ^ 2,555 / 365 - 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 $124,230
( $100,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0625 ) ^ 2,555 / 365 - 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.
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 $248,459
( $200,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Amount that must be withdrawn =
( $114,530 / ( 1.07 / 1.0825 ) ^ 2,555 / 365 - 1 ) = $124,230
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0825 ) ^ 2,555 / 365 - 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 $130,530 requested 3
years into the guaranteed interest period; that the then Index Rate ("J")
for a 7 year guaranteed interest period is 6%; and that no prior transfers
or withdrawals affecting this Fixed Interest Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of Fixed Interest Allocation on the date of
surrender is $248,459 ( $200,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Amount that must be withdrawn =
( $130,500 / ( 1.07 / 1.0625 ) ^ 2,555 / 365 ) = $124,230
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0625 ) ^ 2,555 / 365 - 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.
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.
C1
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in
Delaware
106297 DVA PLUS Form 1 (02/00)
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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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106297 DVA Plus-3 02/01/2000 |
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DVA PLUS PROFILE AND PROSPECTUS
FORM TWO
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Registration Nos. 333-51353
Filed pursuant to Rule 424(b)(3)
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| PROFILE AND PROSPECTUS FOR GOLDENSELECT DVA PLUS/R/
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| Fixed and Variable Annuity Contract, February 1, 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>
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
[begin shaded block]
PROFILE OF
GOLDENSELECT DVA PLUS
FIXED AND VARIABLE ANNUITY CONTRACT
FEBRUARY 1, 2000
[inset within shaded block]
This Profile is a summary of some of the more important points that
you should know and consider before purchasing the Contract. The
Contract is more fully described in the full prospectus which
accompanies this Profile. Please read the prospectus carefully.
[end inset within shaded block]
[end shaded block]
1. THE ANNUITY CONTRACT
The Contract offered in this prospectus is a deferred combination
variable and fixed annuity contract between you and Golden American Life
Insurance Company. The Contract provides a means for you to invest on a
tax-deferred basis in (i) one or more of 25 mutual fund investment
portfolios through our Separate Account B and/or (ii) in a fixed account
of Golden American with guaranteed interest periods. The 25 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 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
withdrawals and transfers. The
DVA PLUS PROFILE
PROSPECTUS BEGINS AFTER
PAGE 11 OF THIS PROFILE
<PAGE>
<PAGE>
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 phasebegins 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 with Shaded Header]
|----------------------------------------------------------------------------|
| ANNUITY OPTIONS |
|----------------------------------------------------------------------------|
| Option 1 Income for a Payments are made for a specified number of |
| fixed period years to you or your beneficiary. |
|----------------------------------------------------------------------------|
| Option 2 Income for Payments are made for the rest of your life |
| life with a or longer for a specified period such as 10 |
| period or 20 years or until the total amount used to |
| certain buy this option has been repaid. This option |
| comes with an added guarantee that payments |
| will continue to your beneficiary for the |
| remainder of such period if you should die |
| during the period. |
|----------------------------------------------------------------------------|
| Option 3 Joint life Payments are made for your life and the life |
| income of another person (usually your spouse). |
|----------------------------------------------------------------------------|
| Option 4 Annuity plan Any other annuitization plan that we choose |
| to offer on the annuity start date. |
|----------------------------------------------------------------------------|
Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments
under Option 4 may be fixed or variable. If variable and subject to the
Investment 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
DVA PLUS PROFILE
2
<PAGE>
<PAGE>
when purchased as either an Individual Retirement Annuity (IRA) or in
connection with a qualified retirement plan (each a "qualified
Contract").
The Contract is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term
purposes. The tax-deferred feature is more attractive to people in high
federal and state tax brackets. You should not buy this Contract if you
are looking for a short-term investment or if you cannot risk getting
back less money than you put in.
4. THE INVESTMENT PORTFOLIOS
You can direct your money into (1) the fixed account with guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years, and/or (2) into
any one or more of the following 25 mutual fund investment portfolios
through our Separate Account B. The investment portfolios are described
in the prospectuses for the GCG Trust and the PIMCO Variable Insurance
Trust. 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>
<C> <C> <C>
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Mid-Cap Growth Series
Limited Maturity Bond Series Capital Growth Series Strategic Equity Series
Global Fixed Income Series Growth Series Small Cap Series
Total Return Series Value Equity Series Real Estate Series
Fully Managed Series Research Series Hard Assets Series
Equity Income Series Managed Global Series Developing World Series
Investors Series All Cap Series Emerging Markets Series
Large Cap Value Capital Appreciation Series
THE PIMCO TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income 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>
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>
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 and a market value
adjustment may apply. The rider charges are as follows:
DVA PLUS PROFILE
3
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<PAGE>
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 0.59% to 1.83% annually (see following table) of the
portfolio's average daily net asset balance.
If you withdraw money from your Contract, or if you begin receiving
annuity payments, 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%
DVA PLUS PROFILE
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, the
asset-based administrative charge, the annual contract administrative
charge as 0.06% (based on an average contract value of $65,000), 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, 1998,
except for (i) portfolios that commenced operations during 1998 where
the charges have been estimated, and (ii) newly formed portfolios
where the charges have been estimated. The column "Total Annual Charges"
reflects the sum of the previous two columns. The columns under the
heading "Examples" show you how much you would pay under the Contract for
a 1-year period and for a 10-year period.
As required by the Securities and Exchange Commission, the examples
assume that you invested $1,000 in a Contract that earns 5% annually and
that you withdraw your money at the end of Year 1 or at the end of Year
10. For Years 1 and 10, the examples show the total annual charges
assessed during that time and assume that you have elected the
Max 7 Enhanced Death Benefit. For these examples, the premium tax
is assumed to be 0%.
DVA PLUS PROFILE
4
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<PAGE>
<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 w/the w/o w/the w/o w/the w/o
Highest any Investment Highest any Highest any Highest any
Rider Rider Portfolio Rider Rider Rider Rider Rider Rider
Investment Portfolio Charge Charge Charges Charge Charge Charge Charge Charge Charge
- -------------------- ------ ------ ---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE GCG TRUST
Liquid Asset 2.31% 1.81% 0.59% 2.90% 2.40% $99 $94 $325 $274
Limited Maturity Bond 2.31% 1.81% 0.60% 2.91% 2.41% $100 $94 $326 $275
Global Fixed Income 2.56% 1.81% 1.60% 4.16% 3.41% $112 $104 $434 $369
Total Return 2.56% 1.81% 0.97% 3.53% 2.78% $106 $98 $380 $311
Fully Managed 2.56% 1.81% 0.98% 3.54% 2.79% $106 $98 $381 $312
Equity Income 2.56% 1.81% 0.98% 3.54% 2.79% $106 $98 $381 $312
Investors 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
Large Cap Value 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
Rising Dividends 2.56% 1.81% 0.98% 3.54% 2.79% $106 $98 $381 $312
Capital Growth 2.56% 1.81% 1.08% 3.64% 2.89% $107 $99 $390 $321
Growth 2.56% 1.81% 1.09% 3.65% 2.90% $107 $99 $391 $322
Value Equity 2.56% 1.81% 0.98% 3.54% 2.79% $106 $98 $381 $312
Research 2.56% 1.81% 0.94% 3.50% 2.75% $105 $98 $377 $308
Managed Global 2.56% 1.81% 1.26% 3.82% 3.07% $108 $101 $405 $338
All Cap 2.56% 1.81% 1.01% 3.57% 2.82% $106 $99 $384 $315
Capital Appreciation 2.56% 1.81% 0.98% 3.54% 2.79% $106 $98 $381 $312
Mid-Cap Growth 2.56% 1.81% 0.95% 3.51% 2.76% $105 $98 $378 $309
Strategic Equity 2.56% 1.81% 0.99% 3.55% 2.80% $106 $98 $382 $313
Small Cap 2.56% 1.81% 0.99% 3.55% 2.80% $106 $98 $382 $313
Real Estate 2.56% 1.81% 0.99% 3.55% 2.80% $106 $98 $382 $313
Hard Assets 2.56% 1.81% 1.00% 3.56% 2.81% $106 $98 $383 $314
Developing World 2.56% 1.81% 1.83% 4.39% 3.64% $114 $107 $453 $390
Emerging Markets 2.56% 1.81% 1.83% 4.39% 3.64% $114 $107 $453 $390
The PIMCO 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
The "Total Annual Investment Portfolio Charges" column above reflects
current expense reimbursements for applicable investment portfolios. The
1 Year examples above include a 7% surrender charge. For more detailed
information, see the "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.
DVA PLUS PROFILE
5
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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 [12]. 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 1998. 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 any. 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.
DVA PLUS PROFILE
6
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[Table with shaded heading and shaded lines to make chart easier to read]
Calendar Year
Investment Portfolio 1998 1997 1996
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 10.10% 26.08% 17.52%
Strategic Equity(2) (1.50)% 20.38% 16.69%
Managed by Alliance Capital Management L.P.
Capital Growth(2) 9.41% 22.33% --
Managed by Baring International Investment Limited
Developing World(2) -- -- --
Global Fixed Income 9.30% (1.68)% 2.56%
Hard Assets(2) (31.33)% 3.73% 30.28%
Managed by Capital Guardian Trust Company
Large Cap Value -- -- --
Managed Global(3) 26.42% 9.63% 9.75%
Small Cap(3) 18.24% 7.78% 17.42%
Managed by Eagle Asset Management, Inc.
Value Equity (0.82)% 24.45% 8.06%
Managed by EII Realty Securities, Inc.
Real Estate (15.51)% 20.02% 32.24%
Managed by ING Investment Management, LLC
Limited Maturity Bond 4.42% 4.23% 1.92%
Liquid Asset 2.64% 2.68% 2.56%
Managed by Janus Capital Corporation
Growth(2) 23.98% 13.16% --
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 11.53% 26.94% 17.91%
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 20.04% 16.95% 17.96%
Research 20.28% 17.41% 20.56%
Total Return 9.05% 18.13% 11.08%
Managed by Salomon Brothers Asset Management, Inc.
All Cap -- -- --
Investors -- -- --
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) 5.77% 14.78% 6.26%
Fully Managed 3.46% 12.72% 13.71%
Managed by Putnam Investment Management, Inc.
Emerging Markets (25.97)% (11.46)% 4.82%
Managed by Pacific Investment Management Company
PIMCO High Yield Bond -- -- --
PIMCO StocksPLUS Growth and Income -- -- --
_______________________
(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.
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
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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 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 reaching the
maximum enhanced death benefit or attained age 80 of the Owner,
if earlier.
Note for current Special Funds: The actual interest rate used
for calculating the 7% Solution Enhanced Death Benefit for
the Liquid Asset and Limited Maturity Bond investment
portfolios and the Fixed Account, will be the lesser of
(1) 7% and (2) the interest rate, positive or negative,
providing a yield on the Guaranteed Death Benefit equal to
the net return for the current valuation period on the
contract value allocated to Special Funds. We may, with
30 days notice to you, designate any fund as a Special Fund
on existing contracts with respect to new premiums added
to such fund and also with respect to new transfers to such
funds.
Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the
annuity start date, your beneficiary will receive the greatest of:
1) the contract value;
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
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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 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 adjustment could increase or decrease your
contract value and/or the amount you transfer or withdraw. Transfers
between Special Funds and other investment portfolios will result in a
transfer of the Guaranteed Death Benefit in proportion to the account
value transferred. In cases where more than one Guaranteed Death Benefit
exists because of such transfers, each death benefit will be combined to
calculate the total death benefit.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
See "Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in
the prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add
more than one of these three riders to your Contract. There are separate
charges 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,
DVA PLUS PROFILE
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depending on the waiting period you select, reduced pro rata for withdrawls
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 the premiums, 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 if your contract value is reduced
to zero you will receive annual periodic payments when added together,
equal to all premium payments paid during the first two contract years.
If your contract value is 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, less adjustments for any prior withdrawals. 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.
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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.
DVA PLUS PROFILE
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[Begin Shaded Block]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA PLUS
[End Shaded Block]
- -----------------------------------------------------------------------
FEBRUARY 1, 2000
This prospectus describes GoldenSelect DVA Plus, a group and individual
deferred variable annuity contract (the "Contract") offered by Golden
American Life Insurance Company (the "Company," "we" or "our"). The
Contract is available in connection with certain retirement plans that
qualify for special federal income tax treatment ("qualified Contracts")
as well as those that do not qualify for such treatment ("non-qualified
Contracts").
The Contract provides a means for you to invest your premium payments in
one or more of 25 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, dated February 1, 2000, has been filed with the
Securities and Exchange Commission. It is available without charge upon
request. To obtain a copy of this document, write to our Customer
Service Center at P.O. Box 2700, West Chester, Pennsylvania 19380 or call
(800) 366-0066, or access the SEC's website (http://www.sec.gov). The
table of contents of the Statement of Additional Information ("SAI") is
on the last page of this prospectus and the SAI is made part of this
prospectus by reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SUBACCOUNTS THROUGH THE GCG TRUST OR THE PIMCO TRUST
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 AND THE PIMCO TRUST.
[Shaded Line]
A list of the investment portfolios and the managers are listed on the
back of this cover.
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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
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
EII REALTY SECURITIES, INC.
Real Estate Series
ING INVESTMENT MANAGEMENT, LLC
(AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
KAYNE ANDERSON INVESTMENT
MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES
COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
SALOMON BROTHERS ASSET
MANAGEMENT, INC.
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
PUTNAM INVESTMENT MANAGEMENT, INC.
Emerging Markets Series
PACIFIC INVESTMENT MANAGEMENT
COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and
Income 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.
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[Shaded Section Header]
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TABLE OF CONTENTS
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PAGE
Index of Special Terms........................................... 1
Fees and Expenses................................................ 2
Performance Information.......................................... 8
Accumulation Unit............................................. 8
Net Investment Factor......................................... 8
Condensed Financial Information............................... 9
Financial Statements.......................................... 9
Performance Information....................................... 9
Golden American Life Insurance Company........................... 10
The Trusts....................................................... 10
Golden American Separate Account B............................... 11
The Investment Portfolios........................................ 11
Investment Objectives......................................... 11
Investment Management Fees.................................... 14
The Fixed Interest Allocation.................................... 14
Selecting a Guaranteed Interest Period........................ 15
Guaranteed Interest Rates..................................... 15
Transfers from a Fixed Interest Allocation.................... 15
Withdrawals from a Fixed Interest Allocation.................. 16
Market Value Adjustment....................................... 16
The Annuity Contract............................................. 17
Contract Date and Contract Year............................... 17
Annuity Start Date............................................ 17
Contract Owner................................................ 18
Annuitant..................................................... 18
Beneficiary................................................... 19
Purchase and Availability of the Contract..................... 19
Crediting of Premium Payments................................. 19
Contract Value................................................ 20
Cash Surrender Value.......................................... 21
Surrendering to Receive the Cash Surrender Value.............. 21
Addition, Deletion or Substitution of Subaccounts and Other
Changes................................................... 21
The Fixed Account............................................. 22
Optional Riders............................................... 22
Rider Date.................................................. 22
Special Funds............................................... 22
No Cancellation............................................. 22
Termination................................................. 22
Minimum Guaranteed Accumulation Benefit Rider............... 22
Minimum Guaranteed Income Benefit Rider..................... 25
Minimum Guaranteed Withdrawal Benefit Rider................. 27
Other Contracts............................................... 29
Other Important Provisions.................................... 29
Withdrawals...................................................... 20
Regular Withdrawals........................................... 30
Systematic Withdrawals........................................ 30
IRA Withdrawals............................................... 31
Transfers Among Your Investments................................. 32
Dollar Cost Averaging......................................... 32
Automatic Rebalancing......................................... 33
Death Benefit Choices............................................ 34
Death Benefit During the Accumulation Phase................... 34
Standard Death Benefit...................................... 34
Enhanced Death Benefits..................................... 34
i
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Death Benefit During the Income Phase......................... 35
Continuation After Death--Spouse.............................. 35
Continuation After Death--Non Spouse.......................... 36
Charges and Fees................................................. 36
Charge Deduction Subaccount................................... 36
Charges Deducted from the Contract Value...................... 36
Surrender Charge............................................ 36
Waiver of Surrender Charge for Extended Medical Care........ 37
Free Withdrawal Amount...................................... 37
Surrender Charge for Excess Withdrawals..................... 37
Premium Taxes............................................... 37
Administrative Charge....................................... 37
Transfer Charge............................................. 37
Charges Deducted from the Subaccounts......................... 38
Mortality and Expense Risk Charge........................... 38
Asset-Based Administrative Charge........................... 38
Optional Rider Charges...................................... 38
Trust Expenses................................................ 39
The Annuity Options.............................................. 39
Annuitization of Your Contract................................ 39
Selecting the Annuity Start Date.............................. 40
Frequency of Annuity Payments................................. 40
The Annuity Options........................................... 40
Income for a Fixed Period................................... 40
Income for Life with a Period Certain....................... 40
Joint Life Income........................................... 41
Annuity Plan................................................ 41
Payment When Named Person Dies................................ 41
Other Contract Provisions........................................ 41
Reports to Contract Owners.................................... 41
Suspension of Payments........................................ 41
In Case of Errors in Your Application......................... 41
Assigning the Contract as Collateral.......................... 42
Contract Changes-Applicable Tax Law........................... 42
Free Look..................................................... 42
Group or Sponsored Arrangements............................... 42
Selling the Contract.......................................... 42
Other Information................................................ 43
Voting Rights................................................. 43
Year 2000 Problem............................................. 43
State Regulation.............................................. 43
Legal Proceedings............................................. 43
Legal Matters................................................. 44
Experts....................................................... 44
Federal Tax Considerations....................................... 44
More Information About Golden American Life Insurance Company.... 49
Unaudited Financial Statements of Golden American Life Insurance
Company....................................................... 73
Financial Statements of Golden American Life Insurance Company... 82
Statement of Additional Information
Table of Contents............................................. 111
Appendix A
Condensed Financial Information............................... A1
Appendix B
Market Value Adjustment Examples.............................. B1
Appendix C
Surrender Charge for Excess Withdrawals Example............... C1
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[Shaded Section Header]
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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 8
Annual Ratchet Enhanced Death Benefit 35
Annuitant 18
Annuity Start Date 17
Cash Surrender Value 21
Max 7 Enhanced Death Benefit 34
Contract Date 17
Contract Owner 18
Contract Value 20
Contract Year 17
Fixed Interest Allocation 14
Free Withdrawal Amount 37
Market Value Adjustment 16
Net Investment Factor 8
7% Solution Enhanced Death Benefit 35
Standard Death Benefit 35
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
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[Shaded Section Header]
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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****
</TABLE>
<TABLE>
STANDARD
DEATH BENEFIT ENHANCED DEATH BENEFIT
COMBINATION 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 daily 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 paid 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
2
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added during the 2-year period commencing on the rider date if you purchased
the rider after the contract date, reduced pro rata for all withdrawals taken
while the MGAB rider is in effect, and reduced pro rata for transfers made
during the three year period before the MGAB Benefit Date.
(2) The MGIB Base generally depends on the amount of premiums you pay(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 or transfer
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):
OTHER TOTAL
EXPENSES(2) EXPENSES
MANAGEMENT AFTER EXPENSE AFTER EXPENSE
PORTFOLIO FEES(1) REIMBURSEMENT REIMBURSEMENT(3)
Liquid Asset 0.59% 0.00% 0.59%
Limited Maturity Bond 0.60% 0.00% 0.60%
Global Fixed Income 1.60% 0.00% 1.60%(3)
Total Return 0.94% 0.03% 0.97%(3)
Fully Managed 0.98% 0.00% 0.98%
Equity Income 0.98% 0.00% 0.98%
Investors 1.00% 0.01% 1.01%
Large Cap Value 1.00% 0.01% 1.01%
Rising Dividends 0.98% 0.00% 0.98%
Capital Growth 1.08% 0.00% 1.08%
Growth 1.08% 0.01% 1.09%
Value Equity 0.98% 0.00% 0.98%
Research 0.94% 0.00% 0.94%
Managed Global 1.25% 0.01% 1.26%
All Cap 1.00% 0.01% 1.01%
Capital Appreciation 0.98% 0.00% 0.98%
Mid-Cap Growth 0.94% 0.01% 0.95%
Strategic Equity 0.98% 0.01% 0.99%
Small Cap 0.98% 0.01% 0.99%
Real Estate 0.98% 0.01% 0.99%
Hard Assets 0.98% 0.02% 1.00%
Developing World 1.75% 0.08% 1.83%
Emerging Markets 1.75% 0.08% 1.83%
_______________________
(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, 1998, except for portfolios that commenced operations in
1998 where the charges have been estimated.
(3)Total expenses are based on actual expenses for the fiscal year ended
December 31, 1998. Directed Services, Inc. is currently reimbursing
expenses to maintain total expenses at 0.97% for the Total Return
portfolio and 1.60% for the Global Fixed Income portfolio as shown.
Without this reimbursement, and based on current estimates, total
expenses would be 0.98% for the Total Return portfolio and 1.74% for
the Global Fixed Income portfolio. This agreement will remain in
place through August 14, 2000 after which it may be terminated at
any time.
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THE PIMCO TRUST ANNUAL EXPENSES (as a percentage of the average daily net
assets of a portfolio):
OTHER TOTAL
EXPENSES EXPENSES
MANAGEMENT AFTER EXPENSE AFTER EXPENSE
PORTFOLIO FEES REIMBURSEMENT REIMBURSEMENT(1)
PIMCO High Yield Bond 0.50% 0.25%(2) 0.75%
PIMCO StocksPLUS Growth
and Income 0.40% 0.25% 0.65%
_______________________
(1)PIMCO has agreed to waive some or all of its other expenses, subject
to potential future reimbursement, to the extent that total expenses
for the PIMCO High Yield Bond Portfolio and PIMCO StocksPLUS Growth
and Income portfolio would exceed 0.75% and 0.65%, respectively, due
to payment by the portfolios of their pro rata portion of Trustees'
fees. Without this agreement and, based on current estimates, total
expenses would be 0.81% for the PIMCO High Yield Bond portfolio and
0.72% for the PIMCO StocksPLUS Growth and Income portfolio.
(2)Since the PIMCO High Yield Bond portfolio commenced operations on
April 30, 1998, other expenses as shown has been annualized for the
year ended December 31, 1998.
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 Combination 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 $65,000). In addition,
Examples 1 and 2 assume you elected an optional benefit rider with the highest
charge (0.75% annually where the rider base is equal to the initial premium and
increases by 7% annually , except for the Liquid Asset and Limited Maturity
Bond portfolios, where the charge is 0.50% annually) and assume the rider
charge is assessed each quarter on a base equal to the hypothetical $1,000
premium increasing at 7% per year (the assumed net rate for Liquid Asset and
Limited Maturity Bond). 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% represetns 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
firts 3 contract years, and under certain circumstances, with 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.
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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 $99 $150 $194 $325
Limited Maturity Bond $100 $151 $194 $326
Global Fixed Income $112 $186 $252 $434
Total Return $106 $168 $223 $380
Fully Managed $106 $169 $224 $381
Equity Income $106 $169 $224 $381
Large Cap Value $106 $169 $225 $384
Rising Dividends $106 $169 $224 $381
Capital Growth $107 $171 $228 $390
Growth $107 $172 $229 $391
Value Equity $106 $169 $224 $381
Research $105 $167 $222 $377
Managed Global $108 $177 $237 $405
All Cap $106 $169 $225 $384
Capital Appreciation $106 $169 $224 $381
Mid-Cap Growth $105 $168 $222 $378
Strategic Equity $106 $169 $224 $382
Small Cap $106 $169 $224 $382
Real Estate $106 $169 $224 $382
Hard Assets $106 $169 $225 $383
Developing World $114 $193 $263 $453
Emerging Markets $114 $193 $263 $453
THE PIMCO TRUST
PIMCO High Yield Bond $103 $162 $213 $360
PIMCO StocksPLUS
Growth and Income $102 $159 $208 $351
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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 $90 $154 $325
Limited Maturity Bond $30 $91 $154 $326
Global Fixed Income $42 $126 $212 $434
Total Return $36 $108 $183 $380
Fully Managed $36 $109 $184 $381
Equity Income $36 $109 $184 $381
Investors $36 $109 $185 $384
Large Cap Value $36 $109 $185 $384
Rising Dividends $36 $109 $184 $381
Capital Growth $37 $111 $185 $390
Growth $37 $112 $189 $391
Value Equity $36 $109 $184 $381
Research $35 $107 $182 $377
Managed Global $38 $117 $197 $405
All Cap $36 $109 $185 $384
Capital Appreciation $36 $109 $184 $381
Mid-Cap Growth $35 $108 $182 $378
Strategic Equity $36 $109 $184 $382
Small Cap $36 $109 $184 $382
Real Estate $36 $109 $184 $382
Hard Assets $36 $109 $185 $383
Developing World $44 $133 $223 $453
Emerging Markets $44 $133 $223 $453
THE PIMCO TRUST
PIMCO High Yield Bond $33 $102 $173 $360
PIMCO StocksPLUS
Growth and Income $32 $99 $168 $351
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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 $135 $168 $274
Limited Maturity Bond $94 $135 $169 $275
Global Fixed Income $104 $165 $217 $369
Total Return $98 $146 $187 $311
Fully Managed $98 $147 $187 $312
Equity Income $98 $147 $187 $312
Investors $99 $147 $189 $315
Large Cap Value $99 $147 $189 $315
Rising Dividends $98 $147 $187 $312
Capital Growth $99 $149 $192 $321
Growth $99 $150 $193 $322
Value Equity $98 $147 $187 $312
Research $98 $145 $185 $308
Managed Global $101 $155 $201 $338
All Cap $99 $147 $189 $315
Capital Appreciation $98 $147 $187 $312
Mid-Cap Growth $98 $146 $186 $309
Strategic Equity $98 $147 $188 $313
Small Cap $98 $147 $188 $313
Real Estate $98 $147 $188 $313
Hard Assets $98 $147 $188 $314
Developing World $107 $171 $228 $390
Emerging Markets $107 $171 $228 $390
THE PIMCO TRUST
PIMCO High Yield Bond $96 $140 $176 $290
PIMCO StocksPLUS
Growth and Income $95 $137 $171 $280
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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 $75 $128 $274
Limited Maturity Bond $24 $75 $129 $275
Global Fixed Income $34 $105 $177 $369
Total Return $28 $86 $147 $311
Fully Managed $28 $87 $147 $312
Equity Income $28 $87 $147 $312
Investors $29 $87 $149 $315
Large Cap Value $29 $87 $149 $315
Rising Dividends $28 $87 $147 $312
Capital Growth $29 $89 $152 $321
Growth $29 $90 $153 $322
Value Equity $28 $87 $147 $312
Research $28 $85 $145 $308
Managed Global $31 $95 $161 $338
All Cap $29 $87 $149 $315
Capital Appreciation $28 $87 $147 $312
Mid-Cap Growth $28 $86 $146 $309
Strategic Equity $28 $87 $148 $313
Small Cap $28 $87 $148 $313
Real Estate $28 $87 $148 $313
Hard Assets $28 $87 $148 $314
Developing World $37 $111 $188 $390
Emerging Markets $37 $111 $188 $390
THE PIMCO TRUST
PIMCO High Yield Bond $26 $80 $136 $290
PIMCO StocksPLUS
Growth and Income $25 $77 $131 $280
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.
[Shaded Section Header]
- --------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each
subaccount of Separate Account B has its own accumulation unit value.
The accumulation units are valued each business day that the New York
Stock
Exchange is open for trading. Their values may increase or decrease from
day to day according to a Net Investment Factor, which is primarily based
on the investment performance of the applicable investment portfolio.
Shares in the investment portfolios are valued at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
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(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 years
ended December 31, 1998 and 1997 are included in the Statement of
Additional Information. The unaudited condensed consolidated financial
statements of Golden American for the nine months ended September 30,
1999 and the audited consolidated financial statements of Golden American
for the years ended December 31, 1998, 1997 and 1996 are included in this
prospectus.
PERFORMANCE INFORMATION
From time to time, we may advertise or include in reports to contract
owners performance information for the subaccounts of Separate Account B,
including the average annual total return performance, yields and other
nonstandard measures of performance. Such performance data will be
computed, or accompanied by performance data computed, in accordance with
standards defined by the SEC.
Except for the Liquid Asset subaccount, quotations of yield for the
subaccounts will be based on all investment income per unit (contract
value divided by the accumulation unit) earned during a given 30-day
period, less expenses accrued during such period. Information on
standard total average annual return performance will include average
annual rates of total return for 1, 5 and 10 year periods, or lesser
periods depending on how long Separate Account B has been investing in the
portfolio. We may show other total returns for periods less than
one year. Total return figures will be based on the actual historic
performance of the subaccounts of Separate Account B, assuming an
investment at the beginning of the period, when the Separate Account
first invested in the portfolio, withdrawal of the investment at the end
of the period, adjusted to reflect the deduction of all applicable
portfolio and current contract charges. We may also show rates of total
return on amounts invested at the beginning of the period with no withdrawal
at the end of the period. Total return figures which assume no withdrawals
at the end of the period will reflect all recurring charges, but will not
reflect the surrender charge. Quotations of average annual return for the
Managed Global subaccount take into account the period before September
3, 1996, during which it was maintained as a subaccount of Golden
American Separate Account D. In addition, we may present historic
performance data for the investment portfolios since their inception
reduced by some or all of the fees and charges under the Contract. Such
adjusted historic performance includes data that precedes the inception
dates of the subaccounts of Separate Account B. This data is designed to
show the performance that would have resulted if the Contract had been in
existence before the Separate Account began investing in the portfolios.
Current yield for the Liquid Asset subaccount is based on income received
by a hypothetical investment over a given 7-day period, less expenses
accrued, and then "annualized" (i.e., assuming that the 7-day yield would
be received for 52 weeks). We calculate "effective yield" for the Liquid
Asset subaccount in a manner similar to that used to calculate yield, but
when annualized, the income earned by the investment is assumed to be
reinvested. The "effective yield" will thus be slightly higher than the
"yield" because of the compounding effect of earnings. We calculate
quotations of yield for the remaining subaccounts on all investment income
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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.
[Shaded Section Header]
- --------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------
Golden American Life Insurance Company is a Delaware stock life insurance
company, which was originally incorporated in Minnesota on January 2,
1973. Golden American is a wholly owned subsidiary of Equitable of Iowa
Companies, Inc. ("Equitable of Iowa"). Equitable of Iowa is a wholly
owned subsidiary of ING Groep N.V. ("ING"), a global financial services
holding company. Golden American is authorized to sell insurance and
annuities in all states, except New York, and the District of Columbia.
In May 1996, Golden American established a subsidiary, First Golden
American Life Insurance Company of New York, which is authorized to sell
annuities in New York and Delaware. Golden American's consolidated
financial statements appear in this prospectus.
Equitable of Iowa is the holding company for Golden American, Directed
Services, Inc., the investment manager of the GCG Trust and the
distributor of the Contracts, and other interests. Equitable of Iowa and
another ING affiliate own ING Investment Management, LLC, a portfolio
manager of the GCG Trust. ING also owns Baring International
Investment Limited, another portfolio manager of the GCG Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
[Shaded Section Header]
- --------------------------------------------------------------------------
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 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
Trust is 840 Newport Center Drive, Suite 300, Newport Beach, CA 92660.
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 and the PIMCO Trust, Directed Services, Inc., Pacific
Investment Management Company and any other insurance
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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 AND THE PIMCO
TRUST IN THE ACCOMPANYING PROSPECTUS FOR EACH TRUST. YOU SHOULD READ
THEM CAREFULLY BEFORE INVESTING.
[Shaded Section Header]
- --------------------------------------------------------------------------
GOLDEN AMERICAN SEPARATE ACCOUNT B
- --------------------------------------------------------------------------
Golden American Separate Account B ("Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with
the SEC as a unit investment trust under the Investment Company Act of
1940. Account B is a separate investment account used for our variable
annuity contracts. We own all the assets in Account B but such assets
are kept separate from our other accounts.
Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of The GCG Trust and
the PIMCO Trust. Each investment portfolio has its own distinct
investment objectives and policies. Income, gains and losses, realized
or unrealized, of a portfolio are credited to or charged against the
corresponding subaccount of Account B without regard to any other income,
gains or losses of the Company. Assets equal to the reserves and other
contract liabilities with respect to each are not chargeable with
liabilities arising out of any other business of the Company. They may,
however, be subject to liabilities arising from subaccounts whose assets
we attribute to other variable annuity contracts supported by Account B.
If the assets in Account B exceed the required reserves and other
liabilities, we may transfer the excess to our general account. We are
obligated to pay all benefits and make all payments provided under the
Contracts.
We currently offer other variable annuity contracts that invest in
Account B but are not discussed in this prospectus. Account B may also
invest in other investment portfolios which are not available under your
Contract.
[Shaded Section Header]
- --------------------------------------------------------------------------
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. YOU CAN FIND MORE
DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE PROSPECTUSES
FOR THE GCG TRUST AND THE PIMCO TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
{Table with Shaded Header]
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset Seeks high level of current income
consistent with the preservation of capital
and liquidity.
Invests primarily in obligations of the U.S.
Government and its agencies and instrumentali-
ties, bank obligations, commercial paper and
short-term corporate debt securities. All
securities will mature in less than one year.
----------------------------------------------------
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Limited Maturity Seeks highest current income consistent with
Bond low risk to principal and liquidity.
Also seeks to enhance its total return through
capital appreciation when market factors, such
as falling interest rates and rising bond
prices, indicate that capital appreciation may
be available without significant risk to
principal.
Invests primarily in diversified limited
maturity debt securities with average maturity
dates of five years or shorter and in no cases
more than seven years.
----------------------------------------------------
Global Fixed Income Seeks high total return.
Invests primarily in high-grade fixed income
securities, both foreign and domestic.
----------------------------------------------------
Total Return Seeks above-average income (compared to a
portfolio entirely invested in equity
securities) consistent with the prudent
employment of capital.
Invests primarily in a combination of equity
and fixed income securities.
----------------------------------------------------
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.
----------------------------------------------------
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.
----------------------------------------------------
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.
----------------------------------------------------
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".
----------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of companies
where the potential for change (earnings
acceleration) is significant.
----------------------------------------------------
Growth Seeks capital appreciation.
Invests primarily in common stocks of growth
companies that have favorable relationships
between price/earnings ratios and growth rates
in sectors offering the potential for above-
average returns.
----------------------------------------------------
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Value Equity Seeks capital appreciation. Dividend income
is a secondary objective.
Invests primarily in common stocks of domestic
and foreign issuers which meet quantitative
standards relating to financial soundness and
high intrinsic value relative to price.
----------------------------------------------------
Research Seeks long-term growth of capital and future
income.
Invests primarily in common stocks or
securities convertible into common stocks of
companies believed to have better than
average prospects for long-term growth.
----------------------------------------------------
Managed Global Seeks capital appreciation. Current income
is only an incidental consideration.
Invests primarily in common stocks traded in
securities markets throughout the world.
----------------------------------------------------
All Cap Seeks capital appreciation through investment
in securities which the portfolio manager
believes have above-average capital
appreciation potential.
Invests primarily in equity securities of U.S.
companies of any size.
----------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed
by the portfolio manager to be undervalued.
----------------------------------------------------
Mid-Cap Growth Seeks long-term growth of capital.
Invests primarily in equity sercurities of companies
with medium market capitalization which the
portfolio manager believes have above-average growth
potential.
----------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of medium-
and small-sized companies.
----------------------------------------------------
Small Cap Seeks long-term capital appreciation.
Invests primarily in equity securities of
companies that have a total market
capitalization within the range of companies
in the Russell 2000 Growth Index or the
Standard & Poor's Small-Cap 600 Index.
----------------------------------------------------
Real Estate Seeks capital appreciation. Current income is
a secondary objective.
Invests primarily in publicly-traded real
estate equity securities.
----------------------------------------------------
Hard Assets Seeks long-term capital appreciation.
Invests primarily in hard asset securities.
Hard asset companies produce a commodity which
the portfolio manager is able to price on a
daily or weekly basis.
----------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of
companies in developing or emerging countries.
----------------------------------------------------
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Emerging Markets Seeks long-term capital appreciation.
Invests primarily in equity securities of
companies in at least six different emerging
market countries.
----------------------------------------------------
THE PIMCO TRUST
PIMCO High Yield Seeks to maximize total return, consistent with
Bond preservation of capital and prudent investment
management.
Invests in at least 65% of its assets in a
diversified portfolio of junk bonds rated at
least B by Moody's Investor Services, Inc. or
Standard & Poor's or, if unrated, determined by
the portfolio manager to be of comparable
quality.
----------------------------------------------------
PIMCO StocksPLUS Seeks to achieve a total return which exceeds
Growth and Income the total return performance of the S&P 500.
Invests primarily in common stocks, options,
futures, options on futures and swaps.
----------------------------------------------------
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager 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. Directed Services (and not the GCG
Trust) pays each portfolio manager a monthly fee for managing the 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 the PIMCO Trust. The PIMCO Trust pays PIMCO a monthly
advisory fee and a monthly administrative fee of 0.25% based on the
average daily net assets of each of the investment portfolios for
managing the assets of the portfolios and for administering the PIMCO
Trust.
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.
[Shaded Section Header]
- --------------------------------------------------------------------------
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,
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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, transfers or other charges we may impose, including any
Market Value Adjustment. Your Fixed Interest Allocation will be credited
with the guaranteed interest rate in effect for the guaranteed interest
period you selected when we receive and accept your premium or reallocation
of contract value. We will credit interest daily at a rate which yields
the quoted guaranteed interest rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is
guaranteed as long as you do not take your money out until its maturity
date. We do not have a specific formula for establishing the guaranteed
interest rates for the different guaranteed interest periods. We
determine guaranteed interest rates at our sole discretion. To find out
the current guaranteed interest rate for a guaranteed interest period you
are interested in, please contact our Customer Service Center or your
registered representative. The determination may be influenced by the
interest rates on fixed income investments in which we may invest with
the amounts we receive under the Contracts. We will invest these amounts
primarily in investment-grade fixed income securities (i.e., rated by
Standard & Poor's rating system to be suitable for prudent investors)
although we are not obligated to invest according to any particular
strategy, except as may be required by applicable law. You will have no
direct or indirect interest in these investments. We will also consider
other factors in determining the guaranteed interest rates, including
regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors.
We cannot predict the level of future interest rates but no Fixed
Interest Allocation will ever have a guaranteed interest rate of less
than 3% per year.
We may from time to time at our discretion offer interest rate specials
for new premiums that are higher than the current base interest rate then
offered. Renewal rates for such rate specials will be based on the base
interest rate and not on the special rates initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to
one or more new Fixed Interest Allocations with new guaranteed interest
periods, or to any of the subaccounts of Account B. We will transfer
amounts from your Fixed Interest Allocations starting with the guaranteed
interest period nearest its maturity date until we have honored your
transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract
value remaining in a Fixed Interest Allocation to less than $100, we will
treat such transfer request as a request to transfer the entire contract
value in such Fixed Interest Allocation. Transfers from a Fixed Interest
Allocation may be subject to a Market Value Adjustment. If you have a
special Fixed Interest Allocation that was offered exclusively with our
dollar cost averaging program,
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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 is subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer
amounts from the applicable Fixed Interest Allocation to the subaccounts
and/or to new Fixed Interest Allocations with guaranteed interest periods
of any length we are offering at that time. You may not, however,
transfer amounts to any Fixed Interest Allocation with a guaranteed
interest period that extends beyond the annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed
Interest Allocations, or earlier if required by state law, we will send
you a notice of the guaranteed interest periods that are available. You
must notify us which subaccounts or new guaranteed interest periods you
have selected before the maturity date of your Fixed Interest
Allocations. If we do not receive timely instructions from you, we will
transfer the contract value in the maturing Fixed Interest Allocation to
a new Fixed Interest Allocation with a guaranteed interest period that is
the same as the expiring guaranteed interest period. If such guaranteed
interest period is not available or would go beyond the annuity start
date, we will transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does not
go beyond the annuity start date. If no such guaranteed interest period
is available, we will transfer the contract value to a subaccount
specially designated by the Company for such purpose. Currently we use
the Liquid Asset subaccount for such purpose.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See
"Optional Riders."
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your
contract value in any Fixed Interest Allocation. You may make systematic
withdrawals of only the interest earned during the prior month, quarter
or year, depending on the frequency chosen, from a Fixed Interest
Allocation under our systematic withdrawal option. Systematic
withdrawals from a Fixed Interest Allocation are not permitted if such
Fixed Interest Allocation is currently participating in the dollar cost
averaging program. A withdrawal from a Fixed Interest Allocation may be
subject to a Market Value Adjustment and, in some cases, a surrender
charge. Be aware that withdrawals may have federal income tax
consequences, including a 10% penalty tax, as well as state income
tax consequences.
If you tell us the Fixed Interest Allocation from which your withdrawal
will be made, we will assess the withdrawal against that Fixed Interest
Allocation. If you do not, we will assess your withdrawal against the
subaccounts in which you are invested, unless the withdrawal exceeds the
contract value in the subaccounts. If there is no contract value in
those subaccounts, we will deduct your withdrawal from your Fixed
Interest Allocations starting with the guaranteed interest periods
nearest their maturity dates until we have honored your request.
Please be aware that the benefit we pay any certain optional riders
will be reduced on a pro rata basis by any withdrawals you make from the
Fixed Interest Allocation 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:
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( 1+I )N/365
(---------) -1
(1+J+.0025)
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.
[Shaded Section Header]
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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 and the PIMCO Trust through Account B. It also provides
a means for you to invest in a Fixed Interest Allocation through the
Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-
month period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments
under your Contract. The Contract, like all deferred variable annuity
contracts, has two phases: the accumulation phase and the income phase.
The accumulation phase is the period between the contract date and the
annuity start date. The income
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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 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.
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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.
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. An initial or additional premium payment that would cause
the contract value of all annuities that you maintain with us to exceed
$1,000,000 requires our prior approval.
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 all information necessary is received.
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. For initial premium payments,
the payment will be credited at the accumulation unit value next determined
after receipt of your premium payment and the completed application. Once the
completed application is
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received, we will allocate the payment to the subaccount and/or Fixed
Interest Allocation specified by you within 2 business days. We will
make inquiry to discover any missing information related to subsequent
payments. For any subsequent premium payments, the payment will be
credited at the accumulation unit value next determined after receipt
of your premium payment 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 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, together with an Application Acknowledgement Statement for
your execution. Until our Customer Service Center receives the
executed Application Acknowledgement Statement, neither you nor
the broker-dealer may execute any financial transactions on
your Contract unless they are requested in writing by you.
We may require additional information before complying with your
request (e.g., signature guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Account B or the Fixed Account be allocated 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.
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).
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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 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.
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 a portfolio
subject to those instructions, we will execute your instructions using
the substitute portfolio, unless you request otherwise.
We also reserve the right to: (i) deregister Account B under the 1940
Act; (ii) operate Account B as a management company under the 1940 Act if
it is operating as a unit investment trust; (iii) operate Account B as a
unit investment trust under the 1940 Act if it is operating as a managed
separate account; (iv) restrict or eliminate any voting rights as to
Account B; and (v) combine Account B with other accounts.
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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 are separate charges 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. THEY SHOULD BE
ANALYZED THOROUGHLY AND UNDERSTOOD COMPLETELY BEFORE BEING ELECTED. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM
PAYMENTS AND DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT
PORTFOLIO UNDER THE CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL
ADVISER IN EVALUATING THE RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR
CUSTOMER SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE
NUMBER IS (800)366-0066.
RIDER DATE
We use the term rider date in the discussion of the optional benefit
riders below. The rider date is the date an optional benefit rider
becomes effective. The rider date is also the contract date if the rider
was purchased at the time the Contract is issued.
SPECIAL FUNDS
We use the term Special Funds in the discussion of the Minimum Guaranteed
Accumulation Benefit rider (with the 20-year waiting period) and the
Minimum Guaranteed Income Benefit rider. The Special Funds refer to the
Liquid Asset subaccount, Limited Maturity Bond subaccount and the Fixed
Interest Allocations. The Company may designate new and/or existing
subaccounts as a Special Fund with 30 days notice at any time, including
during the life of a rider.
NO CANCELLATION
Once you purchase a rider, the rider may not be cancelled, unless you
cancel the Contract during the Contract's free look period, surrender,
annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the
free look period, you may not at any time cancel the rider, except with
respect to a one-time right to cancel the twenty-year option of the
Minimum Guaranteed Accumulation Benefit rider under specified conditions.
The Company may, at its discretion, cancel and/or replace a rider at your
request in order to renew or reset a rider.
TERMINATION
The optional riders are "living benefits". This means that the guaranteed
benefits offered by the riders are intended to be available to you while
you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider
will cease) if you annuitize, surrender or otherwise terminate your
Contract or die (first owner to die if there are multiple contract
owners, or at death of annuitant if contract owner is not a natural
person), unless your spouse beneficiary elects to continue the Contract,
during the accumulation phase. The optional rider will also terminate if
there is a change in contract ownership (other than a spousal beneficiary
continuation on your death). Other circumstances which may cause a
particular optional rider to terminate automatically 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
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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 value 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.
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; 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 Rate reduced pro rata for any withdrawals
and reduced pro rata for any transfers made within
3 years, for all allocations other than allocations to the
Special Funds . 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 Charges 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
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MGAB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR NEGATIVE.
Thus, investing in the Special Funds may limit the MGAB benefit.
Under the 20-year option, adding the rider after the contract date,
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 to and from 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.
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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
adjustment 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 after the 5th contract
anniversary 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 additional 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),
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reduced pro rata by all withdrawals taken while the MGIB
rider is in effect. Such additional premium payments added
more than 5 years before the earliest MGIB Benefit Date
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.
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 during the first
5 years after the rider date.
2. THEN WE DETERMINE THE MGIB ANNUITY INCOME BY MULTIPLYING YOUR MGIB
BASE (ADJUSTED FOR ANY MARKET VALUE ADJUSTMENT, SURRENDER CHARGE
AND PREMIUM TAXES) BY THE INCOME FACTOR, AND THEN DIVIDE BY $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor)
and 10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii) Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in
your Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for
the same option. The greater amount of income will be
available to you on the MGIB Benefit Date.
WITHDRAWALS AND TRANSFERS. We will reduce the MGIB Base and the MGIB
Base Maximum pro rata 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. This 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.
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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 during the 30-day period
preceding your first contract anniversary after the date of this prospectus,
your MGIB Benefit Date is any contract anniversary on or after the tenth
contract anniversary from 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 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
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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;
(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,
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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 (or you have elected the Combination 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 Combination 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.
[Shaded Section Header]
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WITHDRAWALS
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Any time during the accumulation phase and before the death of the
annuitant, you may withdraw all or part of your money. Keep in mind that
if you request a withdrawal for more than 90% of the cash surrender
value, we will treat it as a request to surrender the Contract. If any
single withdrawal or the sum of withdrawals exceeds the Free Withdrawal
Amount, you will incur a surrender charge. The Free Withdrawal Amount in
any contract year is 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.
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For administrative purposes, we will transfer your money to a specially
designated subaccount (currently, the Liquid Asset subaccount) prior to
processing the withdrawal. This transfer will not effect the withdrawal
amount you receive.
Please be aware that the benefit we pay under certain optional benefit
riders will be reduced by any withdrawals you take while the rider
is in effect. See "Optional Riders."
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each
withdrawal must be a minimum of $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
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Section 72(q) and 72(t) distributions. A Fixed Interest Allocation may
not participate in both the systematic withdrawal option and the dollar
cost averaging program at the same time.
You may change the amount or percentage of your systematic withdrawal
once each contract year or cancel this option at any time by sending
satisfactory notice to our Customer Service Center at least 7 days before
the next scheduled withdrawal date. The systematic withdrawal option may
commence in a contract year where a regular withdrawal has been taken but
you may not change the amount or percentage of your withdrawals in any
contract year during which you have previously taken a regular
withdrawal. You may not elect the systematic withdrawal option if you
are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed
Dollar Systematic Withdrawal Feature to your regular fixed dollar
systematic withdrawal program. This feature allows you to receive a
systematic withdrawal in a fixed dollar amount regardless of any
surrender charges or Market Value Adjustments. Systematic withdrawals
from Fixed Interest Allocations under the Fixed Dollar Systematic
Withdrawal Feature are available only in connection with Section 72(q)
and 72(t) distributions. You choose the amount of the fixed systematic
withdrawals, which may total up to a maximum of 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 free withdrawal amount.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2 during
the current calendar year, you may elect to have distributions made to
you to satisfy requirements imposed by Federal tax law. IRA withdrawals
provide payout of amounts required to be distributed by the Internal
Revenue Service rules governing mandatory distributions under qualified
plans. We will send you a notice before your distributions commence.
You may elect to take IRA withdrawals at that time, or at a later date.
You may not elect IRA withdrawals and participate in systematic
withdrawals at the same time. If you do not elect to take IRA
withdrawals, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax
law may be made. Thus, if you are participating in systematic
withdrawals, distributions under that option must be adequate to satisfy
the mandatory distribution rules imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or
annual basis. Under this option, you may elect payments to start as
early as 28 days after the contract date. You select the day of the
month when the withdrawals will be made, but it cannot be later than the
28th day of the month. If no date is selected, we will make the
withdrawals on the same calendar day of the month as the contract date.
You may request that we calculate for you the amount that is required to
be withdrawn from your Contract each year based on the information you
give us and various choices you make. For information regarding the
calculation and choices you have to make, see the Statement of Additional
Information. The minimum dollar amount you can withdraw is $100. When
we determine the required IRA withdrawal amount for a taxable year based
on the frequency you select, if that amount is less than $100, we will
pay $100. At any time where the IRA withdrawal amount is greater than the
contract value, we will cancel the Contract and send you the amount of
the cash surrender value.
You may change the payment frequency of your IRA withdrawals once each
contract year or cancel this option at any time by sending us
satisfactory notice to our Customer Service Center at least 7 days before
the next scheduled withdrawal date.
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An IRA withdrawal in excess of the amount allowed under systematic
withdrawals will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH
TAKING WITHDRAWALS. You are responsible for determining that withdrawals
comply with applicable law. A withdrawal made before the taxpayer
reaches age 59 1/2 may result in a 10% penalty tax. See "Federal Tax
Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
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You may transfer your contract value among the subaccounts in which you
are invested and your Fixed Interest Allocations at the end of the free
look period until the annuity start date. We currently do not charge you
for transfers made during a contract year, but reserve the right to
charge $25 for each transfer after the twelfth transfer in a contract
year. We also reserve the right to limit the number of transfers you may
make and may otherwise modify or terminate transfer privileges if
required by our business judgement or in accordance with applicable law.
We will apply a Market Value Adjustment to transfers from a Fixed
Interest Allocation taken more than 30 days before its maturity date,
unless the transfer is made under the dollar cost averaging program.
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.
Please be aware that the benefit we pay under an optional benefit rider may
be effected by certain transfers you make while the rider is in effect.
Transfers may also affect your optional rider base. See "Optional Riders."
Transfers will be based on values at the end of the business day in which
the transfer request is received at our Customer Service Center.
The minimum amount that you may transfer is $100 or, if less, your entire
contract value held in a subaccount or a Fixed Interest Allocation.
To make a transfer, you must notify our Customer Service Center and all
other administrative requirements must be met. Any transfer request
received after 4:00 p.m. eastern time or the close of the New York Stock
Exchange will be effected on the next business day. Account B and the
Company will not be liable for following instructions communicated by
telephone or over the internet that we reasonably believe to be genuine.
We require personal identifying information to process a request for
transfer made over the telephone or internet.
DOLLAR COST AVERAGING
You may elect to participate in our dollar cost averaging program if you
have at least $1,200 of contract value in the (i) Limited Maturity Bond
subaccount or the Liquid Asset subaccount, or (ii) a Fixed Interest
Allocation with either a 6-month or a 1-year guaranteed interest period.
These subaccounts or Fixed Interest Allocations serve as the source
accounts from which we will, on a monthly basis, automatically transfer a
set dollar amount of money to other subaccounts selected by you. We also
may offer DCA Fixed Interest Allocations, which are 6-month and 1-year
Fixed Interest Allocations available exclusively for use with the dollar
cost averaging program. The DCA Fixed Interest Allocations require a
minimum premium payment of $1,200 directed into a DCA Fixed Interest
Allocation.
The dollar cost averaging program is designed to lessen the impact of
market fluctuation on your investment. Since we transfer the same dollar
amount to other subaccounts each month, more units of a subaccount are
purchased if the value of its unit is low and less units are purchased if
the value of its unit is high. Therefore, a lower than average value per
unit may be achieved over the long term. However, we cannot guarantee
this. When you elect the dollar cost averaging program, you are
continuously investing in
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securities regardless of fluctuating price levels. You should consider
your tolerance for investing through periods of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar
amount you want transferred under this program. Each monthly transfer
must be at least $100. If your source account is the Limited Maturity
Bond subaccount, the Liquid Asset subaccount or a 1-year Fixed Interest
Allocation, the maximum amount that can be transferred each month is your
contract value in such source account divided by 12. If your source
account is a 6-month Fixed Interest Allocation, the maximum amount that
can be transferred each month is your contract value in such source
account divided by 6. You may change the transfer amount once each
contract year. If you have a DCA Fixed Interest Allocation, there is no
minimum or maximum transfer amount; we will transfer all your money
allocated to that source account into the subaccount(s) in equal payments
over the selected 6-month or 1-year period. The last payment will
include earnings accrued over the course of the selected period. If you
make an additional premium into a Fixed Interest Allocation subject to
dollar cost averaging, the amount of your transfers under the dollar cost
averaging program remains the same, unless you instruct us to increase
the transfer amount.
Transfers from a Fixed Interest Allocation or a DCA Fixed Interest
Allocation under the dollar cost averaging program are not subject to a
Market Value Adjustment. However, if you terminate the dollar cost
averaging program for a DCA Fixed Interest Allocation and there is money
remaining in the DCA Fixed Interest Allocation, we will transfer the
remaining money to the Liquid Asset subaccount. Such transfer will
trigger a Market Value Adjustment if the transfer is made more than 30
days before the maturity date of the DCA Fixed Interest Allocation.
If you do not specify the subaccounts to which the dollar amount of the
source account is to be transferred, we will transfer the money to the
subaccounts in which you are invested on a proportional basis. The
transfer date is the same day each month as your contract date. If, on
any transfer date, your contract value in a source account is equal or
less than the amount you have elected to have transferred, the entire
amount will be transferred and the program will end. You may terminate
the dollar cost averaging program at any time by sending satisfactory
notice to our Customer Service Center at least 7 days before the next
transfer date. A Fixed Interest Allocation or DCA Fixed Interest
Allocation may not participate in the dollar cost averaging program and
in systematic withdrawals at the same time.
We may in the future offer additional subaccounts or withdraw any
subaccount or Fixed Interest Allocation to or from the dollar cost
averaging program, stop offering DCA Fixed Interest Allocations or
otherwise modify, suspend or terminate this program. Of course, such
change will not affect any dollar cost averaging programs in operation at
the time.
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the
subaccounts of Account B, you may elect to have your investments in the
subaccounts automatically rebalanced. We will transfer funds under your
Contract on a quarterly, semi-annual, or annual calendar basis among the
subaccounts to maintain the investment blend of your selected
subaccounts. The minimum size of any allocation must be in full
percentage points. Rebalancing does not affect any amounts that you have
allocated to the Fixed Account. The program may be used in conjunction
with the systematic withdrawal option only if withdrawals are taken pro
rata. Automatic rebalancing is not available if you participate in
dollar cost averaging. Automatic rebalancing will not take place during
the free look period.
To participate in automatic rebalancing, send satisfactory notice to our
Customer Service Center. We will begin the program on the last business
day of the period in which we receive the notice. You may cancel the
program at any time. The program will automatically terminate if you
choose to reallocate your contract value among the subaccounts or if you
make an additional premium payment or partial withdrawal on other than a
pro rata basis. Additional premium payments and partial withdrawals
effected on a pro rata basis will not cause the automatic rebalancing
program to terminate.
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DEATH BENEFIT CHOICES
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either the
annuitant (when a contract owner is not an individual), the contract
owner or the first of joint owners dies. Assuming you are the contract
owner, your beneficiary will receive a death benefit unless the
beneficiary is your surviving spouse and elects to continue the Contract.
The death benefit value is calculated at the close of the business day on
which we receive written notice and due proof of death, as well as any
required paperwork, at our Customer Service Center. If your
beneficiary elects to delay receipt of the death benefit until a date
after the time of death, the amount of the benefit payable in the future
may be affected. The proceeds may be received in a single sum or applied
to any of the annuity options. If we do not receive a request to apply
the death benefit proceeds to an annuity option, we will make a single
sum distribution. We will generally pay death benefit proceeds within 7
days after our Customer Service Center has received sufficient
information to make the payment.
You may choose from the following 4 death benefit choices: (1) the
Standard Death Benefit Option; (2) the 7% Solution Enhanced Death Benefit
Option; (3) the Annual Ratchet Enhanced Death Benefit Option; and (4) the
Max 7 Enhanced Death Benefit Option. Once you choose a death
benefit, it cannot be changed. We may in the future stop or suspend
offering any of the enhanced death benefit options to new Contracts. A
change in ownership of the Contract may affect the amount of the death
benefit and the enhanced death benefit. The MGWB rider may affect the
death benefit. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider-
Death 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 benefit option, the 7% Solution Enhanced Death
Benefit and the Annual Ratchet Enhanced Death Benefit are calculated in
the same manner as if each were the elected benefit.
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[Table with Shaded Header]
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| HOW THE ENHANCED DEATH BENEFIT IS CALCULATED |
| 7% SOLUTION ANNUAL RATCHET |
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| On each business day that On each contract anniversary |
| occurs on or before the that occurs on or before the |
| contract owner turns 80, we contract owner turns age 80, |
| credit interest at the 7% we compare the prior enhanced |
| annual effective rate* to the death benefit to the contract |
| enhanced death benefit from the value and select the larger |
| preceding day (which would be amount as the new enhanced |
| the initial premium if the death benefit. |
| preceding day is the contract |
| date), then we add additional On all other days, the |
| premiums paid since the enhanced death benefit is the |
| preceding day, then we adjust amount determined below. We |
| for any withdrawals made first take the enhanced death |
| (including any Market Value benefit from the preceding day |
| Adjustment applied to such (which would be the initial |
| withdrawals and any associated premium if the valuation date |
| surrender charges**) since the is the contract date) and then |
| preceding day. At age 80 or at we add additional premiums |
| the time the maximum death paid since the preceding day, |
| benefit is reached, the then we reduce the Enhanced |
| accumulation rate used will Death Benefit pro rata for |
| change. any contract value withdrawn. |
| The maximum enhanced death That amount becomes the new |
| benefit is 3 times all premium 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 the Liquid Asset and Limited
Maturity Bond investment portfolios and the Fixed Account,
will be the lesser of (1) 7% and (2) the interest rate,
positive or negative, providing a yield on the
Guaranteed Death Benefit equal to the net return
for the current valuation period on the contract value
allocated to Special Funds. We may, with 30 days notice to
you, designate any fund as a Special Fund on existing contracts
with respect to new premiums added to such fund and also with
respect to new transfers to such funds. Thus, selecting these
investments may limit the enhanced death benefit 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. 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 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:
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If the guaranteed death benefit as of the date we receive due proof of
death, minus the contract value also on that date, is greater than zero,
we will add such difference to the contract value. Such addition will be
allocated to the variable subaccounts in proportion to the contract value
in the subaccounts. If there is no contract value in any subaccount, the
addition will be allocated to the Liquid Assets 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 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 if this 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 normal distribution
rules.
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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%
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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
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 you have a contract value of $100,000 or more at the end of a
contract year or the sum of the premiums paid equals or exceeds $100,000.
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
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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.
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 during the 5-year period after the
rider date, reduced pro rata for all withdrawls taken while the MGIB rider
is in effect, and accumulated at the MGIB
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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
Premium 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. Please read the respective Trust prospectus for details.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start date,
we will begin making payments to the contract owner under an income plan.
We will make these payments under the annuity option chosen. You may
change annuity option by making a written request to us at least 30 days
before the annuity start date. The amount of the payments will be
determined by applying your contract value adjusted for any applicable
Market Value Adjustment on the annuity start date in accordance with the
annuity option you chose. 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. See "Federal Tax
Considerations" and the Statement of Additional Information. For a
Contract purchased in connection with a qualified plan, other than a Roth
IRA, distributions must commence not later than April 1st of the calendar
year following the calendar year in which you attain age 70 1/2 or, in
some cases, retire. Distributions may be made through annuitization or
withdrawals. You should consult your tax adviser for tax advice.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written
notice from you, we will make the payments monthly. There may be certain
restrictions on minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options 1, 2
and 3 are fixed. Payments under Option 4 may be fixed or variable. For
a fixed annuity option, the contract value in the subaccounts is
transferred to the Company's general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make
monthly payments in equal installments for a fixed number of years based
on the contract value on the annuity start date. We guarantee that each
monthly payment will be at least the amount stated in your Contract. If
you prefer, you may request that payments be made in annual, semi-annual
or quarterly installments. We will provide you with illustrations if you
ask for them. If the cash surrender value or contract value is applied
under this option, a 10% penalty tax may apply to the taxable portion of
each income payment until the contract owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Payment is made for
the life of the annuitant in equal monthly installments and guaranteed
for at least a period certain such as 10 or 20 years. Other periods
certain may be available to you on request. You may choose a refund
period instead. Under this arrangement, income is guaranteed until
payments equal the amount applied. If the person named lives beyond the
guaranteed period, payments continue until his or her death. We
guarantee that each payment will be at least the amount specified in the
Contract corresponding to the person's age on his or her last
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birthday before the annuity start date. Amounts for ages not shown in
the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there are 2
persons named to determine annuity payments. At least one of the persons
named must be either the contract owner or beneficiary of the Contract.
We guarantee monthly payments will be made as long as at least one of the
named persons is living. There is no minimum number of payments.
Monthly payment amounts are available if you ask for them.
OPTION 4. ANNUITY PLAN. The contract value can be applied to any other
annuitization plan that we choose to offer on the annuity start date. Annuity
payments under Option 4 may be fixed or variable. If variable and subject to
the Investment Company Act of 1940, it will comly 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 Coustomer Service
Center of any errors or discrepancies contained in the report. We will
also send you copies of any shareholder reports of the investment portfolios
in which Account B invests, as well as any other reports, notices or
documents we are required by law to furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any
payment or determination of values on any business day (1) when the New
York Stock Exchange is closed; (2) when trading on the New York Stock
Exchange is restricted; (3) when an emergency exists as determined by the
SEC so that the sale of securities held in Account B may not reasonably
occur or so that the Company may not reasonably determine the value of
Account B's net assets; or (4) during any other period when the SEC so
permits for the protection of security holders. We have the right to
delay payment of amounts from a Fixed Interest Allocation for up to 6
months.
IN CASE OF ERRORS IN YOUR APPLICATION
If an age or sex given in the application or enrollment form is
misstated, the amounts payable or benefits provided by the Contract shall
be those that the premium payment would have bought at the correct age or
sex.
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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 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 will be allocated
during the free look period to a subaccount specially designated by the
Company for this purpose (currently, the Liquid Asset subaccount). We
may, in our discretion, require that premiums designated for investment
in the subaccounts from all other states as well as premiums designated
for a Fixed Interest Allocation be allocated to the specially designated
subaccount during the free look period. Your Contract is void as of the
day we receive your Contract and cancellation request. We determine your
contract value at the close of business on the day we receive your
written request. If you keep your Contract after the free look period,
we will put your money in the subaccount(s) chosen by you, based on the
accumulation unit value next computed for each subaccount, and/or in the
Fixed Interest Allocation chosen by you.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any surrender,
administration, and mortality and expense risk charges. We may also
change the minimum initial and additional premium requirements, or offer
an alternative or reduced death benefit.
SELLING THE CONTRACT
Directed Services, Inc. is the principal underwriter and distributor of
the Contract as well as for other contracts issued through Account B and
other separate accounts of Golden American. We pay Directed Services for
acting as principal underwriter under a distribution agreement which in
turn pays the writing agent. The principal address of Directed Services
is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380.
Directed Services enters into sales agreements with broker-dealers to
sell the Contracts through registered representatives who are licensed to
sell securities and variable insurance products. These broker-dealers
are registered with the SEC and are members of the National Association
of Securities Dealers, Inc. Directed Services receives a maximum of 6.5%
commission, and passes through 100% of the commission to the broker-
dealer whose registered representative sold the Contract.
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[Table with Shaded Header]
|----------------------------------------------------------|
| UNDERWRITER COMPENSATION |
|----------------------------------------------------------|
| NAME OF | AMOUNT OF | OTHER |
| PRINCIPAL | COMMISSION TO BE | COMPENSATION |
| UNDERWRITER | PAID | Reimbursement of |
| | Maximum of 6.5% | any |
| Directed | of any initial | covered expenses |
| Services, Inc. | or additional | incurred |
| | premium payments | by registered |
| | except when | representatives |
| | combined | in |
| | with some annual | connection with |
| | trail | the distribution |
| | commissions. | of the |
| | | Contracts. |
|----------------------------------------------------------|
Certain sales agreements may provide for a combination of a certain
percentage of commission at the time of sale and an annual trail
commission (which when combined could exceed 6.5% of total premium
payments).
We do not pay any additional commissions on the sale or exercise of any
of the optional benefit riders offered in this prospectus.
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OTHER INFORMATION
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VOTING RIGHTS
We will vote the shares of a Trust owned by Account B according to your
instructions. However, if the Investment Company Act of 1940 or any
related regulations should change, or if interpretations of it or related
regulations should change, and we decide that we are permitted to vote
the shares of a Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a subaccount by
dividing the Contract's contract value in that subaccount by the net
asset value of one share of the portfolio in which a subaccount invests.
We count fractional votes. We will determine the number of shares you
can instruct us to vote 180 days or less before a Trust's meeting. We
will ask you for voting instructions by mail at least 10 days before the
meeting. If we do not receive your instructions in time, we will vote
the shares in the same proportion as the instructions received from all
contracts in that subaccount. We will also vote shares we hold in
Account B which are not attributable to contract owners in the same
proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware.
We are also subject to the insurance laws and regulations of all
jurisdictions where we do business. The variable Contract offered by
this prospectus has been approved where required by those jurisdictions.
We are required to submit annual statements of our operations, including
financial statements, to the Insurance Departments of the various
jurisdictions in which we do business to determine solvency and
compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be involved in lawsuits,
including class action lawsuits. In some class action and other lawsuits
involving insurers, substantial damages have been sought and/or material
settlement payments have been made. We believe that currently there are
no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the Company or Account B.
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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 Life Insurance
Company and Account B appearing in this prospectus or in the Statement of
Additional Information and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing in this prospectus or in the Statement of Additional
Information and in the Registration Statement and are included or
incorporated by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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FEDERAL TAX CONSIDERATIONS
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The following summary provides a general description of the federal
income tax considerations associated with this Contract and does not
purport to be complete or to cover all tax situations. This discussion
is not intended as tax advice. You should consult your counsel or other
competent tax advisers for more complete information. This discussion is
based upon our understanding of the present federal income tax laws. We
do not make any representations as to the likelihood of continuation of
the present federal income tax laws or as to how they may be interpreted
by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or purchased
on a tax-qualified basis. Qualified Contracts are designed for use by
individuals whose premium payments are comprised solely of proceeds from
and/or contributions under retirement plans that are intended to qualify
as plans entitled to special income tax treatment under Sections 401(a),
403(b), 408, or 408A of the Code. The ultimate effect of federal income
taxes on the amounts held under a Contract, or annuity payments, depends
on the type of retirement plan, on the tax and employment status of the
individual concerned, and on our tax status. In addition, certain
requirements must be satisfied in purchasing a qualified Contract with
proceeds from a tax-qualified plan and receiving distributions from a
qualified Contract in order to continue receiving favorable tax
treatment. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Contract administration
procedures. Contract owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the Contract comply with applicable law.
Therefore, you should seek competent legal and tax advice regarding the
suitability of a Contract for your particular situation. The following
discussion assumes that qualified Contracts are purchased with proceeds
from and/or contributions under retirement plans that qualify for the
intended special federal income tax treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments
of a variable account be "adequately diversified" in order for non-qualified
Contracts to be treated as annuity contracts for federal income tax
purposes. It is intended that Account B, through the subaccounts, will
satisfy these diversification requirements.
In certain circumstances, owners of variable annuity contracts have been
considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability
to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains
attributable to the separate account assets. There is little guidance in
this area, and some features of the Contracts, such as the flexibility of
a contract owner to allocate premium payments and transfer contract
values, have not been explicitly addressed in published rulings. While
we believe that the Contracts do not give contract owners investment
control over Account B assets, we reserve
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the right to modify the Contracts as necessary to prevent a contract owner
from being treated as the owner of the Account B assets supporting the
Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract
for federal income tax purposes, the Code requires any non-qualified
Contract to contain certain provisions specifying how your interest in
the Contract will be distributed in the event of your death. The non-
qualified Contracts contain provisions that are intended to comply with
these Code requirements, although no regulations interpreting these
requirements have yet been issued. We intend to review such provisions
and modify them if necessary to assure that they comply with the
applicable requirements when such requirements are clarified by
regulation or otherwise. See "Death Benefit Choices" for additional
information on required distributions from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as
annuity contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will
generally not be taxed on increases in the value of a Contract until a
distribution occurs or until annuity payments begin. (For these
purposes, the agreement to assign or pledge any portion of the contract
value, and, in the case of a qualified Contract, any portion of an
interest in the qualified plan, generally will be treated as a
distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a
natural person generally must include in income any increase in the
excess of the contract value over the "investment in the contract"
(generally, the premiums or other consideration you paid for the contract
less any non-taxable 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 advisor as to the tax consequences.
WITHHOLDING. Annuity distributions are generally subject to
withholding for the recipient's federal income tax liability. Recipients
can generally elect, however, not to have tax withheld from
distributions.
MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that
are issued by us (or our affiliates) to the same contract owner during
any calendar year are treated as one non-qualified deferred annuity
contract for purposes of determining the amount includible in such
contract owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary
according to the type of plan and the terms and contributions of the plan
itself. Special favorable tax treatment may be available for certain
types of contributions and distributions. Adverse tax consequences may
result from: contributions in excess of specified limits; distributions
before age 59 1/2 (subject to certain exceptions); distributions that do
not conform to specified commencement and minimum distribution rules; and
in other specified circumstances. Therefore, no attempt is made to
provide more than general information about the use of the Contracts with
the various types of qualified retirement plans. Contract owners,
annuitants, and beneficiaries are cautioned that the rights of any person
to any benefits under these qualified retirement plans may be subject to
the terms and conditions of the plans themselves, regardless of the terms
and conditions of the Contract, but we shall not be bound by the terms
and conditions of such plans to the extent such terms contradict the
Contract, unless the Company consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same manner
as under a non-qualified Contract. When a withdrawal from a qualified
Contract occurs, a pro rata portion of the amount received is taxable,
generally based on the ratio of the contract owner's investment in the
Contract (generally, the premiums or other consideration paid for the
Contract) to the participant's total accrued benefit balance under the
retirement plan. For qualified Contracts, the investment in the
Contract can be zero. For Roth IRAs, distributions are generally not
taxed, except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires
that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the
contract owner (or plan participant) (i) reaches age 70 1/2 or (ii)
retires, and must be made in a specified form or manner. If the plan
participant is a "5 percent owner" (as defined in the Code),
distributions generally
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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.
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 owner of a non-qualified Contract dies before the annuity start
date, the death benefit payable to the beneficiary will be distributed as
follows: (a) the death benefit must be completely distributed within 5
years of the contract owner's date of death; or (b) the beneficiary may
elect, within the 1-year period after the contract owner's date of death,
to receive the death benefit in the form of an annuity from us, provided
that (i) such annuity is distributed in substantially equal installments
over the life of such beneficiary or over a period not extending beyond
the life expectancy of such beneficiary; and (ii) such distributions
begin not later than 1 year after the contract owner's date of death.
Notwithstanding (a) and (b) above, if the sole contract owner's
beneficiary is the deceased owner's surviving spouse, then such spouse
may elect to continue the Contract under the same terms as before the
contract owner's death. Upon receipt of such election from the spouse at
our Customer Service Center: (1) all rights of the spouse as contract
owner's beneficiary under the Contract in effect prior to such election
will cease; (2) the spouse will become the owner of the Contract and will
also be treated as the contingent annuitant, if none has been named and
only if the deceased owner was the annuitant; and (3) all rights and
privileges granted by the Contract or allowed by Golden American will
belong to the spouse as contract owner of the Contract. This election
will be deemed to have been made by the spouse if such spouse makes a
premium payment to the Contract or fails to make a timely election as
described in this paragraph. If the owner's beneficiary is a nonspouse,
the distribution provisions described in subparagraphs (a) and (b) above,
will apply even if the annuitant and/or contingent annuitant are alive at
the time of the contract owner's death.
If we do not receive an election from a nonspouse owner's beneficiary
within the 1-year period after the contract owner's date of death, then
we will pay the death benefit to the owner's beneficiary in a cash
payment within five years from date of death. We will determine the
death benefit as of the date we receive proof of death. We will make
payment of the proceeds on or before the end of the 5-year period
starting on the owner's date of death. Such cash payment will be in full
settlement of all our liability under the Contract.
If the contract owner dies after the annuity start date, we will continue
to distribute any benefit payable at least as rapidly as under the
annuity option then in effect. All of the contract owner's rights
granted under the Contract or allowed by us will pass to the contract
owner's beneficiary.
If the Contract has joint owners we will consider the date of death of
the first joint owner as the death of the contract owner and the
surviving joint owner will become the contract owner of the Contract.
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CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Section 401(a) of the Code permits corporate employers to establish
various types of retirement plans for employees, and permits self-
employed individuals to establish these plans for themselves and their
employees. These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax
or other legal consequences to the plan, to the participant, or to both
may result if this Contract is assigned or transferred to any individual
as a means to provide benefit payments, unless the plan complies with all
legal requirements applicable to such benefits before transfer of the
Contract. Employers intending to use the Contract with such plans should
seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
or "IRA." These IRAs are subject to limits on the amount that can be
contributed, the deductible amount of the contribution, the persons who
may be eligible, and the time when distributions commence. Also,
distributions from certain other types of qualified retirement plans may
be "rolled over" or transferred on a tax-deferred basis into an IRA.
There are significant restrictions on rollover or transfer contributions
from Savings Incentive Match Plans (SIMPLE), under which certain
employers may provide contributions to IRAs on behalf of their employees,
subject to special restrictions. Employers may establish Simplified
Employee Pension (SEP) Plans to provide IRA contributions on behalf of
their employees. Sales of the Contract for use with IRAs may be subject
to special requirements of the IRS.
ROTH IRAS
Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject
to certain limitations, are not deductible, and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover
from or conversion of an IRA to a Roth IRA may be subject to tax, and
other special rules may apply. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10% penalty tax may apply
to distributions made (1) before age 59 1/2 (subject to certain
exceptions) or (2) during the five taxable years starting with the year
in which the first contribution is made to any Roth IRA.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their gross income the
premium payments made, within certain limits, on a Contract that will
provide an annuity for the employee's retirement. These premium payments
may be subject to FICA (social security) tax. Distributions of (1)
salary reduction contributions made in years beginning after December 31,
1988; (2) earnings on those contributions; and (3) earnings on amounts
held as of the last year beginning before January 1, 1989, are not
allowed prior to age 59 1/2, separation from service, death or disability.
Salary reduction contributions may also be distributed upon hardship, but
would generally be subject to penalties.
ENHANCED DEATH BENEFIT
The Contract includes an Enhanced Death Benefit that in some cases may
exceed the greater of the premium payments or the contract value. The
Internal Revenue Service has not ruled whether an Enhanced Death Benefit
could be characterized as an incidental benefit, the amount of which is
limited in any Code section 401(a) pension or profit-sharing plan or Code
section 403(b) tax sheltered annuity. Employers using the Contract may
want to consult their tax adviser regarding such limitation. Further,
the Internal Revenue Service has not addressed in a ruling of general
applicability whether a death benefit provision such as the Enhanced
Death Benefit provision in the Contract comports with IRA or Roth IRA
qualification requirements.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the Contracts are not exhaustive, and special rules are provided
with respect to other tax situations not discussed in this prospectus.
Further, the federal income tax consequences discussed herein reflect our
understanding of current law, and the law may change. Federal estate and
state and local estate, inheritance and other tax consequences of
ownership or receipt of distributions under a Contract depend on the
individual
48
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<PAGE>
circumstances of each contract owner or recipient of the distribution.
A competent tax adviser should be consulted for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the Contracts could
change by legislation or other means. It is also possible that any
change could be retroactive (that is, effective before the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the Contract.
48
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<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following selected financial data prepared in accordance with
generally accepted accounting principles ("GAAP") for Golden
American should be read in conjunction with the financial
statements and notes thereto included in this prospectus.
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of
Equitable of Iowa Companies ("Equitable of Iowa"), according to a
merger agreement among Equitable of Iowa, PFHI, and ING Groep N.V.
(the "ING acquisition"). On August 13, 1996, Equitable of Iowa
acquired all of the outstanding capital stock of BT Variable,
Inc., then the parent of Golden American (the "Equitable
acquisition"). For financial statement purposes, the ING
acquisition was accounted for as a purchase effective October 25,
1997 and the Equitable acquisition was accounted for as a purchase
effective August 14, 1996. As a result, the financial data
presented below for periods after October 24, 1997, are presented
on the Post-Merger new basis of accounting, for the period August
14, 1996 through October 24, 1997, are presented on the Post-
Acquisition basis of accounting, and for August 13, 1996 and prior
periods are presented on the Pre-Acquisition basis of accounting.
<TABLE>
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
Post-Merger | Post-Acquisition
--------------------------------------------|---------------------------------
For the Period For For the Period | For the Period For the Period
January 1, 1999 the Year October 25, | January 1, August 14, 1996
through Ended 1997 through | 1997 through 1996 through
September 30, December 31, December 31, | October 24, December 31,
1999 1998 1997 | 1997 1996
------------ ------------ -------------- | -------------- ---------------
<S> <C> <C> <C> | <C> <C>
Annuity and Interest |
Sensitive Life |
Product Charges....... $ 55,195 $ 39,119 $ 3,834 | $18,288 $ 8,768
Net Income before |
Federal Income Tax.... $ 7,269 $ 10,353 $ (279) | $ (608) $ 570
Net Income (Loss)....... $ 3,551 $ 5,074 $ (425) | $ 729 $ 350
Total Assets............ $7,312,027 $4,752,533 $2,446,395 | N/A $1,677,899
Total Liabilities....... $6,858,151 $4,398,639 $2,219,082 | N/A $1,537,415
Total Stockholder's |
Equity................ $ 453,876 $ 353,894 $ 227,313 | N/A $ 140,484
</TABLE>
49
<PAGE>
<PAGE>
<TABLE>
(IN THOUSANDS)
Pre-Acquisition
---------------------------------------
For the Period
January 1, For the Years
1996 through Ended December 31,
August 13, ----------------------
1996 1995 1994
-------------- ---------- ----------
<S> <C> <C> <C>
Annuity and Interest
Sensitive Life
Product Charges....... $12,259 $ 18,388 $ 17,519
Net Income before
Federal Income Tax.... $ 1,736 $ 3,364 $ 2,222
Net Income (Loss)....... $ 3,199 $ 3,364 $ 2,222
Total Assets............ N/A $1,203,057 $1,044,760
Total Liabilities....... N/A $1,104,932 $ 955,254
Total Stockholder's
Equity................ N/A $ 98,125 $ 89,506
</TABLE>
BUSINESS ENVIRONMENT
The current business and regulatory environment remains
challenging for the insurance industry. The variable annuity
competitive environment is intense and is dominated by a number of
large variable product companies with strong distribution, name
recognition and wholesaling capabilities. Increasing competition
from traditional insurance carriers as well as banks and mutual
fund companies offer consumers many choices. However, overall
demand for variable products remains strong for several reasons
including: strong stock market performance over the last five
years; relatively low interest rates; an aging U. S. population
that is increasingly concerned about retirement and estate
planning, as well as maintaining their standard of living in
retirement; and potential reductions in government and employer-
provided benefits at retirement as well as lower public confidence
in the adequacy of those benefits.
In October of 1997, Golden American introduced three new variable
annuity products (GoldenSelect Access, GoldenSelect ES II and
GoldenSelect Premium Plus) which have contributed significantly to
sales.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze Golden
American Life Insurance Company's ("Golden American") consolidated
results of operations. In addition, some analysis and information
regarding financial condition and liquidity and capital resources
has also been provided. This analysis should be read jointly with
the consolidated financial statements, related notes and the
Cautionary Statement Regarding Forward-Looking Statements, which
appear elsewhere in the financial 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 OPERATIONS
MERGER. On October 23, 1997, Equitable of Iowa Companies'
("Equitable") shareholders approved an Agreement and Plan of
Merger ("Merger Agreement") dated July 7, 1997 among Equitable,
PFHI Holdings, Inc. ("PFHI") and ING Groep N.V. ("ING"). On
October 24, 1997, PFHI, a Delaware corporation, acquired all of
the outstanding capital stock of Equitable according to the Merger
Agreement. PFHI is a wholly owned subsidiary of ING, a global
financial services holding company based in The Netherlands.
Equitable, an Iowa corporation, in turn owned all the outstanding
capital stock of Equitable Life Insurance Company of Iowa
("Equitable Life") and Golden American and their wholly owned
subsidiaries. In addition, Equitable owned all the outstanding
capital stock of Locust Street Securities, Inc., Equitable
Investment Services, Inc. (subsequently dissolved), Directed
Services, Inc. ("DSI"), Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds
Distributor, Inc.). In exchange for the outstanding capital stock
of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock and assumed approximately $400 million
50
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in debt. As a result of this transaction, Equitable of Iowa
Companies was merged into PFHI, which was simultaneously renamed
Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware
corporation.
For financial statement purposes, the change in control of the
Companies through the ING merger was accounted for as a purchase
effective October 25, 1997. This merger resulted in a new basis of
accounting reflecting estimated fair values of assets and
liabilities at the merger date. As a result, the Companies'
financial statements for periods after October 24, 1997 are
presented on the Post-Merger new basis of accounting.
The purchase price was allocated to EIC and its subsidiaries with
$227.6 million allocated to the Companies. Goodwill of $1.4
billion was established for the excess of the merger cost over the
fair value of the assets and liabilities of EIC with $151.1
million attributed to the Companies. Goodwill resulting
from the merger is being amortized over 40 years on a straight-line
basis. The carrying value will be reviewed periodically for any
indication of impairment in value.
CHANGE IN CONTROL--ACQUISITION. On August 13, 1996, Equitable
acquired all of the outstanding capital stock of BT Variable, Inc.
("BT Variable") and its wholly owned subsidiaries, Golden American
and DSI. After the acquisition, the BT Variable, Inc. name was
changed to EIC Variable, Inc. On April 30, 1997, EIC Variable,
Inc. was liquidated and its investments in Golden American and DSI
were transferred to Equitable, while the remainder of its net
assets were contributed to Golden American. On December 30, 1997,
EIC Variable, Inc. was dissolved.
For financial statement purposes, the change in control of Golden
American through the acquisition of BT Variable was accounted for
as a purchase effective August 14, 1996. This acquisition resulted
in a new basis of accounting reflecting estimated fair values of
assets and liabilities at the acquisition date. As a result, the
Companies' financial statements for the period August 14, 1996
through October 24, 1997 are presented on the Post-Acquisition
basis of accounting and for August 13, 1996 and prior periods are
presented on the Pre-Acquisition basis of accounting.
The purchase price was allocated to the three companies purchased
- - BT Variable, DSI, and Golden American. The allocation of the
purchase price to Golden American was approximately $139.9
million. Goodwill of $41.1 million was established for the excess
of the acquisition cost over the fair value of the assets and
liabilities and attributed to Golden American. At June 30, 1997,
goodwill was increased by $1.8 million due to the adjustment of
the value of a receivable existing at the acquisition date. Before
the ING merger, goodwill resulting from the acquisition was being
amortized over 25 years on a straight-line basis.
<TABLE>
THE FIRST NINE MONTHS OF 1999 COMPARED TO THE SAME PERIOD OF 1998
PREMIUMS.
PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Variable annuity premiums:
Separate account................ $1,783.5 64.9% $702.1 $1,081.4
Fixed account................... 539.4 55.6 192.8 346.6
-------- ---- ------ --------
Total variable annuity premiums... 2,322.9 62.7 894.9 1,428.0
Variable life premiums............ 7.0 (38.9) (4.4) 11.4
-------- ---- ------ --------
Total premiums.................... $2,329.9 61.9% $890.5 $1,439.4
======== ==== ====== ========
</TABLE>
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 income and
product charges.
Variable annuity separate account premiums increased 64.9% during the
first nine months of 1999. The fixed account portion of the Companies'
variable annuity premiums increased 55.6% during the first nine
51
<PAGE>
<PAGE>
months of 1999. These increases resulted from increased sales of the
Premium Plus variable annuity product.
Premiums, net of reinsurance, for variable products from two
significant broker/dealers each having at least ten percent of total
sales for the nine months ended September 30, 1999 totaled $664.2
million, or 29% of total premiums ($142.6 million, or 10%, from the
one significant broker/dealer for the nine months ended September 30,
1998).
<TABLE>
REVENUES.
PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30 1999 CHANGE CHANGE 1998
---- ---------- ------ ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Annuity and interest sensitive
life product charges............ $ 55.2 104.5% $ 28.2 $ 27.0
Management fee revenue............ 6.8 107.4 3.5 3.3
Net investment income............. 42.7 45.7 13.4 29.3
Realized gains(losses) on
investments..................... (2.2) (607.5) (2.6) 0.4
Other income...................... 7.4 55.0 2.6 4.8
------- ------ ------ ------
Total premiums.................... $ 109.9 69.6% $ 45.1 $ 64.8
======= ====== ====== ======
</TABLE>
Total revenues increased 69.6% in the first nine months of 1999 from
the same period in 1998. Annuity and interest sensitive life product
charges increased 104.5% in the first nine months of 1999 due to
additional fees earned from the increasing block of business
in the 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 $6.8 million and $3.3
million for the first nine months of 1999 and 1998, respectively.
Net investment income increased 45.7% in the first nine months of 1999
due to growth in invested assets from September 30, 1998. The
Companies had $2.2 million of realized losses resulting from the
writedown of two fixed maturities in the second quarter of 1999 and
from the sale of investments in the first nine months of 1999,
compared to gains of $0.4 million in the same period of 1998. Other
income increased $2.6 million to $7.4 million in the first nine months
of 1999 due primarily to income received due to a modified coinsurance
agreement with an unaffiliated reinsurer, which was offset by a
reduction in the Companies' deferred policy acquisition costs.
EXPENSES. Total insurance benefits and expenses increased $44.5
million, or 84.6%, to $97.0 million in the first nine months of 1999.
Interest credited to account balances increased $61.3 million, or
95.6%, to $125.4 million in the first nine months of 1999. The extra
credit bonus on the Premium Plus variable annuity product increased
$49.9 million to $85.7 million at September 30, 1999 resulting in an
increase in interest credited during the first nine months of 1999
compared to the same period in 1998. The bonus interest on the fixed
account increased $2.6 million to $7.6 million at September 30, 1999
resulting in an increase in interest credited during the first nine
months of 1999 compared to the same period in 1998. The remaining
increase in interest credited relates to higher account balances
associated with the Companies' fixed account option within the
variable products.
Commissions increased $49.6 million, or 58.4%, to $134.6 million in
the first nine months of 1999. Insurance taxes, state licenses, and
fees increased $0.9 million, or 32.3%, to $3.5 million in the first
nine months of 1999. 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. Most costs incurred as the result of sales have been deferred,
thus having very little impact on current earnings.
52
<PAGE>
<PAGE>
General expenses increased $24.1 million, or 102.5%, to $47.6 million
in the first nine months of 1999. Management expects general expenses
to continue to increase in 1999 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 and Equitable Life, an affiliate, for certain advisory,
computer, and other resources and services provided by Golden
American.
The Companies' previous balances of deferred policy acquisition costs
("DPAC"), value of purchased insurance in force ("VPIF"), and unearned
revenue reserve were eliminated and an asset of $44.3 million
representing VPIF was established for all policies in force at the
merger date. During the first nine months of 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
the first nine months of 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. Amortization of DPAC increased
$15.7 million, or 390.7%, in the first nine months of 1999. This
increase resulted from growth in policy acquisition costs deferred
from $133.6 million at September 30, 1998 to $244.8 million at
September 30, 1999, which was generated by expenses associated with
the large sales volume experienced since September 30, 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 September 30, 1999 is $1.1 million
for the remainder of 1999, $4.3 million in 2000, $4.0 million in 2001,
$3.6 million in 2002, $3.2 million in 2003, and $2.4 million in 2004.
Actual amortization may vary based upon changes in assumptions and
experience.
Amortization of goodwill during the first nine months of 1999 totaled
$2.8 million, unchanged from the first nine months of 1998. Goodwill
resulting from the merger is being amortized on a straight-line basis
over 40 years.
Interest expense on the $25 million surplus note issued in December
1996 and expiring December 2026 was $1.5 million in the first nine
months of 1999, unchanged from the same period of 1998. Interest
expense on the $60 million surplus note issued in December 1998 and
expiring December 2028 was $3.3 million in the first nine months of
1999. Golden American also paid $0.7 million in the first nine months
of 1999 compared to $1.3 million in the same period of 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 $0.1 million for the first
nine months of 1999. In addition, Golden American paid interest of
$0.2 million during the first quarter of 1998 on the line of
credit with Equitable, which was repaid with a capital contribution
from the Parent and with funds borrowed from ING AIH.
INCOME. Net income for the first nine months of 1999 was $3.6
million, a decrease of $1.3 million from net income of $4.9 million in
the same period of 1998.
Comprehensive loss for the first nine months of 1999 was $18,000, a
decrease of $5.5 million from comprehensive income of $5.5 million in
the same period of 1998.
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition
activity for 1997.
53
<PAGE>
<PAGE>
PREMIUMS.
<TABLE>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions) |
<S> <C> <C> <C> | <C>
Variable annuity |
premiums: |
Separate account.... $1,513.3 $291.2 $111.0 | $180.2
Fixed account....... 588.7 318.0 60.9 | 257.1
-------- ------ ------ | ------
2,102.0 609.2 171.9 | 437.3
Variable life |
premiums............ 13.8 15.6 1.2 | 14.4
-------- ------ ------ | ------
Total premiums........ $2,115.8 $624.8 $173.1 | $451.7
======== ====== ====== | ======
</TABLE>
For the Companies' variable contracts, premiums collected are not
reported as revenues, but are reported as deposits to insurance
liabilities. Revenues for these products are recognized over time in
the form of investment income and product charges.
Variable annuity separate account premiums increased 419.7% in 1998
primarily due to increased sales of the Premium Plus product
introduced in October of 1997 and the increased sales levels of the
Companies' other products. The fixed account portion of the Companies'
variable annuity premiums increased 85.1% in 1998. Variable life
premiums decreased 11.4% in 1998. Total premiums increased 238.7% in
1998.
During 1998, the Companies' sales were further diversified among
broker/dealers. Premiums, net of reinsurance, for variable products
from two significant broker/dealers having at least ten percent of
total sales for the year ended December 31, 1998 totaled $580.7
million, or 27% of premiums ($328.2 million, or 53% from two
significant broker/dealers for the year ended December 31, 1997).
REVENUES.
<TABLE>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions) |
<S> <C> <C> <C> | <C>
Annuity and interest |
sensitive life |
product charges...... $39.1 $22.1 $3.8 | $18.3
Management fee |
revenue.............. 4.8 2.8 0.5 | 2.3
Net investment |
income............... 42.5 26.8 5.1 | 21.7
Realized gains (losses) |
on investments....... (1.5) 0.1 -- | 0.1
Other income........... 5.6 0.7 0.3 | 0.4
----- ----- ---- | -----
$90.5 $52.5 $9.7 | $42.8
===== ===== ==== | =====
</TABLE>
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.
54
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<PAGE>
Golden American provides certain managerial and supervisory services
to DSI. The fee paid to Golden American for these services, which is
calculated as a percentage of average assets in the variable separate
accounts, was $4.8 million for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5
million in 1998 from $26.8 million in 1997 due to growth in invested
assets. During 1998, the Company had net realized losses on
investments of $1.5 million, which included a $1.0 million write down
of two impaired bonds, compared to gains of $0.1 million in 1997.
Other income increased $4.9 million to $5.6 million in 1998 due
primarily to income received under a modified coinsurance agreement
with an unaffiliated reinsurer as a result of increased sales.
EXPENSES.
<TABLE>
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 1997
ended ended through | through
December 31, 1998 December 31, 1997 December 31, 1997 | October 24, 1997
----------------- ----------------- ----------------- | ----------------
(Dollars in millions) |
<S> <C> <C> <C> | <C>
Insurance benefits |
and expenses: |
Annuity and interest |
sensitive life |
benefits: |
Interest credited to |
account balances.. $94.9 $26.7 $7.4 | $19.3
Benefit claims |
incurred in excess |
of account |
balances.......... 2.1 0.1 -- | 0.1
Underwriting, |
acquisition, and |
insurance expense: |
Commission.......... 121.2 36.3 9.4 | 26.9
General Expenses.... 37.6 17.3 3.4 | 13.9
Insurance taxes..... 4.1 2.3 0.5 | 1.8
Policy acquisition |
costs deferred (197.8) (42.7) (13.7) | (29.0)
Amortization: |
Deferred policy |
acquisition |
costs........... 5.1 2.6 0.9 | 1.7
Value of purchased |
insurance in |
force........... 4.7 6.1 0.9 | 5.2
Goodwill............ 3.8 2.0 0.6 | 1.4
------ ----- ----- | -----
$ 75.7 $50.7 $ 9.4 | $41.3
====== ===== ===== | =====
</TABLE>
Total insurance benefits and expenses increased 49.2%, or $25.0
million, in 1998 from $50.7 million in 1997. Interest credited to
account balances increased 255.4%, or $68.2 million, in 1998 from
$26.7 in 1997. The extra credit bonus on the Premium Plus product
introduced in October of 1997 generated a $51.6 million increase in
interest credited during 1998 compared to 1997. The remaining increase
in interest credited related to higher account balances associated
with the Companies' fixed account option within its variable products.
Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3
million in 1997. Insurance taxes increased 77.0%, or $1.8 million, in
1998 from $2.3 million in 1997. Changes in commissions and insurance
taxes are generally related to changes in the level of variable
product sales. Insurance taxes are impacted by several other factors,
which include an increase in FICA taxes primarily due to bonuses. Most
costs 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
55
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<PAGE>
and the salaries of these wholesalers are included in general
expenses. The portion of these salaries and related expenses
that varies with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was
partially offset by reimbursements received from Equitable Life, an
affiliate, for certain advisory, computer and other resources and
services provided by Golden American.
At the merger date, the Companies' deferred policy acquisition costs
("DPAC"), previous balance of value of purchased insurance in force
("VPIF") and unearned revenue reserve were eliminated and a new asset
of $44.3 million representing VPIF was established for all policies in
force at the merger date. During 1998, VPIF was adjusted to reduce
amortization by $0.2 million to reflect changes in the assumptions
related to the timing of future gross profits. VPIF decreased $2.6
million in the second quarter of 1998 to adjust the value of other
receivables recorded at the time of merger and increased $0.2 million
in the first quarter of 1998 as the result of an adjustment to the
merger costs. The amortization of VPIF and DPAC increased $1.1
million, or 13.0%, in 1998. During the second quarter of 1997, VPIF
was adjusted by $2.3 million to reflect narrower spreads than the
gross profit model assumed.
Amortization of goodwill for the year ended December 31, 1998 totaled
$3.8 million compared to $2.0 million for the year ended December 31,
1997.
Interest expense on the $25 million surplus note issued December 1996
and expiring December 2026 was $2.1 million for the year ended
December 31, 1998, unchanged from the same period of 1997. In
addition, Golden American incurred interest expense of $0.2 million in
1998 compared to $0.5 million in 1997 on the line of credit with
Equitable which was repaid with a capital contribution. Golden
American also paid $1.8 million in 1998 to ING America Insurance
Holdings, Inc. ("ING AIH") for interest on the reciprocal loan
agreement. Interest expense on the revolving note payable with
SunTrust Bank, Atlanta was $0.3 million for the year ended December
31, 1998.
INCOME. Net income for 1998 was $5.1 million, an increase of $4.8
million from $0.3 million in 1997.
Comprehensive income for 1998 was $3.9 million, an increase of $1.8
million from $2.1 million in 1997.
1997 COMPARED TO 1996
The following analysis combines Post-Merger and Post-Acquisition
activity for 1997 and Post-Acquisition and Pre-Acquisition activity
for 1996 for comparison purposes. Such a comparison does not
recognize the impact of the purchase accounting and goodwill
amortization except for the periods after August 13, 1996.
PREMIUMS.
<TABLE>
POST-MERGER | COMBINED | POST-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
October 25, 1997 | For the Year | January 1, 1997
through | ended | through
December 31, 1997 | December 31, 1997 | October 24, 1997
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Variable annuity | |
premiums: | |
Separate account............. $111.0 | $291.2 | $180.2
Fixed account................ 60.9 | 318.0 | 257.1
------ | ------ | ------
171.9 | 609.2 | 437.3
Variable life premiums......... 1.2 | 15.6 | 14.4
------ | ------ | ------
Total premiums................. $173.1 | $624.8 | $451.7
====== | ====== | ======
</TABLE>
56
<PAGE>
<PAGE>
<TABLE>
POST-ACQUISITION | COMBINED | PRE-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
August 14, 1996 | For the Year | January 1, 1996
through | ended | through
December 31, 1996 | December 31, 1996 | August 13, 1996
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Variable annuity | |
premiums: | |
Separate account............. $ 51.0 | $182.4 | $131.4
Fixed account................ 118.3 | 245.3 | 127.0
------ | ------ | ------
169.3 | 427.7 | 258.4
Variable life premiums......... 3.6 | 14.1 | 10.5
------ | ------ | ------
Total premiums................. $172.9 | $441.8 | $268.9
====== | ====== | ======
</TABLE>
Variable annuity separate account and variable life premiums increased
59.6% and 10.1%, respectively in 1997. During 1997, stock market
returns, a relatively low interest rate environment and flat yield
curve have made returns provided by variable annuities and mutual funds
more attractive than fixed rate products such as certificates of
deposits and fixed annuities. The fixed account portion of the
Companies' variable annuity premiums increased 29.7% in 1997 due to
the Companies' marketing emphasis on fixed rates during the second
and third quarters. Premiums, net of reinsurance, for variable
products from two significant broker/dealers having at least ten
percent of total sales for the year ended December 31, 1997, totaled
$328.2 million, or 53% of premiums ($298.0 million or 67% from two
significant broker/dealers for the year ended December 31, 1996).
REVENUES.
<TABLE>
POST-MERGER | COMBINED | POST-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
October 25, 1997 | For the Year | January 1, 1997
through | ended | through
December 31, 1997 | December 31, 1997 | October 24, 1997
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Annuity and interest sensitive | |
life product charges......... $3.8 | $22.1 | $18.3
Management fee revenue......... 0.5 | 2.8 | 2.3
Net investment income.......... 5.1 | 26.8 | 21.7
Realized gains (losses) on | |
investments.................. -- | 0.1 | 0.1
Other Income................... 0.3 | 0.7 | 0.4
---- | ----- | -----
$9.7 | $52.5 | $42.8
==== | ===== | =====
</TABLE>
57
<PAGE>
<PAGE>
<TABLE>
POST-ACQUISITION | COMBINED | PRE-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
August 14, 1996 | For the Year | January 1, 1996
through | ended | through
December 31, 1996 | December 31, 1996 | August 13, 1996
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Annuity and interest sensitive | |
life product charges......... $ 8.8 | $21.0 | $12.2
Management fee revenue......... 0.9 | 2.3 | 1.4
Net investment income.......... 5.8 | 10.8 | 5.0
Realized gains (losses) on | |
investments.................. -- | (0.4) | (0.4)
Other income 0.5 | 0.6 | 0.1
----- | ----- | -----
$16.0 | $34.3 | $18.3
===== | ===== | =====
</TABLE>
Total revenues increased 53.3%, or $18.2 million, to $52.5 million in
1997. Annuity and interest sensitive life product charges increased
5.2%, or $1.1 million in 1997 due to additional fees earned from the
increasing block of business under management in the Separate Accounts
and an increase in the collection of surrender charges.
Golden American provides certain managerial and supervisory services
to DSI. This fee, calculated as a percentage of average assets in the
variable separate accounts, was $2.8 million for 1997 and $2.3 million
for 1996.
Net investment income increased 148.3%, or $16.0 million, to $26.8
million in 1997 from $10.8 million in 1996 due to growth in invested
assets. During 1997, the Company had net realized gains on the
disposal of investments, which were the result of voluntary sales, of
$0.1 million compared to net realized losses of $0.4 million in 1996.
EXPENSES.
<TABLE>
POST-MERGER | COMBINED | POST-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
October 25, 1997 | For the Year | January 1, 1997
through | ended | through
December 31, 1997 | December 31, 1997 | October 24, 1997
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Insurance benefits and | |
expenses: | |
Annuity and interest | |
sensitive life benefits: | |
Interest credited to account | |
balances................... $ 7.4 | $ 26.7 | $ 19.3
Benefit claims incurred in | |
excess of account balances. -- | 0.1 | 0.1
Underwriting, acquisition and | |
insurance expenses: | |
Commissions.................. 9.4 | 36.3 | 26.9
General expenses............. 3.4 | 17.3 | 13.9
Insurance taxes.............. 0.5 | 2.3 | 1.8
Policy acquisition costs | |
deferred................... (13.7) | (42.7) | (29.0)
Amortization: | |
Deferred policy acquisition | |
costs...................... 0.9 | 2.6 | 1.7
Present value of in force | |
acquired................... 0.9 | 6.1 | 5.2
Goodwill..................... 0.6 | 2.0 | 1.4
------ | ------ | ------
$ 9.4 | $ 50.7 | $ 41.3
====== | ====== | ======
</TABLE>
58
<PAGE>
<PAGE>
<TABLE>
POST-ACQUISITION | COMBINED | PRE-ACQUISITION
-------------------|-------------------|-----------------
For the Period | | For the Period
August 14, 1996 | For the Year | January 1, 1996
through | ended | through
December 31, 1996 | December 31, 1996 | August 13, 1996
-------------------|-------------------|-----------------
(Dollars in millions)
<S> <C> | <C> | <C>
Insurance benefits and | |
expenses: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances.................. $ 5.7 | $ 10.1 | $ 4.4
Benefit claims incurred in | |
excess of account | |
balances.................. 1.3 | 2.2 | 0.9
Underwriting, acquisition and | |
insurance expenses: | |
Commissions................. 9.9 | 26.5 | 16.6
General expenses............ 5.9 | 15.3 | 9.4
Insurance taxes............. 0.7 | 1.9 | 1.2
Policy acquisition costs.... | |
deferred (11.7) | (31.0) | (19.3)
Amortization: | |
Deferred policy acquisition | |
costs..................... 0.2 | 2.6 | 2.4
Present value of in force | |
acquired.................. 2.7 | 3.7 | 1.0
Goodwill.................... 0.6 | 0.6 | --
------ | ------ | ------
$ 15.3 | $ 31.9 | $ 16.6
====== | ====== | ======
</TABLE>
Total insurance benefits and expenses increased 59.3%, or $18.8
million, in 1997 from $31.9 million in 1996. Interest credited to
account balances increased 164.4%, or $16.6 million, in 1997 as a
result of higher account balances associated with the Company's fixed
account option within its variable products.
Commissions increased 37.3%, or $9.8 million, in 1997 from $26.5
million in 1996. Insurance taxes increased 23.3%, or $0.4 million, in
1997 from $1.9 million in 1996. Increases and decreases in
commissions and insurance taxes are generally related to changes in
the level of variable product sales.
Insurance taxes are also impacted by several other factors which include
an increase in FICA taxes primarily due to bonuses and an increase in
state licenses and fees. Most costs incurred as the result of new sales
were deferred, thus having very little impact on earnings.
General expenses increased 12.6%, or $2.0 million, in 1997 from $15.3
million in 1996 due in part to certain expenses associated with the
merger occurring on October 24, 1997. In addition, the Company uses a
network of wholesalers to distribute its products and the salaries of
these wholesalers are included in general expenses. The portion of
these salaries and related expenses which vary with sales production
levels are deferred, thus having little impact on earnings. This
increase in general expenses was partially offset by reimbursements
received from Equitable Life, an affiliate, for certain advisory,
computer and other resources and services provided by Golden American.
During the second quarter of 1997, present value of in force acquired
("PVIF") was unlocked by $2.3 million to reflect narrower current
spreads than the gross profit model assumed. The Company's deferred
policy acquisition costs ("DPAC"), previous balance of PVIF and
unearned revenue reserve, as of the merger date, were eliminated and
an asset of $44.3 million representing PVIF was established for all
policies in force at the merger date. The amortization of PVIF and
DPAC increased $2.4 million, or 37.1%, in 1997. Based on current
conditions and assumptions as to the impact of future events on
acquired policies in force, the expected approximate net amortization
for the next five years, relating to the PVIF as of December 31, 1997,
is $6.2 million in 1998, $6.0 million in 1999, $5.6 million in 2000,
$5.0 million in 2001 and $4.2 million in 2002.
Amortization of goodwill for the year ended December 31, 1997 totaled
$2.0 million compared to $0.6 million for the year ended December 31,
1996.
59
<PAGE>
<PAGE>
Interest expense on the $25 million surplus note issued December 1996
was $2.0 million for the year ended December 31, 1997. Interest on
any line of credit borrowings was charged at the rate of Equitable's
monthly average aggregate cost of short-term funds plus 1.00%. During
1997, the Company paid $0.6 million to Equitable for interest on the
line of credit.
INCOME. Net income on a combined basis for 1997 was $0.3 million, a
decrease of $3.2 million, or 91.4%, from 1996.
FINANCIAL CONDITION
RATINGS. During 1998, the Companies' ratings were upgraded by
Standard & Poor's Rating Services ("Standard & Poor's") from AA to
AA+. During the first quarter of 1999, the Companies' ratings were
upgraded by Duff & Phelps Credit Rating Company from AA+ to AAA.
INVESTMENTS. The financial statement carrying value and amortized
cost basis of the Companies' total investment portfolio grew 8.7% and
10.5%, respectively, during the first nine months of 1999. All of the
Companies' investments, other than mortgage loans on real estate, are
carried at fair value in the Companies' financial statements. As such,
growth in the carrying value of the Companies' investment portfolio
included changes in unrealized appreciation and depreciation of fixed
maturities as well as growth in the cost basis of these securities.
Growth in the cost basis of the Companies' investment portfolio
resulted from the investment of premiums from the sale of the
Companies' fixed account options. The Companies manage the growth of
insurance operations in order to maintain adequate capital ratios. To
support the fixed account options of the Companies' variable insurance
products, cash flow was invested primarily in fixed maturities and
short-term investments.
At September 30, 1999 and December 31, 1998, the Companies had no
investments in default. At September 30, 1999 and December 31, 1998,
the Companies' investment portfolio had a yield of 6.6% and 6.4%,
respectively.
The Companies estimate the total investment portfolio, excluding
policy loans, had a fair value approximately equal to 98.0%
of amortized cost value at September 30, 1999 (100.2% at December
31, 1998).
Fixed Maturities: At September 30, 1999, the Companies had fixed
maturities with an amortized cost of $815.0 million and an estimated
fair value of $798.7 million. At December 31, 1998, the Companies had
fixed maturities with an amortized cost of $739.8 million and an
estimated fair value of $742.0 million.
The Companies classify 100% of securities as available for sale. At
September 30, 1999, net unrealized depreciation on fixed maturities of
$16.3 million was comprised of gross appreciation of $0.8 million and
gross depreciation of $17.1 million. Net unrealized holding losses on
these securities, net of adjustments to VPIF, DPAC, and deferred
income taxes of $4.0 million, was included in stockholder's equity at
September 30, 1999. At December 31, 1998 net unrealized appreciation
of fixed maturities of $2.2 million was comprised of gross
appreciation of $6.7 million and gross depreciation of $4.5 million.
Net unrealized holding gains on these securities, net of adjustments
to VPIF, DPAC, and deferred income taxes of $1.0 million was included
in stockholder's equity at December 31, 1998.
The individual securities in the Companies' fixed maturities portfolio
(at amortized cost) include investment grade securities, which include
securities issued by the U.S. government, its agencies, and
corporations, that are rated at least A- by Standard & Poor's ($528.0
million or 64.8% at September 30, 1999 and $477.4 million or 64.5% at
December 31, 1998), that are rated BBB+ to BBB- by Standard & Poor's
($138.0 million or 16.9% at September 30, 1999 and $124.0 million or
16.8% at December 31, 1998) and below investment grade securities
which are securities issued by corporations that are rated BB+ to CCC-
by Standard & Poor's ($72.3 million or 8.9% at September 30, 1999 and
$51.6 million or 7.0% at December 31, 1998). Securities not rated by
Standard & Poor's had a National Association of Insurance
Commissioners ("NAIC") rating of 1, 2, 3 or 4 ($76.7 million or 9.4%
at September 30, 1999 and $86.8 million or 11.7% at December 31,
1998). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.6% at September 30, 1999 and
6.5% at December 31, 1998.
60
<PAGE>
<PAGE>
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 September 30, 1999, the amortized cost value of the Companies'
total investment in below investment grade securities, excluding
mortgage-backed securities, was $73.7 million, or 7.4%, of the
Companies' investment portfolio ($52.7 million, or 5.9%, at December
31, 1998). 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 September 30, 1999, the yield at amortized cost on the
Companies' below investment grade portfolio was 7.8% compared to 6.6%
for the Companies' investment grade corporate bond portfolio. AAt
December 31, 1998, the yield at amortized cost on the Companies' below
investment grade portfolio was 7.9% compared to 6.4% for the
Companies' investment grade corporate bond portfolio. The Companies
estimate the fair value of the below investment grade portfolio was
$70.5 million, or 95.6% of amortized cost value, at September 30, 1999
($51.7 million, or 98.1% of amortized cost value, at December 31,
1998).
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default
by the borrower is significantly greater with respect to below
investment grade securities than with other corporate debt securities.
Below investment grade securities are generally unsecured and are
often subordinated to other creditors of the issuer. Also, issuers of
below investment grade securities usually have higher levels of debt
and are more sensitive to adverse economic conditions, such as a
recession or increasing interest rates, than are investment grade
issuers. The Companies attempt to reduce the overall risk in the below
investment grade portfolio, as in all investments, through careful
credit analysis, strict investment policy guidelines, and
diversification by company and by industry.
The Companies analyze the investment portfolio, including below
investment grade securities, at least quarterly in order to determine
if the Companies' ability to realize the carrying value on any
investment has been impaired. For debt and equity securities, if
impairment in value is determined to be other than temporary (i.e. if
it is probable the Companies will be unable to collect all amounts due
according to the contractual terms of the security), the cost basis of
the impaired security is written down to fair value, which becomes the
new cost basis. The amount of the write-down is included in earnings
as a realized loss. Future events may occur, or additional or updated
information may be received, which may necessitate future write-downs
of securities in the Companies' portfolio. Significant write-downs in
the carrying value of investments could materially adversely affect
the Companies' net income in future periods.
During the nine months ended September 30, 1999 and Ifor the year
ended December 31, 1998, fixed maturities designated as available for
sale with a combined amortized cost of $170.6 million and $145.3
million, respectively, were called or repaid by their issuers. In
total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $2.2 million and $0.5 million, for the first
nine months of 1999 and for the year ended December 31, 1998,
respectively.
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 realizeable 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 realizeable value of $1.1 million.
Equity Securities: At September 30, 1999 and December 31, 1998,
Eequity securities represented 1.5% and 1.6%, respectively, of the
Companies' investment portfolio. At September 30, 1999 and December
31, 1998, the Companies owned equity securities with a cost of $14.4
million and an estimated fair value of $13.7 million and $11.5
million, respectively. At September 30, 1999, net unrealized
depreciation of equity securities of $0.7 million was comprised of
gross appreciation of $0.3 million and gross depreciation of
$1.0 million. At December 31, 1998, net unrealized depreciation of
equity securities was comprised entirely of
61
<PAGE>
<PAGE>
gross depreciation of $2.9 million . Equity securities are primarily
comprised of investments in shares of the mutual funds underlying the
Companies' registered separate accounts.
Mortgage Loans on Real Estate: Mortgage loans on real estate
represented 9.5% and 10.9% of the Companies' investment portfolio at
September 30, 1999 and at December 31, 1998, respectively. Mortgages
outstanding at amortized cost were $93.9 million September 30, 1999
with an estimated fair value of $91.2 million. Mortgages outstanding
were $97.3 million at December 31, 1998 with an estimated fair value
of $99.8 million. At September 30, 1999, the Companies' mortgage loan
portfolio included 57 loans with an average size of $1.6 million and
average seasoning of 0.8 years if weighted by the number of loans. At
December 31, 1998, Tthe Companies' mortgage loan portfolio includeds
57 loans with an average size of $1.7 million and average seasoning of
0.9 years if weighted by the number of loans. The Companies' mortgage
loans 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
1998 and 1997), Utah (11% in 1998, 13% in 1997) and Georgia (10% in
1998, 11% in 1997). There are no other concentrations of mortgage
loans in any state exceeding ten percent at December 31, 1998 and
1997. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office
buildings (36% in 1998, 43% in 1997), industrial buildings (32% in
1998, 33% in 1997) and retail facilities (20% in 1998, 15% in 1997).
As of September 30, 1999, there have been no significant changes to
the concentrations of mortgage loans on real estate compared to December
31, 1998. At September 30, 1999 and December 31, 1998, the yield on
the Companies' mortgage loan portfolio was 7.3%.
At September 30, 1999 and December 31, 1998, 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 U.S. The insurance subsidiaries of EIC have
experienced a historically low default rate in their mortgage loan
portfolios.
OTHER ASSETS. Accrued investment income increased $2.3 million during
the first nine months of 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 products.
DPAC represents certain deferred costs of acquiring insurance
business, principally first year commissions and interest bonuses,
extra credit bonuses and other expenses related to the production of
new business after the merger. The Companies' previous balances of
DPAC and VPIF were eliminated as of the merger date, and an asset
representing VPIF was established for all policies in force at the
merger date. VPIF is amortized into income in proportion to the
expected gross profits of in force acquired business in a manner
similar to DPAC amortization. Any expenses which vary directly with
the sales of the Companies' products are deferred and amortized. At
September 30, 1999, the Companies had DPAC and VPIF balances of $439.2
million and $33.0 million ($205.0 million and $36.0 million,
respectively at December 31, 1998). During the first nine months of
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 $5.7 million, or 77.1%, during the
first nine months of 1999, due to the purchase of furniture and other
equipment for Golden American's new offices in West Chester,
Pennsylvania. Property and equipment increased $5.8 million during
1998, due to installation of a new policy administration system,
introduction of an imaging system as well as the growth in the
business.
Goodwill totaling $151.1 million, representing the excess of the
acquisition cost over the fair value of net assets acquired, was
established at the merger date. Accumulated amortization of goodwill
as of September 30, 1999 and December 31, 1998 was $7.2 million and
$4.4 million, respectively.
Other assets increased $35.8 million during the first nine months of
1999 due mainly to an increase in a receivable from the separate
account. Other assets increased $5.5 million during 1998 due mainly
to an increase in amounts due from an unaffiliated reinsurer under a
modified coinsurance agreement.
62
<PAGE>
<PAGE>
At September 30, 1999, the Companies had $5.6 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 sales of the Companies' variable
annuity products, net of redemptions. At December 31, 1998, the
Companies had $3.4 billion of separate account assets compared to $1.6
billion at December 31, 1997. The increase in separate account assets
resulted from market appreciation and growth in sales of the
Companies' variable annuity products, net of redemptions.
At September 30, 1999, the Companies had total assets of $7.3 billion,
a 53.9% increase from December 31, 1998. At December 31, 1998,
the Companies had total assets of $4.8 billion, an increase of 94.3%
from December 31, 1997.
LIABILITIES. In conjunction with the volume of variable annuity
sales, the Companies' total liabilities increased $2.5 billion, or
55.9%, during the first nine months of 1999 and totaled $6.9 billion
at September 30, 1999. At September 30, 1999, future policy benefits
for annuity and interest sensitive life products increased $128.3
million, or 14.6%, to $1.0 billion reflecting premium growth in the
Companies' fixed account options of its variable products, net of
transfers to the separate accounts. Market appreciation, increased
transfer activity, and premiums, net of redemptions, accounted for the
$2.2 billion, or 64.9%, increase in separate account liabilities to
$5.6 billion at September 30, 1999.
In conjunction with the volume of variable annuity sales, the
Companies' total liabilities increased $2.2 billion, or 98.2%, during
1998 and totaled $4.4 billion at December 31, 1998. Future policy
benefits for annuity and interest sensitive life products increased
$375.8 million, or 74.4%, to $881.1 million reflecting premium growth
in the Companies' fixed account option of its variable products.
Market appreciation and premium growth, net of redemptions, accounted
for the $1.7 billion, or 106.3%, increase in separate account
liabilities to $3.4 billion at December 31, 1998.
On 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, 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.
At September 30, 1999, other liabilities increased $47.5 million from
$32.6 million at December 31, 1998, due primarily to increases in
securities payables and remittances to be applied.
At December 31, 1998, other liabilities increased $15.3 million from
$17.3 million at December 31, 1997, due primarily to increases in
accounts payable, outstanding checks, guaranty fund assessment
liability, and pension liability.
The effects of inflation and changing prices on the Companies'
financial position are not material since insurance assets and
liabilities are both primarily monetary and remain in balance. An
effect of inflation, which has been low in recent years, is a decline
in stockholder's equity when monetary assets exceed monetary
liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $100.0
million, or 28.8%, from December 31, 1998 to $447.6 million at
September 30, 1999 due to capital contributions from the Parent.
Additional paid-in capital increased $122.6 million, or 54.5%, from
December 31, 1997 to $347.6 million at December 31, 1998 primarily due
to capital contributions from the Parent.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Companies to generate sufficient cash
flows to meet the cash requirements of 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
63
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<PAGE>
operating expenses, interest and extra premium credits, investment
purchases, repayment of debt, as well as withdrawals and surrenders.
Net cash used in operating activities was $60.0 million in the first
nine months of 1999 compared to $22.7 million in the same period of
1998. Net cash used in operating activities was $63.9 million in 1998
compared to $4.8 million in 1997. 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. The 1998 increase in net cash used in
operating activities resulted principally from the introduction of
Golden American's extra premium credit product in October 1997. In
1998, $54.4 million in extra premium credits was added to contract
holders' account values versus $2.8 million in 1997.
Net cash used in investing activities was $111.3 million during the
first nine months of 1999 as compared to $224.5 million in the same
period of 1998. This decrease is primarily due to greater net
purchases of fixed maturities, equity securities, and mortgage loans
on real estate during the first nine months of 1998 than in the same
period of 1999. Net purchases of fixed maturities reached $79.7
million during the first nine months of 1999 versus $199.0 million in
the same period of 1998. Net sales of mortgage loans on real estate
were $3.2 million during the first nine months of 1999 compared to net
purchases of $13.2 million during the first nine months of 1998.
Net cash used in investing activities was $390.0 million during 1998
as compared to $198.5 million in 1997. This increase is primarily due
to greater net purchases of fixed maturities resulting from an
increase in funds available from net fixed account deposits. Net
purchases of fixed maturities reached $331.3 million in 1998
versus $135.3 million in 1997. Net purchases of mortgage loans
on real estate, on the other hand, declined to $12.6 million
from $51.2 at December 31, 1997in the prior year. In 1998, net
purchases of short-term investments were unusually high due to
the investment of the remaining proceeds of Golden American's
$60.0 million surplus note issued on December 30, 1998.
Net cash provided by financing activities was $177.5 million during
the first nine months of 1999 compared to $245.1 million during the
same period of 1998. In the first nine months of 1999, net cash
provided by financing activities was positively impacted by net fixed
account deposits of $441.7 million compared to $300.0 million in the
same period of 1998. This increase was offset by net reallocations to
the Companies' separate accounts, which increased to $439.2 million
from $163.5 million during the prior year, and by a decrease in net
borrowings of $54.8 million in the first nine months of 1999 compared
to the first nine months of 1998. In the first nine months of 1999,
another important source of cash provided by financing activities was
$100.0 million in capital contributions from the Parent compared to
$53.8 million in the first nine months of 1998. In addition, another
source of cash provided by financing activities during the third
quarter of 1999 was $75.0 million in proceeds from a surplus note
with ING AIH.
Net cash provided by financing activities was $439.5 million during
1998 as compared to $218.6 million during the prior year. In 1998, net
cash provided by financing activities was positively impacted by net
fixed account deposits of $520.8 million compared to $303.6 million in
1997. This increase was partially offset by net reallocations to the
Companies' separate accounts, which increased to $239.7 million from
$110.1 million during the prior year. In 1998, other important sources
of cash provided by financing activities were $98.4 million of capital
contributions from the Parent and $60.0 million of proceeds from the
issuance of a surplus note on December 30, 1998. The Companies have
used part of the proceeds of the surplus note to repay outstanding
short-term debt.
The Companies' liquidity position is managed by maintaining adequate
levels of liquid assets, such as cash or cash equivalents and short-
term investments. Additional sources of liquidity include borrowing
facilities to meet short-term cash requirements. Golden American
maintains a $65.0 million reciprocal loan agreement with ING AIH,
which expires on December 31, 2007. In addition, the Companies
have an $85.0 million revolving note facility with SunTrust Bank,
Atlanta, which expires on July 31, 2000. Management believes that
these sources of liquidity are adequate to meet the Companies'
short-term cash obligations.
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Based on current trends, the Companies expect to continue to use net
cash in operating activities, given the continued growth of the
variable annuity products. It is anticipated that a continuation of
capital contributions from the Parent and the issuance of additional
surplus notes will cover these net cash outflows. ING is committed to
the sustained growth of Golden American. During 1999, ING will
maintain Golden American's statutory capital and surplus at the end of
each quarter at a level such that: 1) the ratio of Total Adjusted
Capital divided by Company Action Level Risk Based Capital exceeds
300%; 2) the ratio of Total Adjusted Capital (excluding surplus notes)
divided by Company Action Level Risk Based Capital exceeds 200%; and
3) Golden American's statutory capital and surplus exceeds the
"Amounts Accrued for Expense Allowances Recognized in Reserves" as
disclosed on page 3, Line 13A of Golden American's Statutory
Statement.
During the first quarter of 1999, Golden American's operations were
moved to a new site in West Chester, Pennsylvania. During the third
quarter of 1999, Golden American occupied an additional 20,000 square
feet and currently occupies 85,000 square feet of leased space, its
affiliate occupies 20,000 square feet, and it has made commitments for
an additional 20,000 square feet to be occupied by itself or its
affiliates during the fourth quarter of 1999. Previously, Golden
American's home office operations were housed in leased locations in
Wilmington, Delaware and various locations in Pennsylvania, which were
leased on a short-term basis for use in the transition to the new
office building. Golden American's New York subsidiary is housed in
leased space in New York, New York. The Companies intend to spend
approximately $1.0 million on capital needs during the remainder of
1999.
The ability of Golden American to pay dividends to its Parent is
restricted. Prior approval of insurance regulatory authorities is
required for payment of dividends to the stockholder which exceed an
annual limit. During 1999, Golden American cannot pay dividends to its
Parent without prior approval of statutory authorities.
Under the provisions of the insurance laws of the State of New York,
First Golden cannot distribute any dividends to its stockholder,
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
any dividends to Golden American during 1999.
The NAIC's risk-based capital requirements require insurance companies
to calculate and report information under a risk-based capital
formula. These requirements are intended to allow insurance regulators
to monitor the capitalization of insurance companies based upon the
type and mixture of risks inherent in a company's operations. The
formula includes components for asset risk, liability risk, interest
rate exposure and other factors. The Companies have complied with the
NAIC's risk-based capital reporting requirements. Amounts reported
indicate the Companies have total adjusted capital well above all
required capital levels.
Reinsurance: At September 30, 1999 and at December 31, 1998, Golden
American had reinsurance treaties with four unaffiliated reinsurers
and one affiliated reinsurer covering a significant portion of the
mortality risks under its variable contracts. Golden American remains
liable to the extent its reinsurers do not meet their obligations
under the reinsurance agreements.
MARKET RISK AND RISK MANAGEMENT
Asset/liability management is integrated into many aspects of the
Companies' operations, including investment decisions, product
development and crediting rates determination. As part of the risk
management process, different economic scenarios are modeled,
including cash flow testing required for insurance regulatory
purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include
contractholder behavior and the variable separate accounts'
performance.
Contractholders bear the majority of the investment risks related
to the variable products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed
by contractholders, not by the Companies (subject to, among other
things, certain minimum guarantees). The
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Companies' products also provide certain minimum death benefits
that depend on the performance of the variable separate accounts.
Currently the majority of death benefit risks are reinsured, which
protects the Companies from adverse mortality experience and prolonged
capital market decline.
A surrender, partial withdrawal, transfer or annuitization made
prior to the end of a guarantee period from the fixed account may
be subject to a market value adjustment. As the majority of the
liabilities in the fixed account are subject to market value
adjustment, the Companies do not face a material amount of market
risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can
generate predictable, steady rates of return. The portfolio
management strategy for the fixed account considers the assets
available for sale. This enables the Companies to respond to
changes in market interest rates, changes in prepayment risk,
changes in relative values of asset sectors and individual
securities and loans, changes in credit quality outlook and other
relevant factors. The objective of portfolio management is to
maximize returns, taking into account interest rate and credit
risks as well as other risks. The Companies' asset/liability
management discipline includes strategies to minimize exposure to
loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no
material solvency risk to the Companies. With respect to a 10%
drop in equity values from year-end 1998 levels, variable separate
account funds, which represent 85% of the in force as of
September 30, 1999, pass the risk in underlying fund performance
to the contract holder (except for certain minimum guarantees that
are mostly reinsured). With respect to interest rate movements
up or down 100 basis points from year-end 1998 levels, the
remaining 15% of the in force as of September 30, 1999 are fixed
account funds and almost all of these have market value adjustments
which provide significant protection against changes in interest
rates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other
oral or written statement by the Companies or any of their
officers, directors or employees is qualified by the fact that
actual results of the Companies may differ materially from such
statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance,
which may affect the ability of the Companies to sell their
products, the market value and liquidity of the Companies'
investments and the lapse rate of the Companies' policies,
notwithstanding product design features intended to enhance
persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations which
may affect the 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.
6. To the extent third parties are unable to transact business in
the Year 2000 and thereafter, the Companies' operations could
be adversely affected.
OTHER INFORMATION
SEGMENT INFORMATION. During the period since the acquisition by
Bankers Trust, September 30, 1992 to date of this Prospectus,
Golden American's operations consisted of one business segment,
the sale of annuity and life insurance products. Golden American
and its affiliate DSI are party to in excess of 140 sales
agreements with broker-dealers, three of whom, Locust Street
Securities, Inc., Vestax Securities
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Corporation, and Multi-Financial Securities Corporation, are affiliates
of Golden American. As of September 30, 1999, two broker-dealers produce
10% or more of Golden American's product sales.
REINSURANCE. Golden American reinsures its mortality risk
associated with the Contract's guaranteed death benefit with one
or more appropriately licensed insurance companies. Golden
American also, effective June 1, 1994, entered into a reinsurance
agreement on a modified coinsurance basis with an affiliate of a
broker-dealer which distributes Golden American's products with
respect to 25% of the business produced by that broker-dealer.
RESERVES. In accordance with the life insurance laws and
regulations under which Golden American operates, it is obligated
to carry on its books, as liabilities, actuarially determined
reserves to meet its obligations on outstanding Contracts.
Reserves, based on valuation mortality tables in general use in
the United States, where applicable, are computed to equal amounts
which, together with interest on such reserves computed annually
at certain assumed rates, make adequate provision according to
presently accepted actuarial standards of practice, for the
anticipated cash flows required by the contractual obligations and
related expenses of Golden American.
COMPETITION. Golden American is engaged in a business that is
highly competitive because of the large number of stock and mutual
life insurance companies and other entities marketing insurance
products comparable to those of Golden American. There are
approximately 2,350 stock, mutual and other types of insurers in
the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
SERVICE AGREEMENTS. Beginning in 1994 and continuing until August
13, 1996, Bankers Trust (Delaware), a subsidiary of Bankers Trust
New York Corporation, and Golden American became parties to a service
agreement pursuant to which Bankers Trust (Delaware) agreed to provide
certain accounting, actuarial, tax, underwriting, sales, management and
other services to Golden American. Expenses incurred by Bankers Trust
(Delaware)in relation to this service agreement were reimbursed by Golden
American on an allocated cost basis. Charges billed to Golden American by
Bankers Trust (Delaware) pursuant to the service agreement for 1996 through
its termination as of August 13, 1996 were $0.5 million.
Pursuant to a service agreement between Golden American and Equitable
Life, Equitable Life provides certain administrative, financial and
other services to Golden American. Equitable Life billed Golden
American and its subsidiary First Golden American Life Insurance
Company of New York ("First Golden"), $0.9 million, $1.1 million,
and $29,000 for the first nine months of 1999 and the years ended
December 31, 1998 and 1997, 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 $6.8 million,
$4.8 million, $2.8 million and $2.3 million for the first nine months
of 1999, and the years of 1998, 1997 and 1996, respectively.
Since January 1, 1998, Golden American and First Golden have had an
asset management agreement with ING Investment Management LLC ("ING
IM"), an affiliate, in which ING IM provides asset management and
accounting services for a fee, payable quarterly. For the first nine
months of 1999 and for the year ended December 31, 1998, Golden
American and First Golden incurred fees of $1.6 million and $1.5 million,
respectively, under this agreement. Prior to 1998, Golden American and
First Golden had a service agreement with Equitable Investment Services,
Inc. ("EISI"), an affiliate, in which EISI provided investment
management services. Golden American and First Golden paid fees of
$1.0 million for 1997 and $72,000 for the period from August 14,
1996 through December 31, 1996, respectively.
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Since 1997, Golden American has provided certain advisory, computer
and other resources and services to Equitable Life. Revenues for these
services totaled $0.9 million for the first nine months of 1999,
$5.8 million for 1998 and $4.3 million for 1997.
The Companies provide resources and services to DSI. Revenues for
these services totaled $0.8 million for the first nine months of 1999.
Golden American provides resources and services to ING Mutual Funds
Management Co., LLC, an affiliate. Revenues for these services
totaled $0.4 million for the first nine months of 1999 and $2.1
million for 1998.
DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as
the principal underwriter (as defined in the Securities Act of 1933
and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of September 30,
1999 and December 31, 1998, are sold primarily through two
broker/dealer institutions. For the nine months ended September 30,
1999 and the years 1998, 1997 and 1996, commissions paid by Golden
American to DSI (including commissions paid by First Golden)
aggregated $130.4 million, $117.5 million, $36.4 million and $27.1
million, respectively.
EMPLOYEES. Golden American, as a result of its Service Agreement
with Bankers Trust (Delaware) and EIC Variable, had very few
direct employees. Instead, various management services were
provided by Bankers Trust (Delaware), EIC Variable and Bankers
Trust New York Corporation, as described above under "Service
Agreement." The cost of these services were allocated to Golden
American. Since August 14, 1996, Golden American has hired
individuals to perform various management services and has looked
to Equitable of Iowa and its affiliates for certain other
management services.
Certain officers of Golden American are also officers of DSI, and
their salaries are allocated among both companies. Certain
officers of Golden American are also officers of other Equitable
of Iowa subsidiaries. See "Directors and Executive Officers."
PROPERTIES. Golden American's principal office is located at 1475
Dunwoody Drive, West Chester, Pennsylvania 19380, where all of
Golden American's records are maintained. This office space is
leased.
STATE REGULATION. Golden American is subject to the laws of the
State of Delaware governing insurance companies and to the
regulations of the Delaware Insurance Department (the "Insurance
Department"). A detailed financial statement in the prescribed
form (the "Annual Statement") is filed with the Insurance
Department each year covering Golden American's operations for the
preceding year and its financial condition as of the end of that
year. Regulation by the Insurance Department includes periodic
examination to determine contract liabilities and reserves so
that the Insurance Department may certify that these items
are correct. Golden American's books and accounts are subject
to review by the Insurance Department at all times. A full
examination of Golden American's operations is conducted
periodically by the Insurance Department and under the auspices
of the NAIC.
In addition, Golden American is subject to regulation under the
insurance laws of all jurisdictions in which it operates. The
laws of the various jurisdictions establish supervisory agencies
with broad administrative powers with respect to various matters,
including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms,
establishing reserve requirements, fixing maximum interest rates
on life insurance contract loans and minimum rates for
accumulation of surrender values, prescribing the form and content
of required financial statements and regulating the type and
amounts of investments permitted. Golden American is required to
file the Annual Statement with supervisory agencies in each of the
jurisdictions in which it does business, and its operations and
accounts are subject to examination by these agencies at regular
intervals.
The NAIC has adopted several regulatory 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
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adequacy monitoring system and Golden American, see "Management's
Discussion and Analysis Results of Operations"
In addition, many states regulate affiliated groups of insurers,
such as Golden American, and its affiliates, under insurance
holding company legislation. Under such laws, inter-company
transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending
on the size of the transfers and payments in relation to the
financial positions of the companies involved.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for
contract owner losses incurred by other insurance companies which
have become insolvent. Most of these laws provide that an
assessment may be excused or deferred if it would threaten an
insurer's own financial strength. For information regarding
Golden American's estimated liability for future guaranty fund
assessments, see Note 11 of Notes to Financial Statements.
Although the federal government generally does not directly
regulate the business of insurance, federal initiatives often have
an impact on the business in a variety of ways. Certain insurance
products of Golden American are subject to various federal
securities laws and regulations. In addition, current and
proposed federal measures which may significantly affect the
insurance business include regulation of insurance company
solvency, employee benefit regulation, removal of barriers
preventing banks from engaging in the insurance business, tax law
changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles.
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 (50) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (51) 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 (34) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant
Secretary
William L. Lowe (35) 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 (54) 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. The
principal positions of Golden American's directors and senior
executive officers for the past five years are listed below:
Mr. Barnett Chernow became President and Director of Golden American
and President of First Golden in April 1998. From 1993 to 1998, Mr.
Chernow served as Executive Vice President of Golden American. He was
elected to serve as Executive Vice President and Director of First
Golden in September 1996.
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
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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 in January
2000. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999.
Mr. Phillip R. Lowery became a Director of Golden American in
April 1999. He has served as Executive Vice President and Chief
Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined Golden American in December, 1997 as
Executive Vice President. From 1982 through November 1997, he held
several positions with the Endeavor Group and was President upon
his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief
Financial Officer of Golden American in September 1998. From
August, 1984 to September, 1998 he has held various positions with
ING companies in The Netherlands.
Ms. Patricia M. Corbett was elected Treasurer of Golden American
in December 1998. She joined Equitable Life Insurance Company of
Iowa in 1987 and is currently Treasurer and Assistant Vice
President of Equitable Life and USG Annuity & Life Company.
Mr. David L. Jacobson joined Golden American in November 1993 as
Senior Vice President and Assistant Secretary.
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.
Mr. William L. Lowe joined Equitable Life as Vice President, Sales
& Marketing in January 1994. He became a Senior Vice President,
Sales & Marketing, of Golden American in August 1997. He was also
President of Equitable of Iowa Securities Network, Inc. until
October 1998.
Mr. Steven G. Mandel joined Golden American in October 1988 and
became Senior Vice President and Chief Information Officer in
June 1998.
Mr. Ronald R. Blasdell joined Golden American in February 1994 and
became Senior Vice President, Project Implementation in June 1998.
Mr. Gary Haynes joined Golden American in April 1999 and became
Senior Vice President, Operations in April 1999.
COMPENSATION TABLES AND OTHER INFORMATION
The following sets forth information with respect to the Chief
Executive Officer of Golden American as well as the annual salary
and bonus for the next five highly compensated executive officers
for the fiscal year ended December 31, 1998. Certain executive
officers of Golden American are also officers of DSI. The salaries
of such individuals are allocated between Golden American and DSI.
Executive officers of Golden American are also officers of DSI.
The salaries of such individuals are allocated between Golden
American and DSI pursuant to an arrangement among these companies.
Throughout 1995 and until August 13, 1996, Terry L. Kendall served
as a Managing Director at Bankers Trust New York Corporation.
Compensation amounts for Terry L. Kendall which are reflected
throughout these tables prior to August 14, 1996 were not charged
to Golden American, but were instead absorbed by Bankers Trust New
York Corporation.
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EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the
annual salary and bonus for Golden American's Chief Executive
Officers and the five other most highly compensated executive
officers for the fiscal year ended December 31, 1998. As of
the date of this prospectus 1999 data was not yet available.
<TABLE>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
------------------- ------------------------ ------------
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) OPTIONS(3)
- ------------------ ---- ------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Barnett Chernow, 1998 $284,171 $105,375 8,000
President 1997 $234,167 $ 31,859 $277,576 4,000
1996 $207,526 $150,000 $ 7,755(4)
James R. McInnis, 1998 $250,004 $626,245 2,000
Executive Vice
President
Keith Glover, 1998 $250,000 $145,120 3,900
Executive Vice
President
Myles R. Tashman, 1998 $189,337 $ 54,425 3,500
Executive Vice 1997 $181,417 $ 25,000 $165,512 5,000
President, 1996 $176,138 $ 90,000 $ 5,127(4)
General Counsel
and Secretary
Stephen J. Preston, 1998 $173,870 $ 32,152 3,500
Executive Vice 1997 $160,758 $ 16,470
President 1996 $156,937 $ 58,326
and Chief Actuary
Paul R. Schlaack, 1998 $406,730 $210,600
Former Chairman 1997 $351,000 $249,185 $1,274,518 19,000 $15,000
and Vice President 1996 $327,875 $249,185 $ 245,875 19,000 $15,000
Terry L. Kendall, 1998 $145,237 $181,417
Former President 1997 $362,833 $ 80,365 $ 644,844 16,000
and CEO 1996 $288,298 $400,000 $11,535(4)
</TABLE>
------------------
(1) The amount shown relates to bonuses paid in 1998, 1997
and 1996.
(2) Restricted stock awards granted to executive officers
vested on October 24, 1997 with the change in control of
Equitable of Iowa.
(3) Awards comprised of qualified and non-qualified stock
options. All options were granted with an exercise price equal
to the then fair market value of the underlying stock. All
options vested with the change in control of Equitable of Iowa
and were cashed out for the difference between $68.00 and the
exercise price.
(4) In 1996, Contributions were made by the Company on behalf
of the employee to PartnerShare, the deferred compensation
plan sponsored by Bankers Trust New York Corporation and its
affiliates for the benefit of all Bankers Trust employees, in
February of 1996 to employees on record as of December 31,
1996, after an employee completed one year of service with the
company. This contribution could be in the form of deferred
compensation and/or a cash payment. In 1996, Mr. Kendall
received $9,000 of deferred compensation and $2,535 of cash
payment from the plan; Mr. Chernow received $6,000 of
deferred compensation and $1,755 of cash payment from the
plan; Mr. Tashman received $4,000 of deferred compensation and
$1,127 of cash payment from the plan.
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OPTION GRANTS IN LAST FISCAL YEAR (1998)
<TABLE> POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM (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 8,000 11.99 $60.518 5/26/2003 $164,016 $362,433
James R. McInnis 2,000 3.00 $60.518 5/26/2003 $ 41,004 $ 90,608
Keith Glover 3,900 5.85 $60.518 5/26/2003 $ 79,958 $176,686
Myles R. Tashman 3,500 5.25 $60.518 5/26/2003 $ 71,758 $158,564
Stephen J. Preston 3,500 5.25 $60.518 5/26/2003 $ 71,758 $158,564
</TABLE>
-----------------
(1) Stock appreciation rights granted on May 26, 1998 to the
officers of Golden American have a three-year vesting period
and an expiration date as shown.
(2) The base price was equal to the fair market value of
ING's stock on on the date of grant.
(3) Total dollar gains based on indicated rates of
appreciation of share price over a the five year term of the
rights.
Directors of Golden American receive no additional compensation
for serving as a director.
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[Shaded Section Header]
- --------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------
For the Nine Months Ended September 30, 1999
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at
fair value (cost: 1999 -- $815,027;
1998 -- $739,772) $ 798,708 $ 741,985
Equity securities, at fair value (cost: 13,679 11,514
1999 -- $14,437; 1998 -- $14,437)
Mortgage loans on real estate 93,884 97,322
Policy loans 13,454 11,772
Short-term investments 66,519 41,152
---------- ----------
Total investments 986,244 903,745
Cash and cash equivalents 12,908 6,679
Due from affiliates 1,460 2,983
Accrued investment income 11,896 9,645
Deferred policy acquisition costs 439,176 204,979
Value of purchased insurance in force 32,984 35,977
Current income taxes recoverable 204 628
Deferred income tax asset 29,690 31,477
Property and equipment, less allowances
for depreciation of $2,807 in 1999
and $801 in 1998 13,017 7,348
Goodwill, less accumulated amortization
of $7,242 in 1999 and $4,408 in 1998 143,886 146,719
Other assets 42,072 6,239
Separate account assets 5,598,490 3,396,114
---------- ----------
Total assets $7,312,027 $4,752,533
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products $1,009,382 $881,112
Unearned revenue reserve 5,855 3,840
Other policy claims and benefits 15 --
---------- ----------
1,015,252 884,952
Surplus notes 160,000 85,000
Due to affiliates 4,328 --
Other liabilities 80,081 32,573
Separate account liabilities 5,598,490 3,396,114
---------- ----------
6,858,151 4,398,639
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share,
authorized, issued, 2,500 2,500
and outstanding 250,000 shares
Additional paid-in capital 447,640 347,640
Accumulated other comprehensive loss (4,464) (895)
Retained earnings 8,200 4,649
---------- ----------
Total stockholder's equity 453,876 353,894
---------- ----------
Total liabilities and stockholder's
equity $7,312,027 $4,752,533
========== ==========
See accompanying notes.
</TABLE> 74
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months ended Months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Annuity and interest sensitive
life product charges $ 55,195 $ 26,984
Management fee revenue 6,755 3,257
Net investment income 42,671 29,296
Realized gains (losses) on
investments (2,215) 436
Other income 7,448 4,805
--------- --------
109,854 64,778
Insurance benefits and expenses:
Annuity and interest sensitive
life benefits:
Interest credited to account 125,404 64,110
balances
Benefit claims incurred in 3,452 862
excess of account balances
Underwriting, acquisition, and
insurance expenses:
Commissions 134,585 84,958
General expenses 47,551 23,480
Insurance taxes, state 3,545 2,680
licenses, and fees
Policy acquisition costs (244,840) (133,616)
deferred
Amortization:
Deferred policy acquisition 19,699 4,014
costs
Value of purchased insurance 4,803 3,252
in force
Goodwill 2,834 2,834
--------- --------
97,033 52,574
Interest expense 5,552 3,033
--------- --------
102,585 55,607
--------- --------
Income before income taxes 7,269 9,171
Income taxes 3,718 4,294
--------- --------
Net income $ 3,551 $ 4,877
========= ========
See accompanying notes.
</TABLE> 75
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months ended Months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (60,026) $ (22,666)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities -- available for sale 170,548 92,707
Mortgage loans on real estate 4,241 3,145
Short-term investments -- net -- 2,575
---------- ----------
174,789 98,427
Acquisition of investments:
Fixed maturities -- available for sale (250,277) (291,687)
Equity securities -- (10,000)
Mortgage loans on real estate (1,034) (16,390)
Policy loans -- net (1,682) (1,385)
Short term investments -- net (25,367) --
---------- ----------
(278,360) (319,462)
Net purchase of property and equipment (7,700) (3,470)
---------- ----------
Net cash used in investing activities (111,271) (224,505)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement 488,950 242,847
borrowings
Repayment of reciprocal loan agreement (488,950) (202,847)
borrowings
Proceeds from revolving note payable 131,595 20,082
Repayment of revolving note payable (131,595) --
Proceeds from surplus note 75,000 --
Repayment of line of credit borrowings -- (5,309)
Receipts from annuity and interest
sensitive life policies credited
to account balances 540,464 350,385
Return of account balances on annuity
and interest sensitive life policies (98,715) (50,370)
Net reallocations to Separate Accounts (439,223) (163,455)
Contributions from parent 100,000 53,750
---------- ----------
Net cash provided by financing 177,526 245,083
activities
---------- ----------
Increase (decrease) in cash and cash
equivalents 6,229 (2,088)
Cash and cash equivalents at beginning
of period 6,679 21,039
---------- ----------
Cash and cash equivalents at end of
period $ 12,908 $ 18,951
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 5,078 $ 3,493
Taxes 10 80
Non-cash financing activities:
Non-cash adjustment to additional paid
in capital for adjusted merger costs -- 143
Non-cash contribution of capital from
parent to repay line of credit
borrowings -- 18,750
See accompanying notes.
</TABLE> 76
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the financial
statements do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All adjustments
were of a normal recurring nature, unless otherwise noted in Management's
Discussion and Analysis and the Notes to Financial Statements. Operating
results for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999. These financial statements should be read in
conjunction with the financial statements and related notes included in
the Golden American Life Insurance Company's annual report on Form 10-K
for the year ended December 31, 1998.
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"). On October 24, 1997, PFHI
Holdings, 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 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., a Delaware corporation.
FAIR VALUES
Estimated fair values of publicly traded fixed maturities for 1999 are as
reported by an independent pricing service.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $75,508,000 and $32,198,000 for the nine months
ended September 30, 1999 and 1998, respectively. Total statutory capital
and surplus was $285,674,000 at September 30, 1999 and $183,045,000 at
December 31, 1998.
RECLASSIFICATIONS
Certain amounts in the September 30, 1998 and December 31, 1998 financial
statements have been reclassified to conform to the September 30, 1999
financial statement presentation.
2. COMPREHENSIVE INCOME
As of January 1, 1998, the Companies adopted the Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Companies' net income or stockholder's
equity. SFAS No. 130 requires unrealized gains or losses on the
77
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
2. COMPREHENSIVE INCOME (continued)
Companies' available for sale securities (net of adjustments for value of
purchased insurance in force ("VPIF"), deferred policy acquisition costs
("DPAC"), and deferred income taxes) to be included in other
comprehensive income.
During the third quarter and first nine months of 1999, other
comprehensive income (loss) for the Companies amounted to $2,059,000 and
$(18,000), respectively ($2,426,000 and $5,478,000, respectively, for the
same periods of 1998). Included in these amounts are other comprehensive
income (loss) for First Golden of $(14,000) and $(258,000) for the third
quarter and first nine months of 1999, respectively ($601,000 and
$1,174,000, respectively, for the same periods of 1998). 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 $(460,000) and
$(2,512,000) during the third quarter and first nine months of 1999,
respectively ($263,000 and $388,000, respectively, for the same periods
of 1998). Such amounts, which have been measured through the date of
sale, are net of income taxes and adjustments for VPIF and DPAC totaling
$(38,000) and $297,000 for the third quarter and first nine months of
1999, respectively ($40,000 and $48,000, respectively, for the same
periods of 1998).
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 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.
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 and expenses to
DSI totaling $50,131,000 in the third quarter and $130,419,000 for the
first nine months of 1999 ($32,104,000 and $82,548,000, respectively, for
the same periods of 1998).
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
third quarter and first nine months of 1999, the fee was $2,659,000 and
$6,755,000, respectively ($1,234,000 and $3,257,000, respectively, for
the same periods of 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 third quarter and first nine months of
1999, the Companies incurred fees of $523,000 and
78
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
4. RELATED PARTY TRANSACTIONS (continued)
$1,637,000, respectively, under this agreement ($341,000 and $1,013,000,
respectively, for the same periods of 1998).
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. As Golden American's risk based capital level was
above required amounts, no annual fee was payable at June 30, 1999 or
1998.
Golden American provides certain advisory, computer and other resources
and services to Equitable Life. Revenues for these services, which
reduce general expenses incurred by Golden American, totaled $237,000 in
the third quarter of 1999 and $898,000 for the first nine months of 1999
($1,524,000 and $5,091,000, respectively, for the same periods of 1998).
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 $50,000 in the
third quarter of 1999 and $855,000 for the first nine months of 1999
($261,000 and $575,000, respectively, for the same periods of 1998).
The Companies provide resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies,
totaled $276,000 in the third quarter of 1999 and $759,000 for the first
nine months of 1999 ($19,000 and $57,000, respectively, for the same
periods of 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 $159,000 in
the third quarter of 1999 and $376,000 for the first nine months of
1999.
For the third quarter of 1999, the Companies received 7.8% of total
premiums (9.7% in the same period of 1998), net of reinsurance, for
variable products sold through four affiliates, Locust Street Securities,
Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI, and Multi-
Financial Securities Corporation ("Multi-Financial") of $46,600,000,
$12,900,000, $0, and $11,000,000, respectively ($34,600,000, $14,200,000,
$1,800,000, and $4,100,000, respectively, for the same period of 1998).
For the first nine months of 1999, the Companies received 9.5% of total
premiums (10.0% in the same period of 1998), net of reinsurance, from
LSSI, Vestax, DSI, and Multi-Financial of $121,900,000, $72,000,000,
$2,300,000, and $24,400,000, respectively ($92,700,000, $30,000,000,
$10,700,000, and $10,000,000, respectively, for the same period of 1998).
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
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
79
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
4. RELATED PARTY TRANSACTIONS (continued)
$397,000 in the third quarter of 1999 and $633,000 for the
first nine months of 1999 ($505,000 and $1,269,000, respectively, for the
same periods of 1998). At September 30, 1999, 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 first quarter of 1998. The
outstanding balance was paid by a capital contribution from the Parent
and with funds borrowed from ING AIH.
SURPLUS NOTES: 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 no interest
expense in the third quarter of 1999.
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 $1,088,000 in the third quarter of 1999 and
$3,263,000 for the first nine months of 1999.
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 $516,000 in the third quarter of 1999 and $1,547,000 for the
first nine months of 1999, unchanged from the same periods of 1998. As a
result of the merger, the surplus note is now payable to EIC.
STOCKHOLDER'S EQUITY: During the third quarter of 1999 and the first
nine months of 1999, Golden American received capital contributions from
its Parent of $20,000,000 and $100,000,000, respectively ($0 and
$72,500,000, respectively, for the same periods of 1998).
5. COMMITMENTS AND CONTINGENCIES
REINSURANCE: At September 30, 1999, Golden American had reinsurance
treaties with four unaffiliated reinsurers and one affiliated reinsurer
covering a significant portion of the mortality risks under its variable
contracts. Golden American remains liable to the extent its reinsurers do
not meet their obligations under the reinsurance agreements. At September
30, 1999 and 1998, the Companies had a net receivable of $14,041,000 and
$6,539,000, respectively, for reserve credits, reinsurance claims, or
other receivables from these reinsurers comprised of $2,268,000 and
$257,000, respectively, for claims recoverable from reinsurers, $918,000
and $451,000, respectively, for a payable for reinsurance premiums and
$12,691,000 and $6,733,000, respectively, for a receivable from an
unaffiliated reinsurer. Included in the accompanying financial
statements are net considerations to reinsurers of $2,638,000 in the
third quarter of 1999 and $6,656,000 for the first nine months of 1999
compared to $1,293,000 and $3,259,000, respectively, for the same periods
in 1998. Also included in the accompanying financial statements are net
policy benefits of
80
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
5. COMMITMENTS AND CONTINGENCIES (continued)
$2,569,000 in the third quarter of 1999 and $4,008,000 for the first
nine months of 1999 compared to $1,272,000 and $2,096,000, respectively,
for the same periods in 1998.
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.
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 $208,000 and $598,000 in the third quarter and first nine
months of 1998, respectively. At September 30, 1999, the Companies have
an undiscounted reserve of $2,444,000 to cover estimated future
assessments (net of related anticipated premium tax credits) and have
established an asset totaling $586,000 for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe
this reserve is sufficient to cover expected future guaranty fund
assessments based upon previous premiums and known insolvencies at this
time.
LITIGATION: The Companies, like other insurance companies, may be named
or otherwise involved in lawsuits, including class action lawsuits 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 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. The Companies' asset growth,
net investment income, and cash flow are primarily generated from the
sale of variable products and associated future policy benefits and
separate account liabilities. Substantial changes in tax laws that would
make these products less attractive to consumers and extreme fluctuations
in interest rates or stock market returns, which may result in higher
lapse experience than assumed, could cause a severe impact on the
Companies' financial condition. Two broker/dealers, each having at least
ten percent of total sales, generated 29% of the Companies' sales during
the first nine months of 1999 (10% by one broker/dealer in the same
period of 1998). The Premium Plus variable annuity product generated 78%
of the Companies' sales during the first nine months of 1999 (59% in the
same period of 1998).
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 quarter and nine months ended
September 30, 1999, the Companies paid interest expense of $55,000 and
$109,000, respectively ($6,000 for the same periods of 1998). At
September 30, 1999, the Companies did not have any borrowings under this
agreement.
81
<PAGE>
<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
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, 1998 and
1997, and the related consolidated statements of operations,
changes in stockholder's equity, and cash flows for the year ended
December 31, 1998 and for the periods from October 25, 1997
through December 31, 1997, January 1, 1997 through October 24,
1997, August 14, 1996 through December 31, 1996 and January 1,
1996 through August 13, 1996. These financials are the
responsibility of the Companies' management. Our responsibility
is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Golden American Life Insurance Company at December 31,
1998 and 1997, and the consolidated results of its operations and
its cash flows for the year ended December 31, 1998 and for the
periods from October 25, 1997 through December 31, 1997, January
1, 1997 through October 24, 1997, August 14, 1996 through December
31, 1996 and January 1, 1996 through August 13, 1996 in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1999
82
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for
sale, at fair value (cost:
1998 - $739,772; 1997 -
$413,288)...................... $ 741,985 $ 414,401
Equity securities, at fair value
(cost: 1998 - $14,437; 1997 -
$4,437)........................ 11,514 3,904
Mortgage loans on real estate.... 97,322 85,093
Policy loans..................... 11,772 8,832
Short-term investments........... 41,152 14,460
---------- ----------
Total investments.................. 903,745 526,690
Cash and cash equivalents.......... 6,679 21,039
Due from affiliates................ 2,983 827
Accrued investment income.......... 9,645 6,423
Deferred policy acquisition costs.. 204,979 12,752
Value of purchased insurance in
force............................ 35,977 43,174
Current income taxes recoverable... 628 272
Deferred income tax asset.......... 31,477 36,230
Property and equipment, less
allowances for depreciation
of $801 in 1998 and $97 in 1997.. 7,348 1,567
Goodwill, less accumulated
amortization of $4,408 in 1998
and $630 in 1997................. 146,719 150,497
Other assets....................... 6,239 755
Separate account assets............ 3,396,114 1,646,169
---------- ----------
Total assets....................... $4,752,533 $2,446,395
========== ==========
</TABLE>
See accompanying notes.
83
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products......................... $ 881,112 $ 505,304
Unearned revenue reserve........... 3,840 1,189
Other policy claims and benefits... -- 10
---------- ----------
884,952 506,503
Line of credit with affiliate....... -- 24,059
Surplus notes....................... 85,000 25,000
Due to affiliates................... -- 80
Other liabilities................... 32,573 17,271
Separate account liabilities........ 3,396,114 1,646,169
---------- ----------
4,398,639 2,219,082
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share,
authorized,issued and outstanding
250,000 shares................... 2,500 2,500
Additional paid-in capital......... 347,640 224,997
Accumulated other comprehensive
income (loss).................... (895) 241
Retained earnings (deficit)........ 4,649 (425)
---------- ----------
Total stockholder's equity.......... 353,894 227,313
---------- ----------
Total liabilities and stockholder's
equity............................ $4,752,533 $2,446,395
========== ==========
</TABLE>
See accompanying notes.
84
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
REVENUES: | |
Annuity and interest sensitive | |
life product charges........ $ 39,119 $ 3,834 | $ 18,288 $ 8,768 | $12,259
Management fee revenue....... 4,771 508 | 2,262 877 | 1,390
Net investment income........ 42,485 5,127 | 21,656 5,795 | 4,990
Realized gains (losses) on | |
investments................. (1,491) 15 | 151 42 | (420)
Other income................. 5,569 236 | 426 486 | 70
--------- -------- | -------- ------- | -------
90,453 9,720 | 42,783 15,968 | 18,289
| |
| |
INSURANCE BENEFITS AND EXPENSES: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances..................... 94,845 7,413 | 19,276 5,741 | 4,355
Benefit claims incurred in | |
excess of account balances... 2,123 -- | 125 1,262 | 915
Underwriting, acquisition | |
and insurance expenses: | |
Commissions.................. 121,171 9,437 | 26,818 9,866 | 16,549
General expenses............. 37,577 3,350 | 13,907 5,906 | 9,422
Insurance taxes.............. 4,140 450 | 1,889 672 | 1,225
Policy acquisition costs | |
deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300)
Amortization: | |
Deferred policy acquisition | |
costs..................... 5,148 892 | 1,674 244 | 2,436
Value of purchased insurance | |
in force.................. 4,724 948 | 5,225 2,745 | 951
Goodwill.................... 3,778 630 | 1,398 589 | --
--------- --------- | -------- ------ | -------
75,710 9,442 | 41,309 15,313 | 16,553
| |
Interest expense............... 4,390 557 | 2,082 85 | --
--------- --------- | -------- ------ | -------
80,100 9,999 | 43,391 15,398 | 16,553
--------- --------- | -------- ------ | -------
Income (loss) before income | |
taxes........................ 10,353 (279) | (608) 570 | 1,736
| |
Income taxes................... 5,279 146 | (1,337) 220 | (1,463)
--------- --------- | -------- ------ | -------
Net income (loss).............. $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199
========= ========= | ======== ======= | ========
</TABLE>
See accompanying notes.
85
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
Accumulated
Redeemable Additional Other Retained Total
Common Preferred Paid-in Comprehensive Earnings Stockholder's
Stock Stock Capital Income (Loss) (Deficit) Equity
------------------------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996........ $2,500 $50,000 $ 45,030 $ 658 $ (63) $ 98,125
Comprehensive income:
Net income...................... -- -- -- -- 3,199 3,199
Change in net unrealized
investment gains (losses)..... -- -- -- (1,175) -- (1,175)
---------
Comprehensive income............. 2,024
Preferred stock dividends........ -- -- -- -- (719) (719)
------ ------- -------- ------- ------ ---------
Balance at August 13, 1996........ $2,500 $50,000 $ 45,030 $ (517) $2,417 $ 99,430
====== ======= ======== ======== ====== =========
</TABLE>
<TABLE>
------------------------------------------------------------------------------
POST-ACQUISITION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996........ $2,500 $50,000 $ 87,372 -- -- $139,872
Comprehensive income:
Net income...................... -- -- -- -- $ 350 350
Change in net unrealized
investment gains (losses)...... -- -- -- $ 262 -- 262
--------
Comprehensive income............. 612
Contribution of preferred stock
to additional paid-in capital... -- (50,000) 50,000 -- -- --
------ ------- -------- ------- ------ --------
Balance at December 31, 1996...... 2,500 -- 137,372 262 350 140,484
Comprehensive income:
Net income...................... -- -- -- -- 729 729
Change in net unrealized
investment gains (losses)...... -- -- -- 1,543 -- 1,543
--------
Comprehensive income............. 2,272
Contribution of capital.......... -- -- 1,121 -- -- 1,121
------ ------- -------- ------- ------ --------
Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
====== ======= ======== ====== ====== ========
</TABLE>
<TABLE>
------------------------------------------------------------------------------
POST-MERGER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 25, 1997....... $2,500 -- $224,997 -- -- $227,497
Comprehensive loss:
Net loss....................... -- -- -- -- $ (425) (425)
Change in net unrealized
investment gains (losses)...... -- -- -- $ 241 -- 241
--------
Comprehensive loss............... (184)
------ ------- -------- ------- ------ --------
Balance at December 31, 1997...... 2,500 -- 224,997 241 (425) 227,313
Comprehensive income:
Net income...................... -- -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses)...... -- -- -- (1,136) -- (1,136)
--------
Comprehensive income............. 3,938
Contribution of capital.......... -- -- 122,500 -- -- 122,500
Other............................ -- -- 143 -- -- 143
------ ------- -------- ------- ------ --------
Balance at December 31, 1998...... $2,500 -- $347,640 $ (895) $4,649 $353,894
====== ======= ======== ======= ====== ========
</TABLE>
See accompanying notes.
86
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
OPERATING ACTIVITIES | |
Net income (loss)............ $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199
Adjustments to reconcile net | |
income (loss) to net cash | |
provided by (used in) | |
operations: | |
Adjustments related to annuity | |
and interest sensitive life | |
products: | |
Interest credited and other | |
charges on interest | |
sensitive products........ 94,690 7,361 | 19,177 5,106 | 4,472
Change in unearned | |
revenues.................. 2,651 1,189 | 3,292 2,063 | 2,084
Decrease (increase) in | |
accrued investment income.. (3,222) 1,205 | (3,489) (877) | (2,494)
Policy acquisition costs | |
deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300)
Amortization of deferred | |
policy acquisition costs... 5,148 892 | 1,674 244 | 2,436
Amortization of value of | |
purchased insurance in | |
force...................... 4,724 948 | 5,225 2,745 | 951
Change in other assets, | |
other liabilities and | |
accrued income taxes....... 9,891 4,205 | (8,944) (96) | 4,672
Provision for depreciation | |
and amortization........... 8,147 1,299 | 3,203 1,242 | 703
Provision for deferred | |
income taxes............... 5,279 146 | 316 220 | (1,463)
Realized (gains) losses on | |
investments................ 1,491 (15) | (151) (42) | 420
--------- -------- | -------- -------- | ---------
Net cash provided by (used | |
in)operating activities..... (63,923) 3,127 | (7,971) (757) | (4,320)
| |
INVESTING ACTIVITIES | |
Sale, maturity or repayment | |
of investments: | |
Fixed maturities - available | |
for sale 145,253 9,871 | 39,622 47,453 | 55,091
Mortgage loans on real | |
estate..................... 3,791 1,644 | 5,828 40 | --
Short-term investments-net.. -- -- | 11,415 2,629 | 354
--------- -------- | -------- -------- | ---------
149,044 11,515 | 56,865 50,122 | 55,445
Acquisition of investments: | |
Fixed maturities - available | |
for sale................... (476,523) (29,596) | (155,173) (147,170) | (184,589)
Equity securities........... (10,000) (1) | (4,865) (5) | --
Mortgage loans on real | |
estate..................... (16,390) (14,209) | (44,481) (31,499) | --
Policy loans - net.......... (2,940) (328) | (3,870) (637) | (1,977)
Short-term investments-net.. (26,692) (13,244) | -- -- | --
--------- -------- | -------- -------- | ---------
(532,545) (57,378) | (208,389) (179,311) | (186,566)
Purchase of property and | |
equipment................... (6,485) (252) | (875) (137) | --
--------- -------- | -------- -------- | ---------
Net cash used in investing | |
activities.................. (389,986) (46,115) | (152,399) (129,326) | (131,121)
</TABLE>
See accompanying notes.
87
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
FINANCING ACTIVITIES | |
Proceeds from issuance of | |
surplus note................ $ 60,000 -- | -- $ 25,000 | --
Proceeds from reciprocal loan | |
agreement borrowings........ 500,722 -- | -- -- | --
Repayment of reciprocal loan | |
agreement borrowings........ (500,722) -- | -- -- | --
Proceeds from revolving | |
note payable................ 108,495 -- | -- -- | --
Repayment of revolving note | |
payable..................... (108,495) -- | -- -- | --
Proceeds from line of credit | |
borrowings.................. -- $10,119 | $ 97,124 -- | --
Repayment of line of credit | |
borrowings................... -- (2,207) | (80,977) -- | --
Receipts from annuity and | |
interest sensitive life | |
policies credited to | |
account balances............ 593,428 62,306 | 261,549 116,819 | $149,750
Return of account balances | |
on annuity and interest | |
sensitive life policies..... (72,649) (6,350) | (13,931) (3,315) | (2,695)
Net reallocations to Separate | |
Accounts (239,671) (17,017) | (93,069) (10,237) | (8,286)
Contributions of capital by | |
parent...................... 98,441 -- | 1,011 -- | --
Dividends paid on preferred | |
stock....................... -- -- | -- -- | (719)
Net cash provided by | |
financing activities........ 439,549 46,851 | 171,707 128,267 | 138,050
| |
Increase (decrease) in cash | |
and cash equivalents........ (14,360) 3,863 | 11,337 (1,816) | 2,609
Cash and cash equivalents at | |
beginning of period......... 21,039 17,176 | 5,839 7,655 | 5,046
Cash and cash equivalents at | |
end of period............... $ 6,679 $21,039 | $ 17,176 $ 5,839 | $ 7,655
| |
SUPPLEMENTAL DISCLOSURE | |
OF CASH FLOW INFORMATION | |
Cash paid during the period | |
for: | |
Interest.................... $ 4,305 $ 295 | $ 1,912 -- | --
Income taxes................ 99 -- | 283 -- | --
Non-cash financing activities: | |
Non-cash adjustment to | |
additional paid-in capital | |
for adjusted merger costs.. 143 -- | -- -- | --
Contribution of property and | |
equipment from EIC Variable, | |
Inc. net of $353 of | |
accumulated depreciation... -- -- | 110 -- | --
Contribution of capital from | |
parent to repay line of | |
credit borrowings.......... 24,059 -- | -- -- | --
</TABLE>
See accompanying notes.
88
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned
subsidiary, First Golden American Life Insurance Company of New
York ("First Golden," and with Golden American, collectively, the
"Companies"). All significant intercompany accounts and
transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa
Companies, Inc., offers variable insurance products and is
licensed as a life insurance company in the District of Columbia
and all states except New York. On January 2, 1997 and December
23, 1997, First Golden became licensed to sell insurance products
in New York and Delaware, respectively. The Companies' products
are marketed by broker/dealers, financial institutions and
insurance agents. The Companies' primary customers are consumers
and corporations.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of
Equitable of Iowa Companies ("Equitable") according to the terms
of an Agreement and Plan of Merger ("Merger Agreement") dated July
7, 1997 among Equitable, PFHI and ING Groep N.V. ("ING"). PFHI is
a wholly owned subsidiary of ING, a global financial services
holding company based in The Netherlands. As a result of this
transaction, Equitable was merged into PFHI, which was
simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or
the "Parent"), a Delaware corporation. See Note 6 for additional
information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable, Inc. (subsequently known as EIC
Variable, Inc.) and its wholly owned subsidiaries, Golden American
and Directed Services, Inc. ("DSI") from Whitewood Properties
Corporation ("Whitewood"). See Note 7 for additional information
regarding the acquisition.
For financial statement purposes, the ING merger was accounted for
as a purchase effective October 25, 1997 and the change in control
of Golden American through the acquisition of BT Variable, Inc.
was accounted for as a purchase effective August 14, 1996. The
merger and acquisition resulted in new bases of accounting
reflecting estimated fair values of assets and liabilities at
their respective dates. As a result, the Companies' financial
statements for the periods after October 24, 1997 are presented on
the Post-Merger new basis of accounting, for the period August 14,
1996 through October 24, 1997 are presented on the Post-
Acquisition basis of accounting, and for August 13, 1996 and prior
periods are presented on the Pre-Acquisition basis of accounting.
89
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
INVESTMENTS
Fixed Maturities: The Companies account for their investments
under the Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires fixed maturities to be designated as
either "available for sale," "held for investment" or "trading."
Sales of fixed maturities designated as "available for sale" are
not restricted by SFAS No. 115. Available for sale securities are
reported at fair value and unrealized gains and losses on these
securities are included directly in stockholder's equity,
after adjustment for related changes in value of purchased
insurance in force ("VPIF"), deferred policy acquisition costs
("DPAC") and deferred income taxes. At December 31, 1998 and 1997,
all of the Companies' fixed maturities are designated as available
for sale, although the Companies are not precluded from designating
fixed maturities as held for investment or trading at some future date.
Securities determined to have a decline in value that is other
than temporary are written down to estimated fair value, which
becomes the new cost basis by a charge to realized losses in the
Companies' Statements of Operations. Premiums and discounts are
amortized/accrued utilizing a method which results in a constant
yield over the securities' expected lives. Amortization/accrual of
premiums and discounts on mortgage and other asset-backed
securities incorporates a prepayment assumption to estimate the
securities' expected lives.
Equity Securities: Equity securities are reported at estimated
fair value if readily marketable. The change in unrealized
appreciation and depreciation of marketable equity securities (net
of related deferred income taxes, if any) is included directly in
stockholder's equity. Equity securities determined to have a
decline in value that is other than temporary are written down to
estimated fair value, which then becomes the new cost basis by a
charge to realized losses in the Companies' Statements of
Operations.
Mortgage Loans: Mortgage loans on real estate are reported at cost
adjusted for amortization of premiums and accrual of discounts. If
the value of any mortgage loan is determined to be impaired (i.e.,
when it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to
the present value of expected future cash flows from the loan
discounted at the loan's effective interest rate, or to the loan's
observable market price, or the fair value of the underlying
collateral. The carrying value of impaired loans is reduced by the
establishment of a valuation allowance which is adjusted at each
reporting date for significant changes in the calculated value of
the loan. Changes in this valuation allowance are charged or
credited to income.
Other Investments: Policy loans are reported at unpaid principal.
Short-term investments are reported at cost, adjusted for
amortization of premiums and accrual of discounts.
Realized Gains and Losses: Realized gains and losses are
determined on the basis of specific identification and average
cost methods for manager initiated and issuer initiated disposals,
respectively.
Fair Values: Estimated fair values, as reported herein, of
conventional mortgage-backed securities not actively traded in a
liquid market and publicly traded fixed maturities are estimated
using a third party pricing system. This pricing system uses a
matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities. Fair
values of private placement bonds are estimated using a matrix
that assumes a spread (based on interest rates and a risk
assessment of the bonds) over U.S. Treasury bonds. Estimated fair
values of equity securities which consist of the Companies'
investment in its registered separate accounts are based upon the
quoted fair value of the securities comprising the individual
portfolios underlying the separate accounts.
90
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the
Companies consider all demand deposits and interest-bearing
accounts not related to the investment function to be cash
equivalents. All interest-bearing accounts classified as cash
equivalents have original maturities of three months or less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally
first year commissions and interest bonuses, extra credit bonuses
and other expenses related to the production of new business, have
been deferred. Acquisition costs for variable annuity and variable
life products are being amortized generally in proportion to the
present value (using the assumed crediting rate) of expected
future gross profits. This amortization is adjusted
retrospectively when the Companies revise their estimate of
current or future gross profits to be realized from a group of
products. DPAC is adjusted to reflect the pro forma impact of
unrealized gains and losses on fixed maturities the Companies have
designated as "available for sale" under SFAS No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and the acquisition, a portion of the
purchase price related to each transaction was allocated to the
right to receive future cash flows from existing insurance
contracts. This allocated cost represents VPIF which reflects the
value of those purchased policies calculated by discounting
actuarially determined expected future cash flows at the discount
rate determined by the purchaser. Amortization of VPIF is charged
to expense in proportion to expected gross profits of the
underlying business. This amortization is adjusted retrospectively
when the Companies revise the estimate of current or future gross
profits to be realized from the insurance contracts acquired. VPIF
is adjusted to reflect the pro forma impact of unrealized gains
and losses on available for sale fixed maturities. See Notes 6 and
7 for additional information on VPIF resulting from the merger and
acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements,
office furniture, certain other equipment and capitalized computer
software and are not considered to be significant to the
Companies' overall operations. Property and equipment are reported
at cost less allowances for depreciation. Depreciation expense is
computed primarily on the basis of the straight-line method over
the estimated useful lives of the assets.
GOODWILL
Goodwill was established as a result of the merger and is being
amortized over 40 years on a straight-line basis. Goodwill
established as a result of the acquisition was being amortized
over 25 years on a straight-line basis. See Notes 6 and 7 for
additional information on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for divisions with fixed interest
guarantees of the variable products are established utilizing the
retrospective deposit accounting method. Policy reserves represent
the premiums received plus accumulated interest, less mortality
and administration charges. Interest credited to these policies
ranged from 3.00% to 10.00% during 1998, 3.30% to 8.25% during
1997 and 4.00% to 7.25% during 1996. The unearned revenue reserve
represents unearned distribution fees. These distribution fees
have been deferred and are amortized over the life of the
contracts in proportion to expected gross profits.
91
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the
accompanying Balance Sheets represent funds separately
administered principally for variable annuity and variable life
contracts. Contractholders, rather than the Companies, bear the
investment risk for the variable products. At the direction of the
contractholders, the separate accounts invest the premiums from
the sale of variable products in shares of specified mutual funds.
The assets and liabilities of the separate accounts are clearly
identified and segregated from other assets and liabilities of the
Companies. The portion of the separate account assets equal to the
reserves and other liabilities of variable annuity and variable
life contracts cannot be charged with liabilities arising out of
any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the
underlying investments and generally represent contractholder
investment values maintained in the accounts. Variable separate
account liabilities represent account balances for the variable
annuity and variable life contracts invested in the separate
accounts; the fair value of these liabilities is equal to their
carrying amount. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are
not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable products
consist of charges applicable to each contract for mortality and
expense risk, cost of insurance, contract administration and
surrender charges. In addition, some variable annuity and all
variable life contracts provide for a distribution fee collected
for a limited number of years after each premium deposit. Revenue
recognition of collected distribution fees is amortized over the
life of the contract in proportion to its expected gross profits.
The balance of unrecognized revenue related to the distribution
fees is reported as an unearned revenue reserve.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate.
Deferred tax assets or liabilities are adjusted to reflect the pro
forma impact of unrealized gains and losses on equity securities
and fixed maturities the Companies have designated as available
for sale under SFAS No. 115. Changes in deferred tax assets or
liabilities resulting from this SFAS No. 115 adjustment are
charged or credited directly to stockholder's equity. Deferred
income tax expenses or credits reflected in the Companies'
Statements of Operations are based on the changes in the deferred
tax asset or liability from period to period (excluding the SFAS
No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is
restricted. Prior approval of insurance regulatory authorities is
required for payment of dividends to the stockholder which exceed
an annual limit. During 1999, Golden American cannot pay dividends
to its Parent without prior approval of statutory authorities.
Under the provisions of the insurance laws of the State of New
York, First Golden cannot distribute any dividends to its
stockholder unless a notice of its intent to declare a dividend
and the amount of the dividend has been filed at least thirty days
in advance of the proposed declaration. If the Superintendent
finds the financial condition of First Golden does not warrant the
distribution, the Superintendent may disapprove the distribution
by giving written notice to First Golden within thirty days after
the filing.
92
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
SEGMENT REPORTING
As of December 31, 1998, the Companies adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 superseded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way public business enterprises
report information about operating segments in annual financial
statements and requires enterprises to report selected information
about operating segments in interim financial reports. SFAS No.
131 also establishes standards for related disclosures about
products and services, geographic areas and major customers.
The Companies manage their business as one segment, the sale of
variable products designed to meet customer needs for tax-
advantaged methods of saving for retirement and protection from
unexpected death. Variable products are sold to consumers and
corporations throughout the United States. The adoption of SFAS
No. 131 did not affect the results of operations or financial
position of the Companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions affecting the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
Management is required to utilize historical experience and
assumptions about future events and circumstances in order to
develop estimates of material reported amounts and disclosures.
Included among the material (or potentially material) reported
amounts and disclosures that require extensive use of estimates
and assumptions are (1) estimates of fair values of investments in
securities and other financial instruments, as well as fair values
of policyholder liabilities, (2) policyholder liabilities, (3)
deferred policy acquisition costs and value of purchased insurance
in force, (4) fair values of assets and liabilities recorded as a
result of merger and acquisition transactions, (5) asset valuation
allowances, (6) guaranty fund assessment accruals, (7) deferred
tax benefits (liabilities) and (8) estimates for commitments and
contingencies including legal matters, if a liability is
anticipated and can be reasonably estimated. Estimates and
assumptions regarding all of the proceeding are inherently subject
to change and are reassessed periodically. Changes in estimates
and assumptions could materially impact the financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the periods ended
within the years ended December 31, 1997 and 1996 have been
reclassified to conform to the December 31, 1998 financial
statement presentation.
2. BASIS OF FINANCIAL REPORTING
The financial statements of the Companies differ from related
statutory-basis financial statements principally as follows: (1)
acquisition costs of acquiring new business are deferred and
amortized over the life of the policies rather than charged to
operations as incurred; (2) an asset representing the present
value of future cash flows from insurance contracts acquired was
established as a result of the merger/acquisition and is amortized
and charged to expense; (3) future policy benefit reserves for
divisions with fixed interest guarantees of the variable products
are based on full account values, rather than the greater of cash
surrender value or amounts derived from discounting methodologies
utilizing statutory interest rates; (4) reserves are reported
before reduction for reserve credits related to reinsurance ceded
and a receivable is established, net of an allowance for uncollectible
amounts, for these credits rather than presented net of these credits;
(5) fixed maturity investments are designated as "available for sale"
and valued at fair value
93
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
2. BASIS OF FINANCIAL REPORTING (continued)
with unrealized appreciation/depreciation, net of adjustments
to value of purchased insurance in force, deferred policy acquisition
costs and deferred income taxes (if applicable), credited/charged
directly to stockholder's equity rather than valued at amortized
cost; (6) the carrying value of fixed maturities is reduced to
fair value by a charge to realized losses in the Statements of
Operations when declines in carrying value are judged to be other
than temporary, rather than through the establishment of a formula-
determined statutory investment reserve (carried as a liability),
changes in which are charged directly to surplus; (7) deferred
income taxes are provided for the difference between the financial
statement and income tax bases of assets and liabilities; (8) net
realized gains or losses attributed to changes in the level of
interest rates in the market are recognized when the sale is
completed rather than deferred and amortized over the remaining
life of the fixed maturity security; (9) a liability is
established for anticipated guaranty fund assessments, net of
related anticipated premium tax credits, rather than capitalized
when assessed and amortized in accordance with procedures
permitted by insurance regulatory authorities; (10) revenues for
variable products consist of policy charges applicable to each
contract for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges
assessed rather than premiums received; (11) the financial
statements of Golden American's wholly owned subsidiary are
consolidated rather than recorded at the equity in net assets;
(12) surplus notes are reported as liabilities rather than as
surplus; and (13) assets and liabilities are restated to fair
values when a change in ownership occurs, with provisions for
goodwill and other intangible assets, rather than continuing to be
presented at historical cost.
The net loss for Golden American as determined in accordance with
statutory accounting practices was $68,002,000 in 1998, $428,000
in 1997 and $9,188,000 in 1996. Total statutory capital and
surplus was $183,045,000 at December 31, 1998 and $76,914,000 at
December 31, 1997.
94
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities............. $35,224 $4,443 | $18,488 $5,083 | $4,507
Equity securities............ -- 3 | -- 103 | --
Mortgage loans on | |
real estate................. 6,616 879 | 3,070 203 | --
Policy loans................. 619 59 | 482 78 | 73
Short-term | |
investments................. 1,311 129 | 443 441 | 341
Other, net................... 246 (154) | 24 2 | 22
Funds held in | |
escrow...................... -- -- | -- -- | 145
------- ------ | ------- ------ | ------
Gross investment | |
income...................... 44,016 5,359 | 22,507 5,910 | 5,088
Less investment | |
expenses.................... (1,531) (232) | (851) (115) | (98)
------- ------ | ------- ------ | ------
Net investment | |
income...................... $42,485 $5,127 | $21,656 $5,795 | $4,990
======= ====== | ======= ====== | ======
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities: | |
available for sale.......... $(1,428) $25 | $151 $42 | $(420)
Mortgage loans............... (63) (10) | -- -- | --
------- --- | ---- --- | -----
Realized gains (losses) | |
on investments.............. $(1,491) $15 | $151 $42 | $(420)
======= === | ==== === | =====
</TABLE>
95
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
The change in unrealized appreciation (depreciation) of securities
at fair value is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities: | |
Available for sale.......... $1,100 $(3,494) | $4,197 $2,497 | $(3,045)
Held for investment......... -- -- | -- -- | (90)
Equity securities............ (2,390) (68) | (462) (4) | (2)
------ ------- | ------ ------ | -------
Unrealized appreciation | |
(depreciation) of | |
securities.................. $(1,290) $(3,562) | $3,735 $2,493 | $(3,137)
======= ======= | ====== ====== | =======
</TABLE>
At December 31, 1998 and December 31, 1997, amortized cost, gross
unrealized gains and losses and estimated fair values of fixed
maturities, all of which are designated as available for sale, are
as follows:
<TABLE>
POST-MERGER
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. government and governmental
agencies and authorities............. $ 13,568 $ 182 $ (8) $ 13,742
Foreign governments................... 2,028 8 -- 2,036
Public utilities...................... 67,710 546 (447) 67,809
Corporate securities.................. 365,569 4,578 (2,658) 367,489
Other asset-backed securities......... 99,877 281 (1,046) 99,112
Mortgage-backed securities............ 191,020 1,147 (370) 191,797
-------- ------ ------- --------
Total................................. $739,772 $6,742 $(4,529) $741,985
======== ====== ======= ========
DECEMBER 31, 1997
U.S. government and governmental
agencies and authorities............ $ 5,705 $ 5 $ (1) $ 5,709
Foreign governments................... 2,062 -- (9) 2,053
Public utilities...................... 26,983 55 (4) 27,034
Corporate securities.................. 259,798 1,105 (242) 260,661
Other asset-backed securities......... 3,155 32 -- 3,187
Mortgage-backed securities............ 115,585 202 (30) 115,757
-------- ------ ------- --------
Total................................. $413,288 $1,399 $ (286) $414,401
======== ====== ======= ========
</TABLE>
96
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
At December 31, 1998, net unrealized investment gains on fixed
maturities designated as available for sale totaled $2,213,000.
Appreciation of $1,005,000 was included in stockholder's equity at
December 31, 1998 (net of an adjustment of $203,000 to VPIF, an
adjustment of $455,000 to DPAC and deferred income taxes of
$550,000). Short-term investments with maturities of 30 days or
less have been excluded from the above schedules. Amortized cost
approximates fair value for these securities.
Amortized cost and estimated fair value of fixed maturities
designated as available for sale, by contractual maturity, at
December 31, 1998 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
POST-MERGER
---------------------------
Amortized Estimated
December 31, 1998 Cost Fair Value
- ----------------------------------------------------------------------
(Dollars in thousands)
Due within one year...................... $ 50,208 $ 50,361
Due after one year through five years.... 310,291 311,943
Due after five years through ten years... 78,264 78,541
Due after ten years...................... 10,112 10,231
448,875 451,076
Other asset-backed securities............ 99,877 99,112
Mortgage-backed securities............... 191,020 191,797
-------- --------
Total.................................... $739,772 $741,985
======== ========
An analysis of sales, maturities and principal repayments of the
Companies' fixed maturities portfolio is as follows:
<TABLE>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
POST-MERGER
For the year ended December 31, 1998:
Scheduled principal repayments,
calls and tenders...................... $102,504 $ 60 $ (3) $102,561
Sales................................... 43,204 518 (1,030) 42,692
-------- ---- ------- --------
Total................................... $145,708 $578 $(1,033) $145,253
======== ==== ======= ========
For the period October 25, 1997 through
December 31, 1997:
Scheduled principal repayments,
calls and tenders..................... $ 6,708 $ 2 -- $ 6,710
Sales.................................. 3,138 23 -- 3,161
-------- ---- ------- --------
Total.................................. $ 9,846 $ 25 -- $ 9,871
======== ==== ======= ========
</TABLE>
97
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
<TABLE>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
POST- ACQUISITION
For the period January 1, 1997 through
October 24, 1997:
Scheduled principal repayments,
calls and tenders..................... $25,419 -- -- $25,419
Sales.................................. 14,052 $153 $ (2) 14,203
------- ---- ---- -------
Total.................................. $39,471 $153 $ (2) $39,622
======= ==== ==== =======
For the period August 14, 1996 through
December 31, 1996:
Scheduled principal repayments,
calls and tenders.................... $ 1,612 -- -- $ 1,612
Sales................................. 45,799 $115 $(73) 45,841
------- ---- ---- -------
Total................................. $47,411 $115 $(73) $47,453
======= ==== ==== =======
PRE-ACQUISITION
For the period January 1, 1996 through
August 13, 1996:
Scheduled principal repayments,
calls and tenders.................... $ 1,801 -- -- $ 1,801
Sales................................. 53,710 $152 $(572) 53,290
------- ---- ----- -------
Total................................. $55,511 $152 $(572) $55,091
======= ==== ===== =======
</TABLE>
Investment Valuation Analysis: The Companies analyze the
investment portfolio at least quarterly in order to determine if
the carrying value of any investment has been impaired. The
carrying value of debt and equity securities is written down to
fair value by a charge to realized losses when an impairment in
value appears to be other than temporary. During the year ended
December 31, 1998, Golden American recognized a loss on two fixed
maturity investments of $973,000. During 1997 and 1996, no
investments were identified as having an other than temporary
impairment.
Investments on Deposit: At December 31, 1998 and 1997, affidavits
of deposits covering bonds with a par value of $6,470,000 and
$6,605,000, respectively, were on deposit with regulatory
authorities pursuant to certain statutory requirements.
Investment Diversifications: The Companies' investment policies
related to the investment portfolio require diversification by
asset type, company and industry and set limits on the amount
which can be invested in an individual issuer. Such policies are
at least as restrictive as those set forth by regulatory
authorities. The following percentages relate to holdings at
December 31, 1998 and December 31, 1997. Fixed maturities included
investments in basic industrials (26% in 1998, 30% in 1997),
conventional mortgage-backed securities (25% in 1998, 13% in
1997), financial companies (19% in 1998, 24% in 1997), other asset-
backed securities (11% in 1998) and various government bonds and
government or agency mortgage-backed securities (5% in 1998, 17%
in 1997). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as
California (12% in 1998 and 1997), Utah (11% in 1998,
98
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
13% in 1997) and Georgia (10% in 1998, 11% in 1997). There are no
other concentrations of mortgage loans in any state exceeding ten
percent at December 31, 1998 and 1997. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (36% in 1998, 43% in
1997), industrial buildings (32% in 1998, 33% in 1997) and retail
facilities (20% in 1998, 15% in 1997). Equity securities are not
significant to the Companies' overall investment portfolio.
No investment in any person or its affiliates (other than bonds
issued by agencies of the United States government) exceeded ten
percent of stockholder's equity at December 31, 1998.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Companies adopted the SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no
impact on the Companies' net income or stockholder's equity. SFAS
No. 130 requires unrealized gains or losses on the Companies'
available for sale securities (net of VPIF, DPAC and deferred
income taxes) to be included in other comprehensive income. Prior
to the adoption of SFAS No. 130, unrealized gains (losses) were
reported separately in stockholder's equity. Prior year financial
statements have been reclassified to conform to the requirements
of SFAS No. 130.
Total comprehensive income (loss) for the Companies includes
$1,015,000 for the year ended December 31, 1998 for First Golden
($159,000, $536,000 and $(57,000), respectively, for the periods
October 25, 1997 through December 31, 1997, January 1, 1997
through October 24, 1997 and December 17, 1996 through December
31, 1996). Other comprehensive income excludes net investment
gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These
amounts total $(2,133,000) in 1998. Such amounts, which have been
measured through the date of sale, are net of income taxes and
adjustments to VPIF and DPAC totaling $705,000 in 1998.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of estimated fair value of all
financial instruments, including both assets and liabilities
recognized and not recognized in a company's balance sheet, unless
specifically exempted. SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,"
requires additional disclosures about derivative financial
instruments. Most of the Companies' investments, investment
contracts and debt fall within the standards' definition of a
financial instrument. Fair values for the Companies' insurance
contracts other than investment contracts are not required to be
disclosed. In cases where quoted market prices are not available,
estimated fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accounting, actuarial and
regulatory bodies are continuing to study the methodologies to be
used in developing fair value information, particularly as it
relates to such things as liabilities for insurance contracts.
Accordingly, care should be exercised in deriving conclusions
about the Companies' business or financial condition based on the
information presented herein.
The Companies closely monitor the composition and yield of
invested assets, the duration and interest credited on insurance
liabilities and resulting interest spreads and timing of cash
flows. These amounts are taken into consideration in the Companies'
overall management of interest rate risk, which attempts to minimize
exposure to changing interest rates through the matching of investment
cash flows with amounts expected to be due under insurance contracts.
These assumptions may not result in values consistent with those
obtained through an actuarial appraisal of the Companies' business
or values that might arise in a negotiated transaction.
99
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
The following compares carrying values as shown for financial
reporting purposes with estimated fair values:
<TABLE>
POST-MERGER
-----------------------------------------------
December 31, 1998 December 31, 1997
---------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- --------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available
for sale...................... $ 741,985 $ 741,985 $ 414,401 $ 414,401
Equity securities.............. 11,514 11,514 3,904 3,904
Mortgage loans on real estate.. 97,322 99,762 85,093 86,348
Policy loans................... 11,772 11,772 8,832 8,832
Short-term investments......... 41,152 41,152 14,460 14,460
Cash and cash equivalents...... 6,679 6,679 21,039 21,039
Separate account assets........ $3,396,114 $3,396,114 $1,646,169 $1,646,169
LIABILITIES
Annuity products............... 869,009 827,597 493,181 469,714
Surplus notes.................. 85,000 90,654 25,000 28,837
Line of credit with affiliate.. -- -- 24,059 24,059
Separate account liabilities... 3,396,114 3,396,114 1,646,169 1,646,169
</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 system. This pricing system uses a matrix calculation
assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities.
Equity Securities: Estimated fair values of equity securities,
which consist of the Companies' investment in the portfolios
underlying its separate accounts, are based upon the quoted fair
value of individual securities comprising the individual
portfolios. For equity securities not actively traded, estimated
fair values are based upon values of issues of comparable returns
and quality.
Mortgage Loans on Real Estate: Fair values are estimated by
discounting expected cash flows, using interest rates currently
offered for similar loans.
Policy Loans: Carrying values approximate the estimated fair value
for policy loans.
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
100
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
without life contingencies are stated at cash surrender value, the
cost the Companies would incur to extinguish the liability.
Surplus Notes: Estimated fair value of the Companies' surplus
notes were based upon discounted future cash flows using a
discount rate approximating the Companies' return on invested
assets.
Line Of Credit With Affiliate: Carrying value reported in the
Companies' historical cost basis balance sheet approximates
estimated fair value for this instrument.
Separate Account Liabilities: Separate account liabilities are
reported at full account value in the Companies' historical cost
balance sheet. Estimated fair values of separate account
liabilities are equal to their carrying amount.
6. MERGER
Transaction: On October 23, 1997, Equitable's shareholders
approved the Merger Agreement dated July 7, 1997 among Equitable,
PFHI and ING. On October 24, 1997, PFHI, a Delaware corporation,
acquired all of the outstanding capital stock of Equitable
according to the Merger Agreement. PFHI is a wholly owned
subsidiary of ING, a global financial services holding company
based in The Netherlands. Equitable, an Iowa corporation, in turn,
owned all the outstanding capital stock of Equitable Life
Insurance Company of Iowa ("Equitable Life") and Golden American
and their wholly owned subsidiaries. In addition, Equitable owned
all the outstanding capital stock of Locust Street Securities,
Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently
dissolved), DSI, Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds
Distributor, Inc.). In exchange for the outstanding capital stock
of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock and assumed approximately $400 million
in debt. As a result of this transaction, Equitable was merged
into PFHI, which was simultaneously renamed Equitable of Iowa
Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation.
All costs of the merger, including expenses to terminate certain
benefit plans, were paid by the Parent.
Accounting Treatment: The merger was accounted for as a purchase
resulting in a new basis of accounting, reflecting estimated fair
values for assets and liabilities at October 24, 1997. The
purchase price was allocated to EIC and its subsidiaries with
$227,497,000 allocated to the Companies. Goodwill was established
for the excess of the merger cost over the fair value of the net
assets and attributed to EIC and its subsidiaries including Golden
American and First Golden. The amount of goodwill allocated to the
Companies relating to the merger was $151,127,000 at the merger
date and is being amortized over 40 years on a straight-line
basis. The carrying value of goodwill will be reviewed
periodically for any indication of impairment in value. The
Companies' DPAC, previous balance of VPIF and unearned revenue
reserve, as of the merger date, were eliminated and a new asset of
$44,297,000 representing VPIF was established for all policies in
force at the merger date.
Value of Purchased Insurance In Force: As part of the merger, a
portion of the acquisition cost was allocated to the right to
receive future cash flows from insurance contracts existing with
the Companies at the merger date. This allocated cost represents
VPIF reflecting the value of those purchased policies calculated
by discounting the actuarially determined expected future cash
flow at the discount rate determined by ING.
101
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
6. Merger (continued)
An analysis of the VPIF asset is as follows:
POST-MERGER
-------------------------------------
For the period
For the year October 25, 1997
ended through
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Beginning balance................. $43,174 $44,297
-------- --------
Imputed interest.................. 2,802 1,004
Amortization...................... (7,753) (1,952)
Changes in assumptions of
timing of gross profits.......... 227 --
-------- --------
Net amortization.................. (4,724) (948)
Adjustment for unrealized gains
on available for sale
securities....................... (28) (175)
Adjustment for other receivables
and merger costs................. (2,445) --
-------- --------
Ending balance.................... $35,977 $43,174
======= =======
Interest is imputed on the unamortized balance of VPIF at a rate
of 7.38% for the year ended December 31, 1998 and 7.03% for the
period October 25, 1997 through December 31, 1997. The
amortization of VPIF, net of imputed interest, is charged to
expense. VPIF decreased $2,664,000 in the second quarter of 1998
to adjust the value of other receivables at merger date and
increased $219,000 in the first quarter of 1998 as a result of an
adjustment to the merger costs. VPIF is adjusted for the
unrealized gains (losses) on available for sale securities; such
changes are included directly in stockholder's equity. Based on
current conditions and assumptions as to the impact of future
events on acquired policies in force, the expected approximate net
amortization relating to VPIF as of December 31, 1998 is
$4,300,000 in 1999, $4,000,000 in 2000, $3,900,000 in 2001,
$3,700,000 in 2002 and $3,300,000 in 2003. Actual amortization may
vary based upon changes in assumptions and experience.
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
102
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
7. Acquisition (continued)
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.
An analysis of the VPIF asset is as follows:
<TABLE>
POST-ACQUISITION | PRE-ACQUISITION
------------------------------------|----------------
For the period For the period | For the period
January 1, 1997 August 14,1996 | January 1, 1996
through through | through
October 24, 1997 December 31, 1996 | August 13, 1996
---------------- ----------------- | ---------------
(Dollars in thousands)
<S> <C> <C> | <C>
Beginning balance................ $83,051 $85,796 | $6,057
------- ------- | ------
Imputed interest................. 5,138 2,465 | 273
Amortization..................... (12,656) (5,210) | (1,224)
Changes in assumption of | ------
timing of gross profits......... 2,293 -- | --
------- ------- |
Net amortization................. (5,225) (2,745) | (951)
Adjustment for unrealized gains |
(losses) on available for sale |
securities...................... (373) -- | 11
------- ------- | ------
Ending balance $77,453 $83,051 | $5,117
======= ======= | ======
</TABLE>
Pre-Acquisition VPIF represents the remaining value assigned to in
force contracts when Bankers Trust purchased Golden American from
Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual
Benefit") on September 30, 1992.
Interest was imputed on the unamortized balance of VPIF at rates
of 7.70% to 7.80% for the period August 14, 1996 through October
24, 1997. The amortization of VPIF net of imputed interest was
charged to expense. VPIF was also adjusted for the unrealized
gains (losses) on available for sale securities; such changes were
included directly in stockholder's equity.
8. INCOME TAXES
Golden American files a consolidated federal income tax return.
Under the Internal Revenue Code, a newly acquired insurance
company cannot file as part of its parent's consolidated tax
return for 5 years.
At December 31, 1998, the Companies have net operating loss
("NOL") carryforwards for federal income tax purposes of
approximately $50,917,000. Approximately $5,094,000, $3,354,000
and $42,469,000 of these NOL carryforwards are available to offset
future taxable income of the Companies through the years 2011,
2012 and 2013, respectively.
103
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
8. INCOME TAXES(continued)
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated
financial statements is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Current..................... -- -- | $ 12 -- | --
Deferred.................... $5,279 $146 | (1,349) $220 | $(1,463)
------ ---- | |
$5,279 $146 | $(1,337) $220 | $(1,463)
====== ==== | ======= ==== | =======
</TABLE>
The effective tax rate on income (loss) before income taxes is
different from the prevailing federal income tax rate. A
reconciliation of this difference is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
| |
Income (loss) before | |
income taxes.............. $10,353 $(279) | $ ( 608) $570 | $1,736
======= ===== | ======= ==== | ======
Income tax (benefit) at | |
federal statutory rate.... $ 3,624 $ (98) | $ (213) $200 | $ 607
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards........... -- -- | -- -- | (1,214)
Goodwill amortization..... 1,322 220 | -- -- | --
Compensatory stock | |
option and restricted | |
stock expense............ -- -- | (1,011) -- | --
Meals and | |
entertainment............ 157 23 | 53 20 | --
Other items............... 176 1 | (166) -- | --
Change in valuation | |
allowance................. -- -- | -- -- | (856)
------- ----- | ------- ---- | -------
Income tax expense | |
(benefit)................. $ 5,279 $ 146 | $(1,337) $220 | $(1,463)
======= ===== | ======= ==== | =======
</TABLE>
104
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
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, 1998 and 1997 is as follows:
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of
securities at fair value.......... $ 691 --
Future policy benefits............. 66,273 $27,399
Deferred policy acquisition costs.. -- 4,558
Goodwill........................... 16,323 17,620
Net operating loss carryforwards... 17,821 3,044
Other.............................. 1,272 1,548
-------- -------
102,380 54,169
Deferred tax liabilities:
Net unrealized appreciation of
securities at fair value.......... -- (130)
Fixed maturity securities.......... (1,034) (1,665)
Deferred policy acquisition costs.. (55,520) --
Mortgage loans on real estate...... (845) (845)
Value of purchased insurance in
force............................. (12,592) (15,172)
Other.............................. (912) (127)
-------- --------
(70,903) (17,939)
-------- --------
Deferred income tax asset........... $ 31,477 $ 36,230
======== ========
The Companies are required to establish a "valuation allowance"
for any portion of the deferred tax assets management believes
will not be realized. In the opinion of management, it is more
likely than not the Companies will realize the benefit of the
deferred tax assets; therefore, no such valuation allowance has
been established.
9. RETIREMENT PLANS
Defined Benefit Plans: In 1998 and 1997, the Companies were
allocated their share of the pension liability associated with
their employees. The Companies' employees are covered by the
employee retirement plan of an affiliate, Equitable Life. Further,
Equitable Life sponsors a defined contribution plan that is
qualified under Internal Revenue Code Section 401(k). The
following tables summarize the benefit obligations and the funded
status for pension benefits over the two-year period ended
December 31, 1998:
105
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
9. RETIREMENT PLANS (continued)
1998 1997
-------- ------
(Dollars in thousands)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1............ $ 956 $192
Service cost............................... 1,138 682
Interest cost.............................. 97 25
Actuarial loss............................. 2,266 57
Benefit payments........................... (3) --
------ ----
Benefit obligation at December 31.......... $4,454 $956
====== ====
1998 1997
-------- ------
(Dollars in thousands)
FUNDED STATUS
Funded status at December 31............... $(4,454) $(956)
Unrecognized net loss...................... 2,266 --
------- -----
Net amount recognized...................... $(2,188) $(956)
======= =====
During 1998 and 1997, the Companies' plan assets were held by
Equitable Life, an affiliate.
The weighted-average assumptions used in the measurement of the
Companies' benefit obligation are as follows:
1998 1997
------ ------
DECEMBER 31
Discount rate................................ 6.75% 7.25%
Expected return on plan assets............... 9.50 9.00
Rate of compensation increase................ 4.00 5.00
The following table provides the net periodic benefit cost for the
fiscal years 1998 and 1997:
<TABLE>
POST-MERGER | POST-ACQUISITION
------------------------------------ | ----------------
For the period | For the period
For the year October 25,1997 | January 1,1997
ended through | through
December 31, 1998 December 31, 1997 | October 24, 1997
----------------- ----------------- | ----------------
(Dollars in thousands)
<S> <C> <C> | <C>
Service cost................ $1,138 $114 | $568
Interest cost............... 97 10 | 15
Amortization of net loss.... -- -- | 1
------ ---- | ----
Net periodic benefit cost... $1,235 $124 | $584
====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or settlements
during 1998 or 1997.
106
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
9. RETIREMENT PLANS (continued)
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $4,454,000,
$3,142,000 and $0, respectively, as of December 31, 1998 and
$956,000, $579,000 and $0, respectively, as of December 31, 1997.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI acts as the principal underwriter (as
defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) and distributor of the variable insurance
products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies'
variable insurance products and appoint representatives of the
broker/dealers as agents. For the year ended December 31, 1998 and
for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the Companies paid
commissions to DSI totaling $117,470,000, $9,931,000 and
$26,419,000, respectively ($9,995,000 for the period August 14,
1996 through December 31, 1996 and $17,070,000 for the period
January 1, 1996 through August 13, 1996).
Golden American provides certain managerial and supervisory
services to DSI. The fee paid by DSI for these services is
calculated as a percentage of average assets in the variable
separate accounts. For the year ended December 31, 1998 and for
the periods October 25, 1997 through December 31, 1997 and January
1, 1997 through October 24, 1997, the fee was $4,771,000, $508,000
and $2,262,000, respectively. For the periods August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13,
1996 the fee was $877,000 and $1,390,000, respectively.
Effective January 1, 1998, the Companies have an asset management
agreement with ING Investment Management LLC ("ING IM"), an
affiliate, in which ING IM provides asset management services.
Under the agreement, the Companies record a fee based on the value
of the assets under management. The fee is payable quarterly. For
the year ended December 31, 1998, the Companies incurred fees of
$1,504,000 under this agreement.
Prior to 1998, the Companies had a service agreement with
Equitable Investment Services, Inc. ("EISI"), an affiliate, in
which EISI provided investment management services. Payments for
these services totaled $200,000, $768,000 and $72,000 for the
periods October 25, 1997 through December 31, 1997, January 1,
1997 through October 24, 1997 and August 14, 1996 through December
31, 1996, respectively.
Golden American has a guaranty agreement with Equitable Life, an
affiliate. In consideration of an annual fee, payable June 30,
Equitable Life guarantees to Golden American that it will make
funds available, if needed, to Golden American to pay the
contractual claims made under the provisions of Golden American's
life insurance and annuity contracts. The agreement is not, and
nothing contained therein or done pursuant thereto by Equitable
Life shall be deemed to constitute, a direct or indirect guaranty
by Equitable Life of the payment of any debt or other obligation,
indebtedness or liability, of any kind or character whatsoever, of
Golden American. The agreement does not guarantee the value of the
underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been
invested. The calculation of the annual fee is based on risk based
capital. As Golden American's risk based capital level was above
required amounts, no annual fee was payable in 1998 or in 1997.
Golden American provides certain advisory, computer and other
resources and services to Equitable Life. Revenues for these
services, which reduced general expenses incurred by Golden
American, totaled $5,833,000 for the year ended December 31, 1998
($1,338,000 and $2,992,000 for the periods October 25,
1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, respectively). No services were provided by Golden American
in 1996.
107
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
10. 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
$1,058,000 for the year ended December 31, 1998 ($13,000 and
$16,000 for the periods October 25, 1997 through December 31, 1997
and January 1, 1997 through October 24, 1997, respectively).
First Golden provides resources and services to DSI. Revenues for
these services, which reduce general expenses incurred by the
Companies, totaled $75,000 in 1998.
For the year ended December 31, 1998, the Companies had premiums,
net of reinsurance, for variable products from four affiliates,
Locust Street Securities, Inc., Vestax Securities Corporation, DSI
and Multi-Financial Securities Corporation of $122,900,000,
$44,900,000, $13,600,000 and $13,400,000, respectively. The
Companies had premiums, net reinsurance, for variable products
from three affiliates, Locust Street Securities, Inc., Vestax
Securities Corporation and DSI of $9,300,000, $1,900,000 and
$2,100,000 respectively, for the period October 25, 1997 through
December 31, 1997 ($16,900,000, $1,200,000 and $400,000 for the
period January 1, 1997 through October 24, 1997, respectively).
Reciprocal Loan Agreement: Golden American maintains a reciprocal
loan agreement with ING America Insurance Holdings, Inc. ("ING
AIH"), a Delaware corporation and affiliate, to facilitate the
handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement which became effective January
1, 1998 and expires December 31, 2007, Golden American and ING AIH
can borrow up to $65,000,000 from one another. Prior to lending
funds to ING AIH, Golden American must obtain the approval of the
State of Delaware Department of Insurance. Interest on any Golden
American borrowings is charged at the rate of ING AIH's cost of
funds for the interest period plus 0.15%. Interest on any ING AIH
borrowings is charged at a rate based on the prevailing interest
rate of U.S. commercial paper available for purchase with a
similar duration. Under this agreement, Golden American incurred
interest expense of $1,765,000 in 1998. At December 31, 1998,
Golden American did not have any borrowings or receivables from
ING AIH under this agreement.
Line of Credit: Golden American maintained a line of credit
agreement with Equitable to facilitate the handling of unusual
and/or unanticipated short-term cash requirements. Under this
agreement which became effective December 1, 1996 and expired
December 31, 1997, Golden American could borrow up to $25,000,000.
Interest on any borrowings was charged at the rate of Equitable's
monthly average aggregate cost of short-term funds plus 1.00%.
Under this agreement, Golden American incurred interest expense of
$211,000 for the year ended December 31, 1998 ($213,000 for the
period October 25, 1997 through December 31, 1997, $362,000 for
the period January 1, 1997 through October 24, 1997 and $85,000
for the period August 14, 1996 through December 31, 1996). The
outstanding balance was paid by a capital contribution.
Surplus Notes: On December 30, 1998, Golden American issued a
7.25% surplus note in the amount of $60,000,000 to Equitable Life.
The note matures on December 29, 2028. The note and related
accrued interest is subordinate to payments due to policyholders,
claimant and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of
Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred no interest in 1998.
On December 17, 1996, Golden American issued an 8.25% surplus note
in the amount of $25,000,000 to Equitable. The note matures on
December 17, 2026. The note and related accrued interest is
subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of
debtors of Golden American. Any payment of principal made is
subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling
$2,063,000 in 1998 ($344,000 and $1,720,000 for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997
through
108
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
10. RELATED PARTY TRANSACTIONS (continued)
October 24, 1997, respectively). On December 17, 1996,
Golden American contributed the $25,000,000 to First Golden
acquiring 200,000 shares of common stock (100% of outstanding
stock) of First Golden.
Stockholder's Equity: On September 23, 1996, EIC Variable, Inc.
contributed $50,000,000 of Preferred Stock to the Companies'
additional paid-in capital. During 1998, Golden American received
$122,500,000 of capital contributions from its Parent.
11. COMMITMENTS AND CONTINGENCIES
Contingent Liability: In a transaction that closed on September
30, 1992, Bankers Trust acquired from Mutual Benefit, in
accordance with the terms of an Exchange Agreement, all of the
issued and outstanding capital stock of Golden American and DSI
and certain related assets for consideration with an aggregate
value of $13,200,000 and contributed them to BT Variable. The
transaction involved settlement of pre-existing claims of Bankers
Trust against Mutual Benefit. The ultimate value of these claims
has not yet been determined by the Superior Court of New Jersey
and, prior to August 13, 1996, was contingently supported by a
$5,000,000 note payable from Golden American and a $6,000,000
letter of credit from Bankers Trust. Bankers Trust estimated the
contingent liability due from Golden American amounted to $439,000
at August 13, 1996. At August 13, 1996, the balance of the escrow
account established to fund the contingent liability was
$4,293,000.
On August 13, 1996, Bankers Trust made a cash payment to Golden
American in an amount equal to the balance of the escrow account
less the $439,000 contingent liability discussed above. In
exchange, Golden American irrevocably assigned to Bankers Trust
all of Golden American's rights to receive any amounts to be
disbursed from the escrow account in accordance with the terms of
the Exchange Agreement. Bankers Trust also irrevocably agreed to
make all payments becoming due under the Golden American note and
to indemnify Golden American for any liability arising from the
note.
Reinsurance: At December 31, 1998, the Companies had reinsurance
treaties with four unaffiliated reinsurers and one affiliated
reinsurer covering a significant portion of the mortality risks
under variable contracts. The Companies remain liable to the
extent reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life
mortality risks were $111,552,000 and $96,686,000 at December 31,
1998 and 1997, respectively. At December 31, 1998, the Companies
have a net receivable of $7,470,000 for reserve credits,
reinsurance claims or other receivables from these reinsurers
comprised of $439,000 for claims recoverable from reinsurers,
$543,000 for a payable for reinsurance premiums and $7,574,000 for
a receivable from an unaffiliated reinsurer. Included in the
accompanying financial statements are net considerations to
reinsurers of $4,797,000, $326,000, $1,871,000, $875,000 and
$600,000 and net policy benefits recoveries of $2,170,000,
$461,000, $1,021,000, $654,000 and $1,267,000 for the year ended
December 31, 1998 and for the periods October 25, 1997 through
December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996
through August 13, 1996, respectively.
Effective June 1, 1994, Golden American entered into a modified
coinsurance agreement with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects
of the treaty which increased income by $1,022,000, $265,000,
$335,000, $10,000 and $56,000 for the year ended December 31, 1998
and for the periods October 25, 1997 through December 31, 1997,
January 1, 1997 through October 24, 1997, August 14, 1996 through
December 31, 1996 and January 1, 1996 through August 13, 1996,
respectively.
Guaranty Fund Assessments: Assessments are levied against the
Companies by life and health guaranty associations in most states
in which the Companies are licensed to cover losses of
policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially recovered through a
reduction
109
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
11. COMMITMENTS AND CONTINGENCIES (continued)
in future premium taxes. The Companies cannot predict
whether and to what extent legislative initiatives may affect the
right to offset. The associated cost for a particular insurance
company can vary significantly based upon its fixed account
premium volume by line of business and state premiums as well as
its potential for premium tax offset. The Companies have
established an undiscounted reserve to cover such assessments and
regularly reviews information regarding known failures and revises
its estimates of future guaranty fund assessments. Accordingly,
the Companies accrued and charged to expense an additional
$1,123,000 for the year ended December 31, 1998, $141,000 for the
period October 25, 1997 through December 31, 1997, $446,000 for
the period January 1, 1997 through October 24, 1997, $291,000 for
the period August 14, 1996 through December 31, 1996 and $480,000
for the period January 1, 1996 through August 13, 1996. At
December 31, 1998, the Companies have an undiscounted reserve of
$2,446,000 to cover estimated future assessments (net of related
anticipated premium tax credits) and has established an asset
totaling $586,000 for assessments paid which may be recoverable
through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund
assessments, based upon previous premiums, and known insolvencies
at this time.
Litigation: The Companies, like other insurance companies, may be
named or otherwise involved in lawsuits, including class action
lawsuits. In some class action and other lawsuits involving
insurers, substantial damages have been sought and/or material
settlement payments have been made. The Companies currently
believe no pending or threatened lawsuits exist that are
reasonably likely to have a material adverse impact on the
Companies.
Vulnerability from Concentrations: The Companies have various
concentrations in its investment portfolio (see Note 3 for further
information). The Companies' asset growth, net investment income
and cash flow are primarily generated from the sale of variable
products and associated future policy benefits and separate
account liabilities. Substantial changes in tax laws that would
make these products less attractive to consumers and extreme
fluctuations in interest rates or stock market returns which may
result in higher lapse experience than assumed could cause a
severe impact to the Companies' financial condition. Two
broker/dealers generated 27% of the Companies' sales (53% by two
broker/dealers during 1997).
Leases: The Companies lease their home office space, certain
other equipment and capitalized computer software under operating
leases which expire through 2018. During the year ended December
31, 1998 and for the periods October 25, 1997 through December 31,
1997, January 1, 1997 through October 24, 1997, August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13,
1996, rent expense totaled $1,241,000, $39,000, $331,000, $147,000
and $247,000, respectively. At December 31, 1998, minimum rental
payments due under all non-cancelable operating leases with
initial terms of one
year or more are: 1999 - $1,528,000; 2000 - $1,429,000; 2001 - $1,240,000;
2002 - $1,007,000; 2003 - $991,000 and 2004 and thereafter - $5,363,000.
Revolving Note Payable: To enhance short-term liquidity, the
Companies have established a revolving note payable effective July
27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta
(the "Bank"). The note was approved by the Boards of Directors of
Golden American and First Golden on August 5, 1998 and September
29, 1998, respectively. The total amount the Companies may have
outstanding is $85,000,000, of which Golden American and First
Golden have individual credit sublimits of $75,000,000 and
$10,000,000, respectively. The note accrues interest at an annual
rate equal to: (1) the cost of funds for the Bank for the period
applicable for the advance plus 0.25% or (2) a rate quoted by the
Bank to the Companies for the advance. The terms of the agreement
require the Companies to maintain the minimum level of Company
Action Level Risk Based Capital as established by applicable state
law or regulation. During the year ended December 31, 1998, the
Companies incurred interest expense of $352,000. At December 31,
1998, the Companies did not have any borrowings under this
agreement.
110
<PAGE>
<PAGE>
[Shaded Section Header]
- --------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction 1
Description of Golden American Life Insurance Company 1
Safekeeping of Assets 1
The Administrator 1
Independent Auditors 1
Distribution of Contracts 2
Performance Information 2
IRA Withdrawal Option 6
Other Information 6
Financial Statements of Separate Account B 6
Appendix Description of Bond Ratings A-1
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE
STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE
PROSPECTUS. SEND THE FORM TO OUR CUSTOMER SERVICE CENTER; 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
106298 DVA Plus Form 2 (02/00)
111
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<PAGE>
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
Except for the Investors, Large Cap Value and All Cap subaccounts
which did not commenced operations as of December 31, 1998, 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
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $14.54 489,531 $7,118 |
| 1997 14.02 227,427 3,188 |
| 1996 13.51 76,505 1,033 |
| 1995 13.03 37,887 494 |
| 10/2/95 12.89 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.33 334,799 $4,796 |
| 1997 13.83 116,454 1,611 |
| 1996 13.35 84,960 1,134 |
| 1995 12.89 62,084 801 |
| 10/2/95 12.76 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
LIMITED MATURITY BOND
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $17.02 263,074 $4,478 |
| 1997 16.13 139,323 2,247 |
| 1996 15.31 83,927 1,285 |
| 1995 14.86 26,976 401 |
| 10/2/95 14.49 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $16.77 143,896 $2,413 |
| 1997 15.91 78,553 1,250 |
| 1996 15.13 46,293 701 |
| 1995 14.71 11,834 174 |
| 10/2/95 14.35 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
GLOBAL FIXED INCOME
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $13.17 6,337 $83 |
| 5/1/98 12.17 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $13.09 6,154 $81 |
| 5/1/98 12.11 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $13.00 38,751 $504 |
| 5/1/98 12.04 -- -- |
|-------------------------------------------------------------|
A1
<PAGE>
<PAGE>
TOTAL RETURN
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $17.83 676,433 $10,989 |
| 1997 16.18 224,763 3,636 |
| 1/20/97 13.76 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $17.72 422,146 $7,479 |
| 1997 16.10 140,222 2,258 |
| 1/20/97 13.76 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $17.60 2,547,293 $44,830 |
| 1997 16.02 720,866 11,548 |
| 1/20/97 13.76 -- -- |
|-------------------------------------------------------------|
FULLY MANAGED
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $20.84 544,623 $11,351 |
| 1997 19.93 418,686 8,345 |
| 1996 17.50 203,891 3,568 |
| 1995 15.23 49,153 748 |
| 10/2/95 14.77 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $20.53 441,532 $9,066 |
| 1997 19.66 341,016 6,706 |
| 1996 17.29 173,475 2,999 |
| 1995 15.07 13,988 211 |
| 10/2/95 14.62 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $20.23 2,262,811 $45,711 |
| 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 -- -- |
|-------------------------------------------------------------|
EQUITY INCOME
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.27 395,764 $8,812 |
| 1997 20.83 328,740 6,847 |
| 1996 17.96 289,954 5,207 |
| 1995 16.72 104,463 1,747 |
| 10/2/95 16.10 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $21.94 299,456 $6,569 |
| 1997 20.55 223,101 4,585 |
| 1996 17.75 150,732 2,675 |
| 1995 16.55 21,073 348 |
| 10/2/95 15.94 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
RISING DIVIDENDS
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.79 1,199,087 $27,323 |
| 1997 20.22 795,203 16,079 |
| 1996 15.77 297,973 4,699 |
| 1995 13.24 22,934 304 |
| 10/2/95 12.16 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $22.61 1,050,285 $23,747 |
| 1997 20.09 739,017 14,847 |
| 1996 15.69 355,191 5,575 |
| 1995 13.19 36,100 476 |
| 10/2/95 12.12 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
A2
<PAGE>
<PAGE>
CAPITAL GROWTH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $17.08 537,480 $9,180 |
| 1997 15.45 325,440 5,027 |
| 1996 12.50 50,199 627 |
| 9/3/96 10.94 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $17.01 444,973 $7,569 |
| 1997 15.41 226,587 3,491 |
| 1996 12.49 38,037 475 |
| 9/3/96 10.94 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
GROWTH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $16.36 362,210 $5,926 |
| 1997 13.06 161,235 2,106 |
| 1/20/97 11.99 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $16.29 284,480 $4,636 |
| 1997 13.03 132,596 1,728 |
| 1/20/97 11.99 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $16.22 1,635,638 $26,538 |
| 1997 12.99 718,807 9,340 |
| 1/20/97 11.99 -- -- |
|-------------------------------------------------------------|
VALUE EQUITY
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $18.41 454,942 $8,377 |
| 1997 18.36 372,681 6,843 |
| 1996 14.61 181,354 2,649 |
| 1995 13.37 34,272 458 |
| 10/2/95 12.43 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $18.31 500,101 $9,155 |
| 1997 18.28 410,757 7,509 |
| 1996 14.57 249,994 3,642 |
| 1995 13.36 23,394 313 |
| 10/2/95 12.41 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
RESEARCH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $23.03 437,189 $10,068 |
| 1997 18.95 223,067 4,227 |
| 1/20/97 16.43 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $22.89 335,512 $7,680 |
| 1997 18.87 142,676 2,692 |
| 1/20/97 16.43 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $22.73 2,179,744 $49,533 |
| 1997 18.77 786,122 14,752 |
| 1/20/97 16.43 -- -- |
|-------------------------------------------------------------|
A3
<PAGE>
<PAGE>
MANAGED GLOBAL
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $15.02 649,216 $9,753 |
| 1997 11.76 525,356 6,180 |
| 1996 10.62 226,224 2,402 |
| 1995 9.58 26,722 256 |
| 10/2/95 9.32 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.88 512,728 $7,631 |
| 1997 11.67 438,611 5,120 |
| 1996 10.55 231,774 2,446 |
| 1995 9.53 27,492 262 |
| 10/2/95 9.28 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
CAPITAL APPRECIATION
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $24.75 413,115 $10,233 |
| 1997 22.24 353,774 7,868 |
| 1996 17.46 162,558 2,839 |
| 1995 14.71 24,117 355 |
| 10/2/95 14.31 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $24.50 370,619 $9,080 |
| 1997 22.05 286,892 6,326 |
| 1996 17.34 174,592 3,028 |
| 1995 14.63 16,369 239 |
| 10/2/95 14.23 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
MID-CAP GROWTH
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.60 173,070 $3,912 |
| 1997 18.64 85,870 1,600 |
| 1996 15.77 29,878 471 |
| 9/3/96 14.64 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $22.43 183,243 $4,109 |
| 1997 18.52 112,382 2,081 |
| 1996 15.70 28,223 443 |
| 9/3/96 14.64 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
STRATEGIC EQUITY
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $14.30 508,588 $7,272 |
| 1997 14.36 406,747 5,840 |
| 1996 11.81 370,536 4,374 |
| 1995 10.01 76,095 762 |
| 10/2/95 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.23 589,815 $8,393 |
| 1997 14.31 534,105 7,643 |
| 1996 11.78 231,567 2,729 |
| 1995 10.01 47,478 475 |
| 10/2/95 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
A4
<PAGE>
<PAGE>
SMALL CAP
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $15.44 446,934 $6,900 |
| 1997 12.92 401,090 5,183 |
| 1996 11.86 198,338 2,352 |
| 1/2/96 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $15.37 525,379 $8,074 |
| 1997 12.88 445,138 5,735 |
| 1996 11.84 227,347 2,692 |
| 1/2/96 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
REAL ESTATE
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $22.07 170,494 $3,763 |
| 1997 25.82 173,241 4,473 |
| 1996 21.30 54,229 1,155 |
| 1995 15.94 2,716 43 |
| 10/2/95 15.06 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $21.74 125,630 $2,731 |
| 1997 25.48 113,110 2,882 |
| 1996 21.04 42,710 899 |
| 1995 15.78 2,910 46 |
| 10/2/95 14.91 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
HARD ASSETS
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $14.50 146,678 $2,126 |
| 1997 20.85 154,417 3,219 |
| 1996 19.89 94,213 1,873 |
| 1995 15.11 24,828 375 |
| 10/2/95 14.86 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $14.28 74,676 $1,067 |
| 1997 20.57 81,681 1,680 |
| 1996 19.65 43,232 850 |
| 1995 14.96 2,847 42 |
| 10/2/95 14.71 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
DEVELOPING WORLD
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $ 7.29 617 $5 |
| 5/1/98 10.42 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $ 7.28 12,180 $89 |
| 5/1/98 10.42 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $ 7.27 49,393 $359 |
| 5/1/98 10.42 -- -- |
|-------------------------------------------------------------|
A5
<PAGE>
<PAGE>
EMERGING MARKETS
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $6.56 266,800 $1,751 |
| 1997 8.75 249,197 2,182 |
| 1996 9.78 97,857 957 |
| 1995 9.23 15,670 145 |
| 10/2/95 9.50 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $6.51 249,607 $1,625 |
| 1997 8.70 215,512 1,875 |
| 1996 9.74 102,267 995 |
| 1995 9.20 12,465 115 |
| 10/2/95 9.47 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 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 -- -- |
|-------------------------------------------------------------|
PIMCO HIGH YIELD BOND
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $10.09 213,774 $2,157 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $10.08 118,295 $1,192 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $10.07 630,858 $6,353 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
PIMCO STOCKSPLUS GROWTH AND INCOME
[3-up table with shaded headers]
|-------------------------------------------------------------|
| STANDARD 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) |
|-------------------------------------------------------------|
| 1998 $11.12 112,706 $1,253 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| ANNUAL RATCHET 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) |
|-------------------------------------------------------------|
| 1998 $11.11 53,016 $192 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
|-------------------------------------------------------------|
| 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) |
|-------------------------------------------------------------|
| 1998 $11.10 474,542 $5,268 |
| 5/1/98 10.00 -- -- |
|-------------------------------------------------------------|
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 $124,230
( $100,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0825 ) ^ 2,555 / 365 - 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 $124,230
( $100,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0625 ) ^ 2,555 / 365 - 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.
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 $248,459 ( $200,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Amount that must be withdrawn =
( $114,530 / ( 1.07 / 1.0825 ) ^ 2,555 / 365 - 1 ) = $124,230
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0825 ) ^ 2,555 / 365 - 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 $130,530 requested 3
years into the guaranteed interest period; that the then Index Rate ("J")
for a 7 year guaranteed interest period is 6%; and that no prior transfers
or withdrawals affecting this Fixed Interest Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of Fixed Interest Allocation on the date of
surrender is $248,459 ( $200,000 X 1.075 ^ 3 )
2. N = 2,555 ( 365 X 7 )
3. Amount that must be withdrawn =
( $130,500 / ( 1.07 / 1.0625 ) ^ 2,555 / 365 ) = $124,230
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $124,230 X
(( 1.07 / 1.0625 ) ^ 2,555 / 365 - 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.
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.
C1
<PAGE>
<PAGE>
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<PAGE>
<PAGE>
[Blank Page]
<PAGE>
<PAGE>
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company
domiciled in Delaware
106298 DVA PLUS Form 2 (02/00)
<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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106298 DVA Plus-4 02/01/2000 |
