<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1995
Registration Nos. 33-23351, 811-5626
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 23
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32
SEPARATE ACCOUNT B
(EXACT NAME OF REGISTRANT)
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1001 Jefferson Street
Wilmington, DE 19801
302-576-3400
(ADDRESS AND TELEPHONE NUMBER OF DEPOSITOR'S PRINCIPAL OFFICES)
COPY TO:
BERNARD R. BECKERLEGGE, ESQ. Stephen Roth, Esq.,
Golden American Life Insurance Company Thomas Bisset, Esq.
280 Park Avenue, 14 West, Sutherland, Asbill & Brennan
New York, NY 10017 1275 Pennsylvania Avenue, N.W.
(NAME AND ADDRESS OF AGENT FOR Washington, D.C. 20004-2404
SERVICE OF PROCESS)
Approximate date of commencement of proposed sale to the public:
A soon as practical after the effective date of the Registration Statement
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
immediately upon filing pursuant to paragraph (b)
/X/ on MAY 1, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on _________ pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on _________ pursuant to paragraph (a)(ii) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Rule 24f-2 Notice for the year ended December 31,1994 was filed on
February 24, 1995.
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<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
PART A
N-4 Item Prospectus Heading
- -------- ------------------
1. Cover Page Cover Page
2. Definitions Definition of Terms
3. Synopsis Summary of the Contracts
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant Part I, Facts About the Company
Depositor, and Portfolio Companies and the Accounts
6. Deductions and Expenses Part I, Charges and Fees
7. General Description of Variable Part I, Facts About the Contracts
Annuity Contracts
8. Annuity Period Part I, Choosing an Income Plan
9. Death Benefit Part I, Facts About the Contracts
10. Purchases and Contract Value Part I, Facts About the Contracts,
Charges and Fees
11. Redemptions Part I, Facts About the Contracts
12. Taxes Part I, Federal Tax Considerations
Additional Considerations
13. Legal Proceedings Part I, Regulatory Information
14. Table of Contents of the Statement of Additional Information
Statement of Additional Information
PART B
Statement of Additional
N-4 Item Information Heading
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15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Description of Golden American
Life Insurance Company
18. Services Safekeeping of Assets, Independent
Auditors
19. Purchase of Securities Being Offered Distribution of Contracts
20. Underwriters Distribution of Contracts
21. Calculation of Performance Data Performance Information
22. Annuity Payments Part A
23. Financial Statements Financial Statements of Separate
Account B, Financial Statements of
Golden American Life Insurance
Company
PART C
Items required in Part C are located therein.
<PAGE>
PART A
NOTE: PART A OF THIS REGISTRATION STATEMENT CONSISTS OF FOUR PROSPECTUSES,
EACH OF WHICH HAS A RELATED STATEMENT OF ADDITIONAL INFORMATION
CONTAINED IN PART B OF THIS REGISTRATION STATEMENT.
<PAGE>
GOLDENSELECT DVA
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
DEFERRED VARIABLE ANNUITY PROSPECTUS
GOLDENSELECT DVA
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This prospectus describes group and individual deferred variable annuity
contracts (the "contract") offered by Golden American Life Insurance Company
("Golden American," "we," "our" or "us"). The owner ("you" or "your") purchases
the contract with an initial premium and is permitted to make additional premium
payments.
The contract is funded by two separate accounts, Separate Account B ("Account
B") and Separate Account D ("Account D") (collectively, the "Accounts").
Eleven divisions of Account B are currently available under the contract. The
investments available through the divisions of Account B include mutual fund
portfolios (the "Series") of The GCG Trust (the "Trust"). Account D is an
open-end management investment company. The only division of Account D available
for investment is The Managed Global Account (the "Global Account") which
invests directly in securities.
Part I of this prospectus describes the contract and provides background
information regarding Account B and Account D. Part II of this prospectus
(beginning on page 41) provides information regarding the investment activities
of Account D and the Global Account, including its investment policies. The
prospectus for the Trust, which must accompany this prospectus, provides
information regarding investment activities and policies of the Trust.
You may allocate your premiums among the twelve divisions currently available
under the contract in any way you choose, subject to certain restrictions. You
may change the allocation of your accumulation value up to five times per
contract year free of charge.
You may surrender the contract for its cash surrender value at any time before
the annuity commencement date provided the annuitant and owner are living. The
cash surrender value will vary daily with the investment results of the
contract. We do not guarantee any minimum cash surrender value. You may make
partial withdrawals under the contract, subject to certain restrictions.
We will pay a death benefit to the beneficiary if the annuitant (when there is
no contingent annuitant) or owner dies prior to the annuity commencement date.
See Part I, Proceeds Payable to the Beneficiary.
This prospectus describes your principal rights and limitations and sets forth
the information concerning the Accounts that investors should know before
investing. A Statement of Additional Information dated May 1, 1995 relating to
the Accounts has been filed with the Securities and Exchange Commission ("SEC")
and is available without charge upon request. To obtain a copy of this document
call or write our Customer Service Center. The Table of Contents of the
Statement of Additional Information may be found on the last page of this
prospectus. The Statement of Additional Information is incorporated herein by
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTRACTS AND UNDERLYING SERIES SHARES WHICH FUND THE CONTRACTS ARE NOT INSURED
BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE GCG TRUST.
<TABLE>
<S> <C> <C>
ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company New York, New York 10017 Mailing Address: P.O. Box 8794
Wilmington, Delaware 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATED: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
DEFINITION OF TERMS..................................... 3
FEE TABLE............................................... 5
SUMMARY OF THE CONTRACT................................. 7
CONDENSED FINANCIAL INFORMATION......................... 10
Index of Investment Experience
Financial Statements
Performance Related Information
PART I
INTRODUCTION............................................ 13
FACTS ABOUT THE COMPANY AND THE ACCOUNTS................ 14
Golden American
The Accounts
Account B Divisions
The Managed Global Account of Account D
Changes Within the Accounts
FACTS ABOUT THE CONTRACT................................ 18
The Owner
The Annuitant
The Beneficiary
Change of Owner or Beneficiary
Availability of the Contract
Types of Contracts
Your Right to Select or Change Contract Options
Premiums
Making Additional Premium Payments
Crediting Premium Payments
Restrictions on Allocation of Premium Payments
Your Right to Reallocate
Dollar Cost Averaging Option
What Happens if a Division is Not Available
Your Accumulation Value
Accumulation Value in Each Division
Measurement of Investment Experience
Cash Surrender Value
Surrendering to Receive the Cash Surrender Value
Partial Withdrawals
Proceeds Payable to the Beneficiary
Reports to Owners
When We Make Payments
CHARGES AND FEES........................................ 27
Charge Deduction Division
Charges Deducted from the Accumulation Value
Charges Deducted from the Divisions
Trust Expenses
Operating Expenses of Account D
CHOOSING AN INCOME PLAN................................. 30
The Income Plan
Annuity Commencement Date Selection
Frequency Selection
The Annuity Options
Payment When Named Person Dies
OTHER INFORMATION....................................... 31
Other Contract Provisions
Contract Changes -- Applicable Tax Law
Your Right to Cancel or Exchange Your Contract
Other Contract Changes
Group or Sponsored Arrangements
Selling the Contract
Reinsurance
REGULATORY INFORMATION.................................. 33
Voting Rights
State Regulation
Legal Proceedings
Legal Matters
Experts
FEDERAL TAX CONSIDERATIONS.............................. 34
Introduction
Golden American Tax Status
Taxation on Non-Qualified Annuities
Taxation of Individual Retirement Annuities
ADDITIONAL CONSIDERATIONS............................... 38
Distribution-at-Death Rules
Taxation of Death Benefit Proceeds
Transfer of Annuity Contracts
Section1035 Exchanges
Assignments
Multiple Contracts Rule
PART II
INTRODUCTION............................................ 41
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D................. 42
The Global Account
Investment Objective and Policies of the Global
Account
Non-Diversified
Risk Factors
Board of Governors of Account D
The Manager
The Portfolio Manager
Securities and Investment Techniques
Investment Restrictions
Brokerage Services
STATEMENT OF ADDITIONAL INFORMATION..................... 53
Table of Contents
APPENDIX................................................ A1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
DEFINITION OF TERMS
ACCOUNTS
Separate Account B and Separate Account D.
ACCUMULATION VALUE
The amount that the contract provides for investment at any time. Initially,
this amount is equal to the premium paid. Thereafter, the accumulation value
will reflect the premiums paid, investment experience, charges deducted and
partial withdrawals taken.
ANNUITANT
The person designated by the owner to receive the annuity payments and whose
death initiates payment of the death benefit.
ANNUITY COMMENCEMENT DATE
The date on which annuity payments begin.
ANNUITY OPTIONS
Options the owner selects that determine the form and amount of annuity
payments.
ANNUITY PAYMENT
The periodic payment an annuitant receives. It may be either a fixed or a
variable amount based on the annuity option chosen.
ATTAINED AGE
The issue age of the annuitant plus the number of full years elapsed since the
contract date.
BENEFICIARY
The person designated to receive benefits in the case of the death of the
annuitant (when there is no contingent annuitant) or owner.
BUSINESS DAY
Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of
Federal holidays, or any day on which the SEC requires that mutual funds, unit
investment trusts or other investment portfolios be valued.
CASH SURRENDER VALUE
The amount the owner receives if the owner surrenders the contract.
CHARGE DEDUCTION DIVISION
The Liquid Asset Division, which is the division from which all charges are
deducted if so designated on the application or enrollment form, or later
elected by the owner.
CONTINGENT ANNUITANT
The person designated by the owner who, upon the annuitant's death prior to the
annuity commencement date, becomes the annuitant.
CONTRACT
The entire contract consisting of the basic contract, the application or
enrollment form and any riders or endorsements.
CONTRACT ANNIVERSARY
The anniversary of the contract date.
CONTRACT DATE
The date on which we have received the initial premium and upon which we begin
determining the contract values. It may or may not be the same as the issue
date. This date is used to determine contract months, processing dates, years
and anniversaries.
CONTRACT PROCESSING DATES
The days when we deduct certain charges from the accumulation value. If the
contract processing date is not a valuation date, it will be on the next
succeeding valuation date. The contract processing dates will be once each year
on the contract anniversary.
CONTRACT PROCESSING PERIOD
The period between successive contract processing dates unless it is the first
contract processing period. In that case, it is the period from the contract
date to the first contract processing date.
CONTRACT YEAR
The period between contract anniversaries.
CUSTOMER SERVICE CENTER
Where service is provided to our contract owners. The mailing address and
telephone number of the Customer Service Center are shown on the cover.
DEFERRED ANNUITY
A contract which provides for the accumulation of funds that will reflect
investment experience. These funds may be applied under an annuity option at the
annuity commencement date.
ENDORSEMENTS
An endorsement changes or adds provisions to the contract.
3
<PAGE>
DEFINITION OF TERMS (CONTINUED)
EXPERIENCE FACTOR
The factor which reflects the investment experience of the portfolio in which a
division invests and also reflects the charges assessed against the division for
a valuation period.
FREE LOOK PERIOD
The period of time within which the contract owner may examine the contract and
return it for a refund.
GENERAL ACCOUNT
The account which contains all of our assets other than those held in our
separate accounts.
INDEX OF INVESTMENT EXPERIENCE
The index that measures the performance of a separate account division.
INITIAL PREMIUM
The payment amount required to put a contract into effect.
ISSUE AGE
The annuitant's age on his or her last birthday on or before the contract date.
ISSUE DATE
The date the contract is issued at our Customer Service Center.
OWNER
The person who owns the contract and is entitled to exercise all rights under
the contract. This person's death also initiates payment of the death benefit.
RIDER
A rider adds benefits to the contract.
SPECIALLY DESIGNATED DIVISION
The Liquid Asset Division. Distributions from a portfolio underlying a division
(or from a division of Separate Account D) in which reinvestment is not
available will be allocated to this division unless you specify otherwise.
VALUATION DATE
The day at the end of a valuation period when each division is valued.
VALUATION PERIOD
Each business day together with any non-business days before it.
4
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (deducted from accumulation value)
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<S> <C>
DISTRIBUTION FEE (ANNUAL SALES LOAD) AS A PERCENTAGE OF THE INITIAL AND EACH ADDITIONAL PREMIUM,
deducted at the end of each contract processing period following receipt of each premium over a
six year period from the date we receive and accept each premium payment.......................... 1.00%(1)(2)
</TABLE>
<TABLE>
<CAPTION>
DURING YEAR
-------------
<S> <C> <C>
SURRENDER CHARGE AS A PERCENTAGE OF THE INITIAL OR ADDITIONAL PREMIUM deducted upon surrender as
measured from the date the premium is accepted.......................................................... 1............ 6.00%
2............ 5.00
3............ 4.00
4............ 3.00
5............ 2.00
6............ 1.00
7+........... 0.00
</TABLE>
<TABLE>
<S> <C>
EXCESS ALLOCATION CHARGE for each allocation change in excess of the
five
free allocation changes allowed per contract year.................... $25
PARTIAL WITHDRAWAL CHARGE (2.0% of the withdrawal for each additional
conventional partial withdrawal after the first in a contract year)
not to exceed........................................................ $25
ANNUAL CONTRACT FEES (deducted from the accumulation value)
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ADMINISTRATIVE CHARGE
If total premiums paid in the first contract year are less than
$100,000............................................................. $40
If total premiums paid in the first contract year are $100,000 or
more................................................................. $0
SEPARATE ACCOUNT ANNUAL EXPENSES (percentage of assets in each
separate account division)
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MORTALITY AND EXPENSE RISK CHARGE..................................... 0.90%(2)
ASSET BASED ADMINISTRATIVE CHARGE..................................... 0.10%
Total Separate Account Annual Expenses................................ 1.00%
TRUST ANNUAL EXPENSES (based on combined assets of the indicated
groups of Series)
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</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
SERIES FEES(3) EXPENSES(4) EXPENSES
- ------------------------------------------------------ ------------ --------------- -------------
<S> <C> <C> <C>
Multiple Allocation, Fully Managed, Capital
Appreciation, 1.00% 0.00% 1.00%
Rising Dividends, All-Growth, Real Estate,
Natural Resources, and Value Equity Series:
Emerging Markets Series: 1.50% 0.02% 1.52%
Limited Maturity Bond: 0.60% 0.00% 0.60%
Liquid Asset Series: 0.60% 0.01% 0.61%
</TABLE>
THE MANAGED GLOBAL ACCOUNT ANNUAL EXPENSES AFTER REIMBURSEMENT (percentage of
average net assets)
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<TABLE>
<CAPTION>
MANAGEMENT AND OTHER TOTAL ANNUAL
ASSETS ADVISORY FEES EXPENSES EXPENSES(5)
- --------------------------------------------------------------------- --------------------- ------------- ---------------
<S> <C> <C> <C>
$0 to $500 million................................................... 1.00% 0.25% 1.25%
in excess of $500 million............................................ 0.80% 0.25% 1.05%
<FN>
- --------------------------
(1) Contracts with a contract date prior to May 3, 1993 and the prospectus
delivered in connection with such contracts described the sales load as a
deferred load, which is equivalent to the combination of the distribution
fee and surrender charge described above. Limited Edition contracts
purchased through Account D and the prospectus delivered in connection with
such contracts also described the sales load as a deferred load.
(2) If your initial premium will be $25,000 or more, we also offer DVA Series
100 through another prospectus, which is a contract with a different
charging structure.
(3) Fees decline as combined assets increase (see Part I, Account B Divisions
and the Trust prospectus for details).
(4) Other expenses generally consist of independent trustees fees and expenses.
The Emerging Markets Series incurred transfer and repatriation taxes of
0.21% of average daily net assets which are not reflected as Other Expenses
in this Fee Table.
(5) Reflects an expense reimbursement or waiver effective through December 31,
1994. See Part I, The Managed Global Account of Account D. In the absence
of expense reimbursement or waiver, the total annual expenses would have
been 1.40% of the Global Account's average daily net assets for 1994. This
figure includes non-recurring expenses and interest expense of
approximately .06% of average daily net assets which were not reimbursed.
</TABLE>
5
<PAGE>
FEE TABLE (CONTINUED)
EXAMPLES:
If you surrender your contract at the end of the applicable time period, you
would pay the following expenses for each $1,000 of initial premium assuming a
5% annual return on assets:
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<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation..................................................... $81.00 $124.17 $168.98 $290.06
Fully Managed........................................................... 81.00 124.17 168.98 290.06
Capital Appreciation.................................................... 81.00 124.17 168.98 290.06
Rising Dividends........................................................ 81.00 124.17 168.98 290.06
All-Growth.............................................................. 81.00 124.17 168.98 290.06
Real Estate............................................................. 81.00 124.17 168.98 290.06
Natural Resources....................................................... 81.00 124.17 168.98 290.06
Value Equity............................................................ 81.00 124.17 168.98 290.06
Emerging Markets........................................................ 86.21 139.71 194.68 340.60
Global Account.......................................................... 83.51 131.67 181.42 314.72
Limited Maturity Bond................................................... 76.97 112.06 148.74 249.21
Liquid Asset............................................................ 77.07 112.31 149.26 250.25
</TABLE>
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If you do not surrender your contract or if you annuitize, you would pay the
following expenses for each $1,000 of initial premium assuming a 5% annual
return on assets:
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<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation..................................................... $31.00 $ 94.17 $158.98 $290.06
Fully Managed........................................................... 31.00 94.17 158.98 290.06
Capital Appreciation.................................................... 31.00 94.17 158.98 290.06
Rising Dividends........................................................ 31.00 94.17 158.98 290.06
All-Growth.............................................................. 31.00 94.17 158.98 290.06
Real Estate............................................................. 31.00 94.17 158.98 290.06
Natural Resources....................................................... 31.00 94.17 158.98 290.06
Value Equity............................................................ 31.00 94.17 158.98 290.06
Emerging Markets........................................................ 36.21 109.71 184.68 340.60
Global Account.......................................................... 33.51 101.67 171.42 314.72
Limited Maturity Bond................................................... 26.97 82.06 138.74 249.21
Liquid Asset............................................................ 27.07 82.36 139.26 250.25
</TABLE>
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For purposes of computing the annual per contract administrative charge, the
dollar amounts shown in the examples are based on an initial premium of $57,000.
In the examples, the numbers for the Global Account reflect expenses based on
assumed assets in the Global Account of $500 million or less. If the Global
Account's assets exceed $500 million, these expenses will decrease.
The purpose of the fee table is to assist you in understanding the various costs
and expenses that you may bear directly or indirectly. The fee table reflects
expenses of the Accounts as well as the Trust. Premium taxes may also be
applicable. See Part I, Charges and Fees, PREMIUM TAXES. For a complete
description of contract costs and expenses and the charges and expenses for
Account D, see the section titled Charges and Fees in Part I of this prospectus.
For a more complete description of the Trust's costs and expenses, see the Trust
prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES UNDER THE CONTRACT.
6
<PAGE>
SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information regarding the
contract and the Accounts which fund the contract. Information concerning the
divisions of Account B is set forth in the Trust prospectus. Part II of this
prospectus, beginning on page 41, pertains to Account D which invests directly
in securities.
This summary is intended to provide only a very brief overview of the more
significant aspects of the contract. Further detail is provided in this
prospectus and in the contract. The contract, together with its attached
application or enrollment form and any riders or endorsements, constitutes the
entire agreement between you and us and should be retained.
This prospectus has been designed to provide you with the necessary information
to make a decision on purchasing the contract offered by Golden American and
funded by the Accounts.
You have a choice of investments. We do not promise that your accumulation value
will increase. Depending on the contract's investment experience for funds
invested in the Accounts, the accumulation value, cash surrender value and death
benefit may increase or decrease on any day. You bear the investment risk.
DESCRIPTION OF THE CONTRACT
The contract is designed to establish retirement benefits for two types of
purchasers. The first type of purchaser is one who is eligible to participate
in, and purchases a contract for use with, an individual retirement annuity
("IRA") meeting the requirements of section 408(b) of the Internal Revenue Code
of 1986 ("qualified plan"). For a contract funding a qualified plan,
distribution must commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. The second type of
purchaser is one who purchases a contract outside of a qualified plan
("non-qualified plan").
The contract also offers a choice of annuity options to which you may apply the
accumulation value on the annuity commencement date or the cash surrender value
upon surrender of the contract. See Part I, Choosing an Income Plan.
AVAILABILITY
We can issue a contract if both the annuitant and the owner are not older than
age 85 and accept additional premium payments until either the annuitant or
owner reaches the attained age of 85 for non-qualified plans (age 70 1/2 for
qualified plans, except for rollover contributions). The minimum initial premium
is $10,000 for a non-qualified plan and $1,500 for a qualified plan. If your
initial premium will be $25,000 or more we also offer GoldenSelect DVA Series
100 through another prospectus, which is a contract with a different charging
structure. We may change the minimum initial or additional premium requirements
for certain group or sponsored arrangements. See Part I, Group or Sponsored
Arrangements.
The minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan. We will take under
consideration and may refuse to accept a premium payment if the sum of all
premium payments received under the contract totals more than $1,500,000.
THE DIVISIONS
Each of the twelve divisions offered under this prospectus have their own
distinct investment objectives and policies. There are eleven divisions of
Account B currently available under the contract. Each division of Account B
invests in a corresponding Series of the Trust, managed by Directed Services,
Inc. ("DSI" or the "Manager"). The Trust and DSI have retained several portfolio
managers to manage the assets of each Series. The division of Account D is The
Managed Global Account. DSI is the Manager and Warburg, Pincus Counsellors, Inc.
("Warburg, Pincus") is the portfolio manager (the "Portfolio Manager"). See Part
I, Facts About the Company and the Accounts, Account B Divisions, and The
Managed Global Account of Account D.
HOW THE ACCUMULATION VALUE VARIES
The accumulation value varies each day based on investment results. You bear the
risk of poor investment performance and you receive the benefits from favorable
investment performance. The accumulation value also reflects premium payments,
charges deducted and partial withdrawals. See Part I, Accumulation Value in Each
Division.
SURRENDERING YOUR CONTRACT
The cash surrender value varies each day depending on investment results. We do
not guarantee any minimum cash surrender value. You may surrender the contract
and receive its cash surrender value at any time while both the annuitant and
owner are living and before the annuity commencement date. See Part I, Cash
Surrender Value and Surrendering to Receive the Cash Surrender Value.
7
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
TAKING PARTIAL WITHDRAWALS
After the free look period, prior to the annuity commencement date and while the
contract is in effect, you may take partial withdrawals from the accumulation
value of the contract. You may take conventional partial withdrawals once per
contract year without charge. Alternatively, you may elect in advance to take
systematic partial withdrawals on a monthly or quarterly basis. If you have an
IRA contract, you may elect IRA partial withdrawals on a monthly, quarterly or
annual basis.
Partial withdrawals are subject to certain restrictions as defined in this
prospectus and partial withdrawals above a specified percentage of your
accumulated value may be subject to a surrender charge. See Part I, Partial
Withdrawals.
DOLLAR COST AVERAGING
Under this option, you may choose to have a specified dollar amount transferred
from either the Limited Maturity Bond Division or Liquid Asset Division to the
other divisions on a monthly basis with the objective of shielding your
investment from short term price fluctuations. See Part I, Dollar Cost Averaging
Option.
YOUR RIGHT TO CANCEL THE CONTRACT
You may cancel your contract within the free look period which is a ten day
period of time beginning when you receive the contract. For purposes of
administering our allocation and certain other administrative rules, we deem
this period to end 15 days after the contract is mailed from our Customer
Service Center. Some states may require that we provide a longer free look
period. In some states we restrict the initial premium allocation during the
free look period. See Part I, Your Right to Cancel or Exchange Your Contract.
YOUR RIGHT TO CHANGE THE CONTRACT
The contract may be changed to another annuity plan subject to our rules at the
time of the change. See Part I, Other Contract Changes.
DEATH BENEFIT PROCEEDS
The contract provides a death benefit to the beneficiary if the annuitant (when
there is no contingent annuitant) or an owner dies prior to the annuity
commencement date. See Part I, Proceeds Payable to the Beneficiary. We may
reduce the death benefit proceeds payable under certain group or sponsored
arrangements. See Part I, Group or Sponsored Arrangements.
CONTRACT PROCESSING PERIODS
The first contract processing period begins with the contract date and ends at
the close of business on the first contract processing date. All subsequent
contract processing periods begin at the close of business on the most recent
contract processing date and extend to the close of business on the next
contract processing date. There is one contract processing period each year.
DEDUCTIONS FOR CHARGES AND FEES
We invest the entire amount of the initial and any additional premium payments
in the divisions you select, subject to certain restrictions we impose. See Part
I, Restrictions on Allocation of Premium Payments. We then periodically deduct
certain amounts from your accumulation value. See Part I, Charges and Fees. We
may reduce certain charges under group or sponsored arrangements. See Part I,
Group or Sponsored Arrangements. We may also reduce certain charges for
contracts purchased in combination with certain flexible premium variable life
products that we offer. Charges are deducted proportionately from all divisions
in which you are invested, unless you have elected the Charge Deduction
Division. The charges we deduct are:
DISTRIBUTION FEE
We deduct a sales load in an annual amount of 1.00% of each premium at the end
of each contract processing period for a period of six years from the date we
receive and accept each premium payment.
SURRENDER CHARGE
A surrender charge is imposed as a percentage of premium if the contract is
surrendered or an excess partial withdrawal is taken during the six year
period from the date we receive and accept each premium payment. The
percentage imposed at the time of surrender or excess partial withdrawal
depends on the distribution fee collected to the time the contract is
surrendered or the excess partial withdrawal is taken. The surrender charge in
the first contract year is 6.00% and reduces by 1.00% each year during the six
year period from the date we receive and accept each premium payment.
CONTRACTS WITH A CONTRACT DATE PRIOR TO MAY 3, 1993 AND THE PROSPECTUS
DELIVERED IN CONNECTION WITH SUCH CONTRACTS, DESCRIBED THE SALES LOAD AS A
DEFERRED LOAD, WHICH IS EQUIVALENT TO THE COMBINATION OF THE DISTRIBUTION FEE
AND SURRENDER CHARGE DESCRIBED ABOVE. GOLDENSELECT LIMITED EDITION CONTRACTS
PURCHASED THROUGH ACCOUNT D AND THE
8
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
PROSPECTUS DELIVERED IN CONNECTION WITH SUCH CONTRACTS ALSO DESCRIBED THE
SALES LOAD AS A DEFERRED LOAD.
If your initial premium will be $25,000 or more we also offer DVA Series 100
through another prospectus, which is a contract with a different charging
structure.
MORTALITY AND EXPENSE RISK CHARGE
We charge each division of the Accounts with a daily asset based charge for
mortality and expense risks equivalent to an annual rate of 0.90%.
PREMIUM TAXES
Generally, premium taxes are incurred on the annuity commencement date, and a
charge for premium taxes is then deducted from the accumulation value on such
date. Some jurisdictions impose a premium tax at the time the initial or
additional premiums are paid, regardless of the annuity commencement date.
ADMINISTRATIVE CHARGE
The amount deducted is $40 per contract year if total premiums paid in the
first contract year are less than $100,000. If the total premiums paid in the
first contract year equals $100,000 or more, the charge is zero.
EXCESS ALLOCATION CHARGE
The first five allocation changes in any contract year may be made without
charge. Each subsequent allocation change is subject to a $25 excess
allocation charge.
PARTIAL WITHDRAWAL CHARGE
If you take more than one conventional partial withdrawal during a contract
year, we impose a charge of the lesser of $25 and 2.0% of the amount withdrawn
for each additional conventional partial withdrawal. See Part I, Partial
Withdrawals, Conventional Partial Withdrawal Option.
ASSET BASED ADMINISTRATIVE CHARGE
We charge each division of the Accounts with a daily asset based charge to
cover a portion of contract administration equivalent to an annual rate of
0.10%.
TRUST EXPENSES
There are fees and expenses deducted from each Series. The investment
performance of the Series and deductions for fees and expenses from the Trust
will affect your accumulation value. Please read the Trust prospectus for
details.
OPERATING EXPENSES OF ACCOUNT D
There are management and other operating expenses deducted from Account D. The
investment performance of the Global Account and the deduction of operating
expenses of Account D will affect your accumulation value. For information on
the operating expenses of Account D, see Part I, Charges and Fees.
TAX PENALTIES
The ultimate effect of Federal income taxes on the amounts held under an annuity
contract, on annuity payments and on the economic benefits to the owner,
annuitant or beneficiary depends on Golden American's tax status and upon the
tax status of the individuals concerned. In general, an owner is not taxed on
increases in value under an annuity contract until some form of distribution is
made under it. There may be tax penalties if you make a withdrawal or surrender
the contract before reaching age 59 1/2. See Part I, Federal Tax Considerations.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
INDEX OF INVESTMENT EXPERIENCE
The upper table gives the index of investment experience for each division of
Account B and for the Global Account on their respective commencement of
operations and on December 31, 1989, 1990, 1991, 1992, 1993 and 1994, as
applicable. The index of investment experience is equal to the value of a unit
for each division of the Accounts. The total value of each division as of the
end of each period indicated is shown in the lower table.
<TABLE>
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE
-------------------------------------------------------------
1/25/89 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Allocation........... $10.00 $10.82 $11.19 $13.30 $13.41 $14.75 $14.43
Fully Managed................. 10.00 10.38 9.87 12.59 13.24 14.11 12.95
Capital Appreciation.......... * * * * 11.01 11.81 11.50
Rising Dividends.............. *** *** *** *** *** 10.29 10.25
All-Growth.................... 10.00 10.71 9.74 13.16 12.69 13.39 11.83
Real Estate................... 10.00 9.90 7.68 10.19 11.48 13.33 14.04
Natural Resources............. 10.00 11.86 10.05 10.42 9.30 13.81 14.02
Value Equity.................. **** **** **** **** **** **** ****
Emerging Markets.............. *** *** *** *** *** 12.41 10.42
Global Account................ ** ** ** ** 10.01 10.52 9.09
Limited Maturity Bond......... 10.00 10.88 11.61 12.78 13.27 13.95 13.65
Liquid Asset.................. 10.00 10.68 11.38 11.90 12.15 12.35 12.68
</TABLE>
<TABLE>
<CAPTION>
TOTAL ACCUMULATION VALUE
------------------------------------------------------------------------------
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Multiple Allocation........... $15,556,366 $23,963,356 $57,739,245 $115,124,744 $273,158,122 $297,507,994
Fully Managed................. 5,333,885 5,414,160 9,834,436 37,352,585 108,290,963 98,836,207
Capital Appreciation.......... * * * 18,366,222 86,798,642 88,344,684
Rising Dividends.............. *** *** *** *** 14,387,382 50,384,765
All-Growth.................... 3,077,542 4,528,380 11,159,814 23,418,811 56,055,565 70,623,784
Real Estate................... 650,003 309,556 696,180 3,600,461 28,772,896 36,936,728
Natural Resources............. 2,320,696 2,460,399 2,646,183 2,882,417 21,436,544 32,746,767
Value Equity.................. **** **** **** **** **** ****
Emerging Markets.............. *** *** *** *** 30,488,589 59,747,048
Global Account................ ** ** ** 38,699,402 88,477,493 86,208,555
Limited Maturity Bond......... 2,595,966 8,009,970 15,935,184 39,861,202 71,622,231 71,573,009
Liquid Asset.................. 2,190,649 8,419,953 9,224,303 12,769,536 16,497,588 45,364,989
<FN>
- ------------------------
*The Capital Appreciation Division became available for investment on May 4,
1992 starting with an index of investment experience of $10.00.
**The Global Account Division of Account D became available for investment on
October 21, 1992 starting with an index of investment experience of $10.00.
***The Rising Dividends and Emerging Markets Divisions became available for
investment on October 4, 1993 starting with an index of investment
experience of $10.00.
****The Value Equity Division became available for investment on January 1,
1995.
In order to provide for continuity in results, the above table is based on
charges for the contract described in this prospectus. Contracts issued prior to
May 1, 1991, were based on lower asset charges and, thus, would have higher
values for the indices of investment experience.
</TABLE>
10
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B (as well as the auditors'
report thereon), the audited financial statements of The Managed Global Account
of Separate Account D (as well as the auditors' report thereon) and the audited
financial statements of Golden American Life Insurance Company (as well as the
auditors' reports thereon) are included in the Statement of Additional
Information.
PERFORMANCE RELATED INFORMATION
Performance information for the divisions of the Accounts, including the yield
and effective yield of the Liquid Asset Division, the yield of the remaining
divisions, and the total return of all divisions may appear in reports and
promotional literature to current or prospective owners.
Current yield for the Liquid Asset Division will be based on income received by
a hypothetical investment over a given 7-day period (less expenses accrued
during the period), and then "annualized" (I.E., assuming that the 7-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). "Effective yield" for the Liquid Asset Division is
calculated in a manner similar to that used to calculate yield, but when
annualized, the income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of earnings.
For the remaining divisions, quotations of yield will be based on all investment
income per unit (accumulation value divided by the index of investment
experience -- see Part I, Measurement of Investment Experience, INDEX OF
INVESTMENT EXPERIENCE AND UNIT VALUE) earned during a given 30-day period, less
expenses accrued during the period ("net investment income"). Quotations of
average annual total return for any division will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
contract over a period of one, five, and ten years (or, if less, up to the life
of the division), and will reflect the deduction of the applicable distribution
fee and/or surrender charge, the administrative charge and the mortality and
expense risk charge. Quotations of total return may simultaneously be shown for
other periods that do not take into account certain contractual charges, such as
the distribution fee and surrender charge for example.
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices measuring performance of a pertinent
group of securities so that investors may compare a division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services, a widely
used independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, including VARDS, companies, publications, or persons
who rank separate accounts or other investment products on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the contract. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Performance information for any division reflects only the performance of a
hypothetical contract under which the accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the division invests or, the securities in which
Account D invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the divisions, see the Statement of Additional Information.
Reports and promotional literature may also contain other information including
the ranking of any division derived from rankings of variable annuity separate
accounts or other investment products tracked by Lipper Analytical Services or
by rating services, companies, publications, or other persons who rank separate
accounts or other investment products on overall performance or other criteria.
11
<PAGE>
(This page has been left blank intentionally.)
12
<PAGE>
PART I
INTRODUCTION THE FOLLOWING INFORMATION IN PART I DESCRIBES THE CONTRACT AND
THE SEPARATE ACCOUNTS WHICH FUND THE CONTRACT, ACCOUNT B AND ACCOUNT D. ACCOUNT
B INVESTS IN MUTUAL FUND PORTFOLIOS OF THE TRUST. ACCOUNT D INVESTS DIRECTLY IN
SECURITIES.
13
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden American
is a wholly owned indirect subsidiary of Bankers Trust Company. We are
authorized to do business in all jurisdictions except New York. We offer
variable annuities and variable life insurance. Administrative services for the
contract are provided at our Customer Service Center, the address is shown on
the cover. As of December 31, 1994 Golden American had stockholder's equity of
approximately $89.5 million and total assets of approximately $1.04 billion,
including approximately $950.3 million of separate account assets.
Bankers Trust Company is a New York banking corporation with executive offices
at 280 Park Avenue, New York, New York 10017. As of December 31, 1994, Bankers
Trust New York Corporation, parent of Bankers Trust Company, was the seventh
largest bank holding company in the United States with total assets of
approximately $98 billion. Bankers Trust Company conducts a variety of general
banking and trust activities and is a leading wholesale supplier of financial
services to the domestic and international markets.
In a transaction that closed on September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding capital stock
of Golden American and DSI, an affiliate of Golden American, and related assets.
The transaction involved settlement of pre-existing claims of Bankers Trust
Company against the former parent company of Golden American and DSI. Under
applicable banking law, stock so acquired is subject to various divestiture
requirements. While Bankers Trust Company has no immediate intent to divest its
ownership of the stock of Golden American and DSI, such a divestiture may occur
in the future. In addition, judicial or administrative decisions or
interpretations, as well as changes in either Federal or state banking statutes
or regulations, could prevent Bankers Trust Company from continuing to own the
stock of Golden American or DSI.
Effective October 3, 1994, First Colony Corporation ("First Colony") and BT
Variable, Inc. ("BT Variable") entered into an agreement providing for the
acquisition by First Colony of a minority interest in BT Variable. BT Variable,
an indirect subsidiary of Bankers Trust Company, is the corporate parent of
Golden American and DSI. The acquisition is subject to the approval of the
appropriate regulators. First Colony is the corporate parent of two insurance
companies, First Colony Life Insurance Company and American Mayflower Life
Insurance Company, which together provide life insurance and annuity products
throughout the United States.
THE ACCOUNTS
All obligations under the contract are general obligations of Golden American.
The Accounts are separate investment accounts used to support our variable
annuity contracts and for other purposes as permitted by applicable laws and
regulations. The assets of the Accounts are kept separate from our general
account and any other separate accounts we may have. We may offer other variable
annuity contracts investing in the Accounts which are not discussed in this
prospectus. The Accounts may also invest in other series which are not available
to the contract described in this prospectus.
We own all the assets in the Accounts. Income and realized and unrealized gains
or losses from assets in an Account are credited to or charged against that
Account without regard to other income, gains or losses in our other investment
accounts. As required, the assets in an Account are at least equal to the
reserves and other liabilities of that Account. These assets may not be charged
with liabilities from any other business we conduct.
They may, however, be subject to liabilities arising from divisions of the
Accounts whose assets are attributable to other variable annuity contracts
supported by the Accounts. If the assets exceed the required reserves and other
liabilities, we may transfer the excess to our general account.
ACCOUNT B
Account B was established on July 14, 1988, and may invest in mutual funds,
unit investment trusts or other investment portfolios which we determine to be
suitable for the contract's purposes. Account B is treated as a unit
investment trust under Federal securities laws. It is registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act") as an investment
company. It is governed by the laws of Delaware, our state of domicile, and
may also be governed by the laws of other states in which we do business.
Registration with the SEC does not involve any supervision by the SEC of the
management or investment policies or practices of Account B.
14
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
ACCOUNT D
Account D was established on April 18, 1990 and invests directly in securities
in accordance with the investment objectives and policies of Account D.
Account D is registered with the SEC under the 1940 Act as an open-end
management investment company and meets the definition of a separate account
under the federal securities laws. It is governed by the laws of Delaware, our
state of domicile, and may also be governed by laws of other states in which
we do business. Registration with the SEC does not involve any supervision by
the SEC of the management or investment policies or practices of Account D.
ACCOUNT B DIVISIONS
Account B is divided into divisions. Currently, each division of Account B
offered under this prospectus invests in a portfolio of The GCG Trust. DSI
serves as the Manager to each Series of the Trust. See the Trust prospectus for
details. The Trust and DSI have retained several portfolio managers to manage
the assets of each Series as indicated below. There may be restrictions on the
amount of the allocation to certain divisions based on state laws and
regulations. The investment objectives of the various Series in the Trust are
described below. There is no guarantee that any portfolio or Series will meet
its investment objectives. Meeting objectives depends on various factors,
including, in certain cases, how well the portfolio managers anticipate changing
economic and market conditions. Account B may also have other divisions
investing in other series which are not available to the contract described in
this prospectus.
DSI provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series. DSI
is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series. DSI does not bear
the expense of brokerage fees and other transactional expenses for securities or
other assets (which are generally considered part of the cost for assets), taxes
(if any) paid by a Series, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the Trust prospectus for details.
The Trust pays DSI for its services a monthly fee based on the following
percentages of the average daily net assets of the Series. DSI (and not the
Trust) pays each portfolio manager a monthly fee for managing the assets of the
Series.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES FEES (based on combined assets of the indicated groups of Series)
- ------------------------------------------------------------- -----------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising Dividends, 0.95% of next $1.250 billion;
All-Growth, Real Estate, Natural Resources, and 0.90% of next $1.5 billion; and
Value Equity Series: 0.85% of amount in excess of 3.5 billion
Emerging Markets Series: 1.50% of average daily net assets
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
The following divisions invest in shares of the Series designated.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current
income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS
Investment in equity and debt securities and the use of certain sophisticated
investment strategies and techniques.
PORTFOLIO MANAGER
Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE
High total investment return over the long term, consistent with the
preservation of capital and prudent investment risk.
INVESTMENTS
Invests primarily in common stocks. The Series also may invest in fixed income
securities and money market instruments to preserve its principal value during
uncertain or declining market conditions. The Series' strategy is based on the
premise that, from time to time, certain asset classes are more attractive
long term investments than others.
PORTFOLIO MANAGER
T. Rowe Price Associates, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE
Long-term capital growth.
INVESTMENTS
Invests in common stocks and preferred stock that will be allocated among
various categories of stocks referred to as "components" which consist of the
following: (i) The Growth Component -- Securities that the portfolio manager
believes have the following characteristics: stability and quality of earnings
and positive earnings momentum; dominant competitive positions; and
demonstrate above-average growth rates as compared to published S&P 500
earnings projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e., securities
selling at a discount to asset value and securities with a relatively low
price/earnings ratio. The securities eligible for this component may include
real estate stocks, such as securities of publicly-owned companies that, in
the portfolio manager's judgement, offer an optimum combination of current
dividend yield, expected dividend growth, and discount to current real estate
value.
PORTFOLIO MANAGER
Chancellor Trust Company
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment in equity securities of high quality companies that meet the
following four criteria: consistent dividend increases; substantial dividend
increases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, Inc.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long term growth prospects.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE
Capital appreciation, with current income as a secondary objective.
INVESTMENTS
Investment in publicly traded equity securities of companies in the real
estate industry listed on national exchanges or on the National Association of
Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
E.I.I. Realty Securities, Inc.
NATURAL RESOURCES DIVISION
NATURAL RESOURCES SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the
exploration, development, production, and distribution of natural resources.
PORTFOLIO MANAGER
Van Eck Associates Corporation
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment primarily in equity securities of U.S. and foreign issuers which,
when purchased, meet quantitative standards believed by the Portfolio Manager
to indicate above average financial soundness and high intrinsic value
relative to price.
PORTFOLIO MANAGER
Eagle Asset Management, Inc.
16
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
EMERGING MARKETS DIVISION
EMERGING MARKETS SERIES
OBJECTIVE
Long term growth of capital.
INVESTMENTS
Investment primarily in equity securities of companies that are considered to
be in emerging market countries in the Pacific Basin and Latin America. Income
is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Bankers Trust Company
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE
Highest current income consistent with low risk to principal and liquidity.
Also seeks to enhance its total return through capital appreciation when
market factors indicate that capital appreciation may be available without
significant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt
securities. No individual security will at the time of purchase have a
remaining maturity longer than seven years and the dollar-weighted average
maturity of the Series will not exceed five years.
PORTFOLIO MANAGER
Bankers Trust Company
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
INVESTMENTS
Obligations of the U.S. Government and its agencies and instrumentalities;
bank obligations; commercial paper and short-term corporate debt securities.
TERM
All issues maturing in less than one year.
PORTFOLIO MANAGER
Bankers Trust Company
The Trust is an open-end management investment company, more commonly called a
mutual fund. The Trust's shares may also be available to certain separate
accounts funding variable life insurance policies offered by Golden American.
This is called "mixed funding."
The Trust may also sell its shares to separate accounts of other insurance
companies, both affiliated and not affiliated with Golden American. This is
called "shared funding." Although we do not anticipate any inherent difficulties
arising from either mixed or shared funding it is theoretically possible that,
due to differences in tax treatment or other considerations, the interest of
owners of various contracts participating in the Trust might at sometime be in
conflict. After the Trust receives the requisite order from the SEC, shares of
the Trust may also be sold to certain qualified pension and retirement plans.
The Board of Trustees of the Trust, the Trust's Manager, and we and any other
insurance companies participating in the Trust are required to monitor events to
identify any material conflicts that arise from the use of the Trust for mixed
and/or shared funding or between various policyowners and pension and retirement
plans. For more information about the risks of mixed and shared funding, please
refer to the Trust prospectus.
You will find complete information about the Trust, including the risks
associated with each Series, in the accompanying Trust prospectus. You should
read it carefully in conjunction with this prospectus before investing.
Additional copies of the Trust prospectus may be obtained by contacting our
Customer Service Center.
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
The Global Account is the only portfolio of Account D available under the
contract. The Global Account is a non-diversified investment company which
invests directly in securities. There can be no assurance that the Global
Account will meet its investment objective. Account D may also offer other
portfolios which are not available through the purchase of the contract offered
by this prospectus. DSI serves as Manager of Account D and Warburg, Pincus
serves as Portfolio Manager of the Global Account.
THE MANAGED GLOBAL ACCOUNT DIVISION
THE MANAGED GLOBAL ACCOUNT PORTFOLIO
OBJECTIVE
High total investment return, consistent with a prudent regard for capital
preservation.
INVESTMENTS
Investment in a wide range of equity and debt securities and money market
instruments of both domestic and foreign issuers.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
ADVISORY FEE
0.60% of the first $500 million of average daily net assets on an annual
basis; and 0.50% of the excess over $500 million.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the
period
17
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
October 1, 1993 through December 31, 1994 so that such expenses do not exceed
on an annual basis: 1.25% of the first $500 million of average daily net
assets and 1.05% of the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
FOR COMPLETE INFORMATION ABOUT THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D,
INCLUDING THE RISKS ASSOCIATED WITH ITS INVESTMENTS, SEE PART II, INVESTMENT
OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT, PAGE 41.
CHANGES WITHIN THE ACCOUNTS
We may from time to time make additional divisions available. These divisions
will invest in investment portfolios we find suitable for the contract. We also
have the right to eliminate investment divisions from the Accounts, to combine
two or more divisions, or to substitute a new portfolio for the portfolio in
which a division invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the contract. This may
happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. In addition, we reserve the
right to transfer assets of the Accounts, which we determine to be associated
with the class of contracts to which your contract belongs, to another account.
If necessary, we will get prior approval from the insurance department of our
state of domicile before making such a substitution or transfer. We will also
get any required approval from the SEC and any other required approvals before
making such a substitution or transfer. We will notify you as soon as
practicable of any proposed changes.
When permitted by law, we reserve the right to:
(1) deregister an account under the 1940 Act;
(2) operate an account as a management company
under the 1940 Act if it is operating as a unit investment trust;
(3) operate an account as a unit investment trust
under the 1940 Act if it is operating as a managed separate account;
(4) restrict or eliminate any voting rights as to the
Accounts; and
(5) combine an account with other accounts.
FACTS ABOUT THE CONTRACT
THE OWNER
You are the owner. You are also the annuitant unless another annuitant is named
in the application or enrollment form. You have the rights and options described
in the contract. One or more persons may own the contract.
Death of an owner activates the death benefit provision. In the case of a sole
owner who dies prior to the annuity commencement date, we will pay the
beneficiary the death benefit then due. The sole owner's estate will be the
beneficiary if no beneficiary designation is in effect, or if the designated
beneficiary has predeceased the owner. In the case of a joint owner of the
contract dying prior to the annuity commencement date, we will designate the
surviving owner(s) as the beneficiary(ies). This supersedes any previous
beneficiary designation. In the case where the owner is a trust, the beneficial
owner of the trust will be treated as the owner of the contract solely for the
purpose of activating the death benefit provision. See Contracts Owned by
Non-Natural Persons.
THE ANNUITANT
The annuitant will receive the annuity benefits of the contract if living on the
annuity commencement date. If the annuitant dies before the annuity commencement
date, and a contingent annuitant has been named, the contingent annuitant
becomes the annuitant. Once named, neither the annuitant nor the contingent
annuitant, if any, may be changed at any time.
If there is no contingent annuitant when the annuitant dies prior to the annuity
commencement date, we will pay the beneficiary the death benefit then due. The
beneficiary will be as provided in the beneficiary designation then in effect.
If no beneficiary designation is in effect, or if there is no designated
beneficiary living, the owner will be the beneficiary. If the annuitant was the
sole owner and there is no beneficiary designation, the annuitant's estate will
be the beneficiary.
THE BENEFICIARY
The beneficiary is the person to whom we pay death benefit proceeds if the
annuitant (when there is no
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FACTS ABOUT THE CONTRACT (CONTINUED)
contingent annuitant) or owner dies prior to the annuity commencement date. We
pay death benefit proceeds to the primary beneficiary. See Proceeds Payable to
the Beneficiary.
If the beneficiary dies before the annuitant or owner, the death benefit
proceeds are paid to the contingent beneficiary, if any. If there is no
surviving beneficiary, we pay the death benefit proceeds to the owner (if other
than the annuitant). If the owner was the annuitant, we pay any death benefit
proceeds to the annuitant's estate.
One or more persons who must be individuals may be named as 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 may specify other than equal shares.
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 must act
together to exercise the rights and options under the contract.
CHANGE OF OWNER OR BENEFICIARY
During the annuitant's lifetime and while the contract is in effect, you may
transfer ownership of the contract (if purchased in connection with a non-
qualified plan) subject to our published rules at the time of the change. You
may also change the beneficiary. To make either of these changes, you must send
us written notice of the change in a form satisfactory to us. The change will
take effect as of the day the notice is signed. The change will not affect any
payment made or action taken by us before recording the change at our Customer
Service Center. See Additional Considerations, Transfer of Annuity Contracts,
and Assignments.
AVAILABILITY OF THE CONTRACT
We can issue a contract if both the annuitant and the owner are not older than
age 85.
TYPES OF CONTRACTS
QUALIFIED CONTRACTS
The contract may be issued as an Individual Retirement Annuity or in
connection with an individual retirement account. In the latter case, the
contract will be issued without an Individual Retirement Annuity endorsement,
and the rights of the participant under the contract will be affected by the
terms and conditions of the particular individual retirement trust or
custodial account, and by provisions of the Code and the regulations
thereunder. For example, the individual retirement trust or custodial account
will impose minimum distribution rules, which require distributions to
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. For both Individual Retirement Annuities
and individual retirement accounts, the minimum initial premium is $1,500.
IF THE CONTRACT IS PURCHASED TO FUND A QUALIFIED PLAN, DISTRIBUTION MUST
COMMENCE NOT LATER THAN APRIL 1ST OF THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH YOU ATTAIN AGE 70 1/2.
NON-QUALIFIED CONTRACTS
The contract may fund any non-qualified plan. Non-qualified contracts do not
qualify for any tax-favored treatment other than the benefits provided for by
annuities.
YOUR RIGHT TO SELECT OR CHANGE
CONTRACT OPTIONS
Before the annuity commencement date, you may change the annuity commencement
date, frequency of annuity payments or the annuity option by sending a written
request to the Customer Service Center. The annuitant named on the application
or enrollment form may not be changed at any time.
PREMIUMS
You purchase the contract with an initial premium. After the end of the free
look period, you may make additional premium payments. See Making Additional
Premium Payments. The minimum initial premium is $10,000 for a non-qualified
contract and $1,500 for a qualified contract. If your initial premium will be
$25,000 or more, we also offer DVA Series 100 through another prospectus, which
is a contract with a different charging structure.
We may refuse a premium payment if an initial premium or the sum of all premium
payments is more than $1,500,000. We may change the minimum initial or
additional premium requirements for certain group or sponsored arrangements. See
Group or Sponsored Arrangements.
QUALIFIED PLANS
For IRA contracts, the annual premium on behalf of any individual contract may
not exceed $2,000.
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FACTS ABOUT THE CONTRACT (CONTINUED)
Provided your spouse does not make a contribution to an IRA, you may set up a
spousal IRA even if your spouse has earned some compensation during the year.
The maximum deductible amount for a spousal IRA program is the lesser of
$2,250 or 100% of your compensation reduced by the contribution (if any) made
by you for the taxable year to your own IRA. However, no more than $2,000 can
go to either your or your spouse's IRA in any one year. For example, $1,750
may go to your IRA and $500 to your spouse's IRA. These maximums are not
applicable if the premium is the result of a rollover from another qualified
plan.
WHERE TO MAKE PAYMENTS
Remit premium payments to our Customer Service Center. The address is shown on
the cover. We will send you a confirmation notice.
MAKING ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments after the end of the free look period.
We can accept additional premium payments until either the annuitant or owner
reaches the attained age of 85 under non-qualified plans. For qualified plans,
no contributions may be made to an IRA contract for the taxable year in which
you attain age 70 1/2 and thereafter (except for rollover contributions). The
minimum additional premium payment we will accept is $500 for a non-qualified
plan and $250 for a qualified plan.
CREDITING PREMIUM PAYMENTS
The initial premium will be accepted or rejected within two business days of
receipt by us of a completed application or enrollment form. We may retain the
initial premium for up to five days while attempting to complete an incomplete
application or enrollment form. If the application or enrollment form cannot be
made complete within five valuation days, the applicant or enrollee will be
informed of the reasons for the delay and the initial premium will be returned
immediately unless the applicant or enrollee specifically consents to our
retaining the initial premium until the application or enrollment form is made
complete. Thereafter, all premiums will be accepted on the day received.
We will accept, by agreement with broker-dealers who use wire transmittals,
transmittal of initial and additional premium payments by wire order from the
broker-dealer to the Customer Service Center. Such transmittals must be
accompanied by a simultaneous telephone facsimile transmission containing the
essential information we require to open an account and allocate the premium
payment.
Premium payments accepted via wire order and accompanying facsimile
transmissions will be invested at the value next determined following receipt.
Wire orders not accompanied by facsimile transmissions, or accompanied by
facsimile transmissions which do not contain the essential information we
require to open an account and allocate the premium payment, may be retained for
a period not exceeding five business days while an attempt is made to obtain the
required facsimile transmission. If the required facsimile transmission cannot
be obtained within five business days, the Customer Service Center will inform
the broker-dealer, on behalf of the applicant/enrollee, of the reasons for the
delay and return the premium payment immediately to the broker-dealer for return
to the applicant/enrollee, unless the applicant/enrollee specifically consents
to allow us to retain the premium payment until the required facsimile
transmission is received by the Customer Service Center.
We will issue the contract; however, until we have received and accepted at the
Customer Service Center a properly completed application or enrollment form, we
reserve the right to rescind the contract. If an application or enrollment form
is not received within ten days of receipt of the initial premium via wire
order, or if an incomplete application or enrollment form is received and cannot
be completed within ten days of receipt of the initial premium, the amount of
the initial premium, with any gain, will be returned to the broker-dealer for
return to the applicant/enrollee. In no event will less than the full amount of
the initial premium be returned to the applicant/enrollee.
On the date we receive and accept your initial or additional premium payment:
(1) We allocate the initial premium among the
divisions according to your instructions, subject to any restrictions. See
Restrictions on Allocation of Premium Payments. For additional premium
payments, the accumulation value will increase by the amount of the premium.
If we do not receive instructions from you, the increase in the accumulation
value will be allocated among the divisions in proportion to the amount of
accumulation value in each division as of the date we receive and accept the
additional premium payment.
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FACTS ABOUT THE CONTRACT (CONTINUED)
(2) For an initial premium, we calculate the
distribution fee and any charge for premium taxes, if applicable. When an
additional premium payment is made we increase any distribution fee and any
charge for premium taxes, if applicable. These charges will be collected by
us from the contract's accumulation value. HOWEVER, WE CURRENTLY WAIVE THE
DEDUCTION OF THE CHARGE FOR PREMIUM TAXES. (See Charges and Fees, PREMIUM
TAXES).
(3) For an initial premium, we calculate the
guaranteed death benefit. When an additional premium payment is made we
increase the guaranteed death benefit.
ELECTRONIC DATA TRANSMISSION OF
APPLICATION INFORMATION
In certain states, we will also accept, by agreement with broker-dealers who
use electronic data transmissions of application information, wire
transmittals of initial premium payments from the broker-dealer to the
Customer Service Center for purchase of the contract. Contact the Customer
Service Center to find out about state availability.
Upon receipt of the electronic data and wire transmittal, we will open an
account and allocate the premium payment according to the client's
instructions. Based on the information provided, we will generate an
application or enrollment form and contract to be forwarded to the
applicant/enrollee for signature.
During the period from receipt of the initial premium until the signed
application or enrollment form is received, the owner may not execute any
financial transactions with respect to the contract unless such transactions
are requested in writing and signature guaranteed.
RESTRICTIONS ON ALLOCATION OF
PREMIUM PAYMENTS
We may require that the initial premium be allocated to the Specially Designated
Division during the free look period for initial premiums received from some
states. After the free look period, if your initial premium was allocated to the
Specially Designated Division, we will transfer the accumulation value to the
divisions you previously selected based on the index of investment experience
next computed for each division. See Measurement of Investment Experience, INDEX
OF INVESTMENT EXPERIENCE AND UNIT VALUE.
YOUR RIGHT TO REALLOCATE
You may reallocate your accumulation value among the divisions of the Accounts
at the end of the free look period. You are allowed five allocation changes per
contract year without charge. There will be a charge of $25 deducted from the
accumulation value for each additional allocation change. When a reallocation is
made, we redeem shares of the Series underlying the divisions you are
transferring from at their net asset value. Reinvestment is then made in shares
of the Series of the divisions you are transferring to at their net asset value.
To make a reallocation change, you must provide us with satisfactory notice at
our Customer Service Center.
RESTRICTIONS ON REALLOCATIONS
Some restrictions may apply based on the free look provisions of the state
where the contract is issued. See Your Right to Cancel or Exchange Your
Contract.
DOLLAR COST AVERAGING OPTION
If you have at least $10,000 of accumulation value in the Limited Maturity Bond
Division or the Liquid Asset Division, you may choose to have a specified dollar
amount transferred from this division to other divisions in the Accounts on a
monthly basis. The main objective of dollar cost averaging is to attempt to
shield your investment from short term price fluctuations. Since the same dollar
amount is transferred to other divisions each month, more units are purchased in
a division if the value per unit is low and less units are purchased if the
value per unit is high.
Therefore, a lower than average value per unit may be achieved over the long
term. This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in declining
markets. See Measurement of Investment Experience, INDEX OF INVESTMENT
EXPERIENCE AND UNIT VALUE.
This dollar cost averaging option may be elected at the time the application or
enrollment form is completed or at a later date. The minimum amount that may be
transferred each month is $250. The maximum amount which may be transferred is
equal to the accumulation value in the Limited Maturity Bond Division or the
Liquid Asset Division when elected, divided by 12.
The transfer date will be the same calendar day each month as the contract date.
The dollar amount will be allocated to the divisions in which you are invested
in proportion to your accumulation value
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FACTS ABOUT THE CONTRACT (CONTINUED)
in each division unless you specify otherwise. If, on any transfer date, the
accumulation value is equal to or less than the amount you have elected to have
transferred, the entire amount will be transferred and the option will end. You
may change the transfer amount once each contract year, or cancel this option by
sending us satisfactory notice to the Customer Service Center at least seven
days before the next transfer date. Any allocation under this option will not be
included in determining if the excess allocation charge will apply.
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a division
of Account B or The Managed Global Account Division of Account D in which
reinvestment is not available, we will allocate the distribution, unless you
specify otherwise, to the Specially Designated Division.
Such a distribution can occur when (a) an investment portfolio matures, or (b) a
distribution from a portfolio or division cannot be reinvested in the portfolio
or division due to the unavailability of securities for acquisition. When an
investment portfolio matures, we will notify you in writing 30 days in advance
of that date. To elect an allocation to other than the Specially Designated
Division, you must provide satisfactory notice to us at least seven days prior
to the date the portfolio matures. Such allocations are not counted as an
allocation change of the accumulation value for purposes of the number of free
allocation changes permitted. When a distribution from a portfolio or division
cannot be reinvested in the portfolio due to the unavailability of securities
for acquisition, we will notify you promptly after the allocation has occurred.
If within 30 days you allocate the accumulation value from the Specially
Designated Division to other divisions of your choice, such allocations are not
counted as an allocation change of the accumulation value for purposes of the
number of free allocation changes permitted.
YOUR ACCUMULATION VALUE
Your accumulation value is the sum of the amounts in each of the divisions in
which you are invested, and is the amount available for investment at any time.
You select the divisions to which to allocate the accumulation value. We adjust
your accumulation value on each Valuation Date to reflect the divisions'
investment performance and on each contract processing date to reflect the
removal of any charges. The accumulation value is applied to your choice of an
annuity option on the annuity commencement date. See Choosing an Income Plan.
You may choose up to eleven divisions and allocate your accumulation value among
them in any way you choose.
ACCUMULATION VALUE IN EACH DIVISION
ON THE CONTRACT DATE
On the contract date, the accumulation value is allocated to each division as
specified on the application or enrollment form, unless the contract is issued
in a state that requires the return of premium payments during the free look
period, in which case, your initial premium will be allocated to the Specially
Designated Division during the free look period. See Your Right to Cancel or
Exchange Your Contract.
ON EACH VALUATION DATE
At the end of each subsequent valuation period, the amount of accumulation
value in each division will be calculated as follows:
(1) We take the accumulation value in the
division at the end of the preceding valuation period.
(2) We multiply (1) by the division's net rate of
return for the current valuation period.
(3) We add (1) and (2).
(4) We add to (3) any additional premium
payments allocated to the division during the current valuation period.
(5) We add or subtract allocations to or from
that division during the current valuation period.
(6) We subtract from (5) any partial withdrawals
and any associated charges allocated to that division during the current
valuation period.
(7) We subtract from (6) the amounts allocated
to that division for:
(a) any contract fees; and
(b) any distribution fee and any charge for
premium taxes. HOWEVER, WE CURRENTLY WAIVE THE DEDUCTION OF THE CHARGE
FOR PREMIUM TAXES. (See Charges and Fees, PREMIUM TAXES.)
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FACTS ABOUT THE CONTRACT (CONTINUED)
All amounts in (7) are allocated to each division in the proportion that (6)
bears to the accumulation value, unless the Charge Deduction Division has been
specified.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE
AND UNIT VALUE
The investment experience of a division is determined on each valuation date.
We use an index to measure changes in each division's experience during a
valuation period. We set the index at $10 when the first investments in a
division are made. The index for a current valuation period equals the index
for the preceding valuation period multiplied by the experience factor for the
current valuation period.
We may express the value of amounts allocated to the divisions in terms of
units. We determine the number of units for a given amount on a valuation date
by dividing the dollar value of that amount by the index of investment
experience for that date. The index of investment experience is equal to the
value of a unit.
HOW WE DETERMINE THE
EXPERIENCE FACTOR
For divisions of Account B the experience factor reflects the investment
experience of the Series in which a division invests as well as the charges
assessed against the division for a valuation period. The factor is calculated
as follows:
(1) We take the net asset value of the portfolio
in which the division invests at the end of the current valuation period.
(2) We add to (1) the amount of any dividend or
capital gains distribution declared for the investment portfolio and
reinvested in such portfolio during the current valuation period. We
subtract from that amount a charge for our taxes, if any.
(3) We divide (2) by the net asset value of the
portfolio at the end of the preceding valuation period.
(4) We subtract the daily mortality and expense
risk charge from each division for each day in the valuation period.
(5) We subtract the daily asset based administrative
charge from each division for each day in the valuation period.
Calculations for divisions investing in a Series are made on a per share
basis.
For the Global Account the experience factor reflects the investment
experience of the Global Account as well as the charges assessed against the
Global Account for a valuation period. The factor is calculated as follows:
(1) We take the value of the assets in the Global
Account at the end of the preceding valuation period.
(2) We add to (1) any investment income and
capital gains, realized or unrealized, credited to the assets during the
current valuation period.
(3) We subtract from (2) any capital losses,
realized or unrealized, charged against the assets during the current
valuation period.
(4) We subtract from (3) any amount charged
against the Global Account for any taxes.
(5) We divide (4) by the value of the assets in the
Global Account at the end of the preceding valuation period.
(6) We subtract from (5) the daily charge for
management and investment advice for each day in the valuation period.
(7) We subtract from (6) a daily charge for
estimated operating expenses for each day in the valuation period.
(8) We subtract from (7) the daily charge for
mortality and expense risks for each day in the valuation period.
(9) We subtract from (8) the asset based
administrative charge for each day in the valuation period.
NET RATE OF RETURN FOR A DIVISION
OF THE ACCOUNTS
The net rate of return for a division during a valuation period is the
experience factor for that valuation period minus one.
CASH SURRENDER VALUE
Your contract's cash surrender value fluctuates daily with the investment
results of the divisions you have selected. We do not guarantee any minimum. On
any date before the annuity commencement date while the contract is in effect,
the cash surrender value is calculated as follows:
(1) We take the contract's accumulation value;
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FACTS ABOUT THE CONTRACT (CONTINUED)
(2) We deduct any surrender charge and any
unrecovered charge for premium taxes. (See Charges and Fees, PREMIUM TAXES);
(3) We deduct any charges incurred but not yet
deducted. (See Charges and Fees, ADMINISTRATIVE CHARGE, EXCESS ALLOCATION
CHARGE, PARTIAL WITHDRAWAL CHARGE).
SURRENDERING TO RECEIVE THE
CASH SURRENDER VALUE
The contract may be surrendered by the owner at any time while the annuitant is
living and before the annuity commencement date.
A surrender will be effective on the date your written request and the contract
are received by us at our Customer Service Center and the cash surrender value
is determined accordingly as of that date. All benefits under the contract will
then be terminated as of that date. You may receive the cash surrender value in
a single sum payment or apply it under one or more annuity options. See The
Annuity Options. We will usually pay the cash surrender value within seven days
but we may delay payment as described in the When We Make Payments provision.
PARTIAL WITHDRAWALS
Prior to the annuity commencement date, while the annuitant is living and the
contract is in effect, you may take partial withdrawals from the accumulation
value by sending satisfactory notice to the Customer Service Center. Unless you
specify otherwise, the amount of the withdrawal will be taken in proportion to
the amount of accumulation value in each division in which you are invested.
There are three options available for selecting partial withdrawals, the
Conventional Partial Withdrawal Option, the Systematic Partial Withdrawal Option
and the IRA Partial Withdrawal Option. All three options are described below.
Partial withdrawals may not be repaid, and in no event may a withdrawal amount
be greater than 90% of the cash surrender value.
CONVENTIONAL PARTIAL WITHDRAWAL OPTION
After the free look period, you may take a conventional partial withdrawal
once each contract year without charge. If you take more than one conventional
partial withdrawal in a contract year, we impose a charge of the lesser of $25
and 2.0% of the amount withdrawn. The minimum amount you may withdraw under
this option is $1,000 and the maximum amount that may be withdrawn without
incurring a surrender charge (assuming no systematic or IRA partial
withdrawals are in place during that contract year) is 15% of the accumulation
value. SEE SURRENDER CHARGES FOR EXCESS PARTIAL WITHDRAWALS, below.
SYSTEMATIC PARTIAL WITHDRAWAL OPTION
This option may be elected at the time the application or enrollment form is
completed, or at a later date. This option may be elected to commence in a
contract year where a conventional partial withdrawal has been taken. However,
it may not be elected while the IRA partial withdrawal option is in effect.
You may choose to receive systematic partial withdrawals on a monthly or
quarterly basis from the accumulation value in the divisions of the Accounts.
The commencement of payments under this option may not be elected to start
sooner than 28 days after the contract issue date. You select the date of the
quarter or month when the withdrawals will be made but no later than the 28th
day of the month. If no date is selected, the withdrawals will be made on the
same calendar day of each month as the contract date. You may select a dollar
amount or a percentage of the accumulation value as the amount of your
withdrawal subject to the following maximums, but in no event can a payment be
less than $100:
<TABLE>
<CAPTION>
FREQUENCY MAXIMUM PERCENTAGE
- ------------------------ ------------------------
<S> <C>
Monthly 1.25%
Quarterly 3.75%
</TABLE>
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage of the accumulation value on
the withdrawal date, the amount withdrawn will be reduced so that it equals
such percentage. For example, if a $500 monthly withdrawal was elected and on
the withdrawal date 1.25% of the accumulation value equaled $300, the
withdrawal amount would be reduced to $300. If a percentage is selected and
the amount to be systematically withdrawn based on that percentage would be
less than the minimum of $100, we would increase the amount to $100 provided
it does not exceed the maximum percentage. If it is below the maximum
percentage we will send the minimum. If it is above the maximum percentage we
will send the amount and then cancel the option. For example, if you selected
1.0% to be systematically withdrawn on a monthly basis and that amount equaled
$90, and since $100 is less than 1.25% of the accumulation value, we would
send $100. If 1.0% equaled $75,
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FACTS ABOUT THE CONTRACT (CONTINUED)
since $100 is more than 1.25% of the accumulation value we would send $75 and
then cancel the option. In such a case, in order to receive systematic partial
withdrawals in the future, you would be required to submit a new notice to our
Customer Service Center.
You may change the amount or percentage of your withdrawal once each contract
year or cancel this option at any time by sending satisfactory notice to us at
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date. However, you may not change the amount or percentage of your
withdrawals in any contract year during which you have previously taken a
conventional partial withdrawal.
There may be a surrender charge associated with a partial withdrawal in any
contract year in which you receive systematic partial withdrawals and also
take a conventional partial withdrawal. See SURRENDER CHARGES FOR EXCESS
PARTIAL WITHDRAWALS, below.
IRA PARTIAL WITHDRAWAL OPTION
If you have an IRA contract and will attain age 70 1/2 in the current calendar
year, distributions will be made to you to satisfy requirements imposed by
Federal tax law. IRA partial withdrawals provide payout of amounts required to
be distributed by the Internal Revenue Service rules governing mandatory
distributions under qualified plans. See Federal Tax Considerations, Taxation
of Individual Retirement Annuities. We will send you a notice before your
distributions must commence, and you may elect this option at that time, or at
a later date. You may not elect IRA partial withdrawals while the systematic
partial withdrawal option is in effect. If you do not elect the IRA partial
withdrawal option, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax law
will be made. Thus, if the systematic partial withdrawal option is in effect,
distribution under that option must be adequate to satisfy the mandatory
distribution rules imposed by Federal tax law.
You may choose to receive IRA partial withdrawals on a monthly, quarterly or
annual frequency. You select the day of the month when the withdrawals will be
made, but it cannot be later than the 28th day of the month. If no date is
selected, the withdrawals will be made on the same calendar day of the month
as the contract date.
We will determine the amount that is required to be withdrawn from your
contract each year based on the information you give us and various choices
you make. For information regarding the calculation and choices you have to
make, see the Statement of Additional Information. The minimum dollar amount
you can withdraw is $100. At the time we determine the required partial
withdrawal amount for a taxable year based on the frequency you select, if
that amount is less than $100, we will pay $100. At any time where the partial
withdrawal amount is greater than the accumulation value, we will cancel the
contract and send you the amount of the cash surrender value.
You may change the payment frequency of your withdrawals once each contract
year or cancel this option at any time by sending us satisfactory notice to
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date.
There may be a surrender charge associated with a partial withdrawal in any
contract year during which you receive IRA partial withdrawals and take a
conventional partial withdrawal. See SURRENDER CHARGES FOR EXCESS PARTIAL
WITHDRAWALS, below.
SURRENDER CHARGES FOR EXCESS
PARTIAL WITHDRAWALS
An excess partial withdrawal is the amount by which annualized partial
withdrawals for a contract year exceed 15% of the accumulation value on the
date of the withdrawal. Any partial withdrawal and any combination of partial
withdrawals either taken during a contract year or expected to be received in
a contract year will be taken into account in determining the amount of the
excess partial withdrawal. An excess partial withdrawal will be considered a
partial surrender of the contract and we will impose a surrender charge
applicable to the accumulation value. Such amount will be deducted from the
accumulation value in proportion to the accumulation value in each division
from which the excess partial withdrawal was taken.
An excess partial withdrawal will result in the imposition of a surrender
charge and a corresponding reduction in the remaining surrender charge that
subsequently can be imposed under the contract. For example the following
assumes a conventional partial withdrawal of $17,200 is taken at the beginning
of the fourth contract year. A contract with a current surrender charge
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FACTS ABOUT THE CONTRACT (CONTINUED)
of $3,000 (an initial surrender charge of $6,000 reducing at the rate of
$1,000 per contract year for six years), has an accumulation value of
$100,000.
In this example, $15,000 (15% of accumulation value) may be withdrawn during
the contract year without the imposition of a surrender charge. The excess
partial withdrawal is the amount by which the withdrawal is in excess of the
maximum ($17,200 - $15,000 = $2,200). The excess is calculated as a percentage
of the accumulation value ($2,200/$100,000 = .022). Applying this percentage
to the current amount of the surrender charge ($3,000 x .022 = $66) determines
the amount to be deducted from the accumulation value as of the date of the
withdrawal.
If the contract were surrendered following the partial withdrawal, the
surrender charge would be $2,934 ($3,000 - $66). If instead, the contract were
surrendered at the beginning of the fifth year assuming no further partial
withdrawals, the surrender charge would be $1,934 ($2,000 - $66).
CONTRACTS WITH A CONTRACT DATE PRIOR TO MAY 3, 1993 AND THE PROSPECTUS
DELIVERED IN CONNECTION WITH SUCH CONTRACTS, DESCRIBED THIS PROVISION AS
ACCELERATION OF RECOVERY OF DEFERRED LOADING, WHICH IS THE FUNCTIONAL
EQUIVALENT OF THE ASSESSMENT OF A SURRENDER CHARGE FOR EXCESS PARTIAL
WITHDRAWALS. LIMITED EDITION CONTRACTS PURCHASED THROUGH ACCOUNT D AND THE
PROSPECTUS DELIVERED IN CONNECTION WITH SUCH CONTRACTS ALSO DESCRIBED THIS
PROVISION AS ACCELERATION OF RECOVERY OF DEFERRED LOADING.
PARTIAL WITHDRAWALS IN GENERAL
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
PARTIAL WITHDRAWALS. A partial withdrawal made before the taxpayer reaches age
59 1/2 may result in imposition of a tax penalty of 10% of the taxable portion
withdrawn. Please refer to Federal Tax Considerations for more details.
PROCEEDS PAYABLE TO THE BENEFICIARY
If either the annuitant (when there is no contingent annuitant) or owner dies
prior to the annuity commencement date, we will pay the beneficiary the death
benefit proceeds under the contract. Such amount may be received in a single sum
or applied to any of the annuity options. See The Annuity Options. If we do not
receive a request to apply the death benefit proceeds to an annuity option, a
single sum distribution will be made. We may reduce the death benefit proceeds
payable under certain group or sponsored arrangements. See Part 1, Group or
Sponsored Arrangements.
If the annuitant and owner are both age 75 or younger at issue (age 80 or
younger for contracts with a contract date before November 6, 1992) the death
benefit is the greater of the accumulation value and the guaranteed death
benefit.
MAXIMUM GUARANTEED DEATH BENEFIT
This amount is calculated as follows:
(1) We determine the total premiums paid;
(2) We multiply (1) by two;
(3) We determine the total partial withdrawals
taken; and
(4) We subtract (3) from (2).
GUARANTEED DEATH BENEFIT
On the contract date the guaranteed death benefit is equal to the initial
premium. On subsequent valuation dates, the guaranteed death benefit is
calculated as follows:
(1) We take the guaranteed death benefit from
the prior valuation date;
(2) We calculate interest on (1) for the current
valuation period at an annual rate of 7% (the GUARANTEED DEATH BENEFIT
INTEREST RATE), except that with respect to amounts in the Liquid Asset
Division, the interest rate applied to such amounts will be the net rate
of return for the Liquid Asset Division during the current valuation
period, if it is less than 7%; (Under contracts with a contract date
before November 6, 1992, the 7% test for the Liquid Asset Division does
not apply.);
(3) We add (1) and (2);
(4) We add to (3) any additional premiums paid
during the current valuation period; and,
(5) We subtract from (4) any partial withdrawals
made during the current valuation period.
If (5) is greater than the maximum guaranteed death benefit, we will pay the
maximum guaranteed death benefit.
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FACTS ABOUT THE CONTRACT (CONTINUED)
If the annuitant or owner is age 76 or older at issue (age 81 or older for
contracts with a contract date before November 6, 1992), the death benefit is
the greater of:
(1) The cash surrender value; and
(2) The sum of the premiums paid, less any
partial withdrawals.
DEATH BENEFIT FOR CONTRACTS PURCHASED IN NORTH CAROLINA WITH A CONTRACT DATE
BEFORE NOVEMBER 6, 1992
If the annuitant and owner are both age 80 or younger at issue the death
benefit is the greater of:
(1) The accumulation value; and
(2) The sum of the premiums paid, less any
partial withdrawals.
If the annuitant or owner is age 81 or older at issue, the death benefit is
the greater of:
(1) The cash surrender value; and
(2) The sum of the premiums paid, less any
partial withdrawals.
HOW TO CLAIM PAYMENTS TO BENEFICIARY
We must receive due proof of the death of the annuitant or owner (such as an
official death certificate) at our Customer Service Center before we will make
any payments to the beneficiary. We will calculate the death benefit as of the
date we receive due proof of death. The beneficiary should contact our
Customer Service Center for instructions.
REPORTS TO OWNERS
We will send you a report once each contract quarter within 31 days after the
end of each contract quarter. The report will show the accumulation value, the
cash surrender value, and the death benefit as of the end of the contract
quarter.
The report will also show the allocation of the accumulation value as of such
date and the amounts deducted from or added to the accumulation value since the
last report. The report will also include any other information that may be
currently required by the insurance supervisory official of the jurisdiction in
which the contract is delivered. We will also send you copies of any shareholder
reports of the portfolios or securities in which the Accounts invest, as well as
any other reports, notices or documents required by law to be furnished to
contract owners.
WHEN WE MAKE PAYMENTS
We will pay death benefit proceeds and the cash surrender value within seven
days after our Customer Service Center receives all the information needed to
process the payment.
However, we may delay payment of amounts derived from the divisions if it is not
practical for us to value or dispose of shares of the Accounts because:
(1) The NYSE is closed for trading;
(2) The SEC determines that a state of emergency
exists;
(3) An order or pronouncement of the SEC permits
a delay for the protection of contract owners; or,
(4) The check used to pay the premium has not
cleared through the banking system. This may take up to 15 days.
During such times, as to amounts allocated to the divisions, we may delay:
(1) Determination and payment of any cash
surrender value;
(2) Determination and payment of any death
benefit if death occurs before the annuity commencement date;
(3) Allocation changes of the accumulation value;
or,
(4) Application under an annuity option of the
accumulation value.
CHARGES AND FEES
CHARGE DEDUCTION DIVISION
You may specify on the application or enrollment form if you wish to use the
Charge Deduction Division Option. If you so specify, all charges against the
accumulation value will be deducted from the Liquid Asset Division. If the
amount of the charge is greater than the amount in the division, the charge will
be deducted proportionately from all the divisions in which you are invested.
You may also choose to elect or cancel this option while the contract is in
force by sending us satisfactory notice to our Customer Service Center. If you
do not elect this option, the charges will be deducted proportionately from all
the divisions in which you are invested.
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CHARGES AND FEES (CONTINUED)
CHARGES DEDUCTED FROM THE
ACCUMULATION VALUE
We invest the entire amount of the initial and any additional premium payments
in the divisions you select, subject to certain restrictions. See Restrictions
on Allocation of Premium Payments. We then periodically deduct certain amounts
from your accumulation value. We may reduce certain fees and charges, including
any distribution fees, surrender, administration, and mortality and expense risk
charges, under group or sponsored arrangements. See Group or Sponsored
Arrangements. Charges are deducted proportionately from all divisions in which
you are invested, unless you have elected the Charge Deduction Division. The
charges we deduct are:
DISTRIBUTION FEE
We deduct a sales load in an annual amount of 1.00% of each premium at the end
of each contract processing period for a period of six years from the date we
receive and accept each premium payment.
SURRENDER CHARGE
A surrender charge is imposed as a percentage of premium if the contract is
surrendered or an excess partial withdrawal is taken during the six year
period from the date we receive and accept each premium payment. The
percentage imposed at the time of surrender or excess partial withdrawal
depends on the distribution fee collected to the time the contract is
surrendered or the excess partial withdrawal is taken. The surrender charge in
the first contract year is 6.00% and reduces by 1.00% each year during the six
year period from the date we receive and accept each premium payment.
CONTRACTS WITH A CONTRACT DATE PRIOR TO MAY 3, 1993 AND THE PROSPECTUS
DELIVERED IN CONNECTION WITH SUCH CONTRACTS, DESCRIBED THE SALES LOAD AS A
DEFERRED LOAD, WHICH IS EQUIVALENT TO THE COMBINATION OF THE DISTRIBUTION FEE
AND SURRENDER CHARGE DESCRIBED ABOVE. LIMITED EDITION CONTRACTS PURCHASED
THROUGH ACCOUNT D AND THE PROSPECTUS DELIVERED IN CONNECTION WITH SUCH
CONTRACTS ALSO DESCRIBED THE SALES LOAD AS A DEFERRED LOAD.
If your initial premium will be $25,000 or more, we also offer DVA Series 100
through another prospectus, which is a contract with a different charging
structure.
PREMIUM TAXES
We make a charge for state and local premium taxes in certain states which can
range from 0% to 3.5% of premium. The charge depends on the annuitant's or
owner's state of residence, as applicable. We reserve the right to change this
amount to conform with changes in the law or if the annuitant changes state of
residence.
Premium taxes are generally incurred on the annuity commencement date and a
charge for such premium taxes is then deducted from your accumulation value on
such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity
commencement date. In those states we initially advance the amount of the
charge for premium taxes to your accumulation value and then deduct it in
equal installments on each contract processing date over a six year period.
CURRENTLY, IN THOSE STATES WHERE WE ADVANCE THE CHARGE FOR PREMIUM TAXES, WE
WILL WAIVE THE DEDUCTION OF THE APPLICABLE INSTALLMENTS OF THE CHARGE FOR
PREMIUM TAXES ON EACH CONTRACT PROCESSING DATE. HOWEVER, WE WILL DEDUCT THE
UNRECOVERED CHARGE FOR PREMIUM TAXES (NOT INCLUDING INSTALLMENTS WHICH WERE
WAIVED) WHEN DETERMINING THE CASH SURRENDER VALUE PAYABLE IF YOU SURRENDER
YOUR CONTRACT. WE RESERVE THE RIGHT TO DEDUCT THE TOTAL AMOUNT OF THE CHARGE
FOR PREMIUM TAXES PREVIOUSLY WAIVED AND UNRECOVERED ON THE ANNUITY
COMMENCEMENT DATE.
In those cases when we advance the charge for premium taxes, since the charge
for premium taxes is advanced to the accumulation value, a positive net rate
of return will give a higher cash surrender value and a negative net rate of
return will give a lower cash surrender value than would be the case had the
charge for premium taxes been deducted from your premium payment.
ADMINISTRATIVE CHARGE
The administrative charge is incurred at the beginning of the contract
processing period and deducted at the end of each contract processing period.
We deduct this charge when determining the cash surrender value payable if you
surrender the contract prior to the end of a contract processing period. The
amount deducted is $40 per contract year if total premiums paid in the first
contract year are less than $100,000. If the total premium paid in the first
contract year equals $100,000 or more, the charge is zero. This
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CHARGES AND FEES (CONTINUED)
charge is to cover a portion of our administrative expenses. See ASSET BASED
ADMINISTRATIVE CHARGE, below.
EXCESS ALLOCATION CHARGE
We allow you five free allocation changes between divisions per contract year.
For each additional allocation change, we will charge you $25 at the time each
allocation change is processed. This amount represents the maximum we will
charge. The charge is deducted from the division(s) from which each such
reallocation is made in proportion to the amount being transferred from each
such division unless you have chosen to use the Charge Deduction Division. The
excess allocation charge is set at a level that is not designed to produce
profit for Golden American or any affiliate. Any allocation(s) or transfer(s)
due to the election of the Dollar Cost Averaging Option and reallocation under
the provision What Happens if a Division is Not Available will not be included
in determining if the excess allocation charge should apply.
PARTIAL WITHDRAWAL CHARGE
If you take more than one conventional partial withdrawal during a contract
year, we impose a charge of the lesser of $25 and 2.0% of the amount withdrawn
for each additional conventional partial withdrawal. The charge is deducted
from the division(s) from which each such partial withdrawal is made in
proportion to the amount being withdrawn from each division unless you have
chosen to use the Charge Deduction Division. See Partial Withdrawals,
CONVENTIONAL PARTIAL WITHDRAWAL OPTION.
CHARGES DEDUCTED FROM THE DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE
The daily charge is at the rate of 0.002477% (equivalent to an annual rate of
0.90%) on the assets in each division. Approximately 0.575% of this annual
charge is allocated to the mortality risk and 0.325% is allocated to the
expense risk.
This charge will compensate us for mortality and expense risks we assume
under the contract. We will realize a gain from this charge to the extent
it is not needed to provide for benefits and expenses under the contract.
We will use any gain for any lawful purpose including any shortfalls on
paying distribution expenses.
The mortality risk assumed is the risk that annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would
be paying more in annuity income than we planned. Golden American also
assumes a risk under the contract for paying a guaranteed death benefit.
The expense risk assumed is the risk that it will cost us more to issue and
administer the contract than we expect.
ASSET BASED ADMINISTRATIVE CHARGE
We will deduct a daily charge from the assets in each division of the
Accounts, to compensate Golden American for a portion of the administrative
expenses under the contract. The daily charge is at a rate of 0.000276%
(equivalent to an annual rate of 0.10%) on the assets in each division.
This asset based administrative charge plus the administrative charge above
will not exceed the cost of the services to be provided over the life of the
contract.
TRUST EXPENSES
There are fees and charges deducted from each Series. Please read the Trust
prospectus for details.
OPERATING EXPENSES OF ACCOUNT D
There are additional fees and charges to the Global Account in Account D for
management and advisory services as well as other operational expenses of the
Global Account. DSI as the Manager of Account D receives a monthly fee equal to
an annual rate based upon the following percentages of the Global Account's
average daily net assets: 0.40% of the first $500 million and 0.30% of the
amount over $500 million. Warburg, Pincus as the Portfolio Manager receives a
monthly fee equal to an annual rate based upon the following percentages of the
Global Account's average daily net
assets: 0.60% of the first $500 million and 0.50% of the amount over $500
million. The total fees for management and advisory services exceed the fees for
similar services paid by some other registered investment companies with similar
objectives.
The Global Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, and legal and auditing services.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
The Global Account and DSI have agreed to limit the total expenses of the Global
Account. See Part I, The Managed Global Account of Account D.
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CHOOSING AN INCOME PLAN
THE INCOME PLAN
If the annuitant and owner are living on the annuity commencement date, we will
begin making payments to the annuitant under an income plan. We will make these
payments under the annuity option chosen in the application or enrollment form
or as subsequently changed. You may change an annuity option by making a written
request to us at least 30 days prior to the annuity commencement date of the
contract. The amount of the payments will be determined by applying the
accumulation value on the annuity commencement date in accordance with The
Annuity Options section below. See When We Make Payments.
You may also elect an annuity option on surrender of the contract for its cash
surrender value or, you may choose one or more annuity options for the payment
of death benefit proceeds while it is in effect and before the annuity
commencement date. If, at the time of the annuitant's or owner's death, no
option has been chosen for paying death benefit proceeds, the beneficiary may
choose an option within one year.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the accumulation value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each option we will issue a separate written agreement putting the option
into effect. Before we pay any annuity benefits, we require the return of the
contract. If your contract has been lost, we will require that you complete and
return the applicable lost contract form. Various factors will affect the level
of annuity benefits including the annuity option chosen, the assumed interest
rate used and the investment results of the division(s) in which the
accumulation value has been invested.
Fixed annuity payments are regular payments, the amount of which is fixed and
guaranteed by us. The amount of the payments will depend only on the form and
duration of payments chosen, the age of the annuitant or beneficiary (and sex,
where appropriate), the total accumulation value applied to purchase the fixed
option, and the applicable payment rate.
Our approval is needed for any option where:
(1) The person named to receive payment is other
than the owner or beneficiary;
(2) The person named is not a natural person,
such as a corporation; or
(3) Any income payment would be less than the
minimum annuity income payment allowed.
ANNUITY COMMENCEMENT DATE SELECTION
You select the annuity commencement date in the application or enrollment form.
You may select any date following the third contract anniversary but before the
contract processing date in the month following the annuitant's 90th birthday.
If you do not select a date, the annuity commencement date will be in the month
following the annuitant's 90th birthday. However, in the state of Pennsylvania
the annuity commencement date may not be later than in the month following the
annuitant's 85th birthday for annuitants with an issue age of 80 and under. FOR
CONTRACTS WITH CONTRACT DATES BEFORE MAY 3, 1993, DIFFERENT ANNUITY COMMENCEMENT
DATE LIMITATIONS MAY APPLY. If the annuity commencement date occurs when the
annuitant is at an advanced age, such as over age 85, it is possible that the
contract will not be considered an annuity for Federal tax purposes. See Federal
Tax Considerations. For a contract purchased in connection with a qualified
plan, distribution must commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. Consult your tax
advisor.
FREQUENCY SELECTION
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, the payments will be made monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITY OPTIONS
There are four options to choose from as shown below. Options 1 through 3 are
fixed and option 4 is variable. For a fixed option, the accumulation value is
transferred to the general account.
OPTION 1. INCOME FOR A FIXED PERIOD
Payment is made in equal installments for a fixed number of years based on the
accumulation value as of the annuity commencement date. We guarantee that each
monthly payment will be at least the amount set forth in the contract.
Guaranteed amounts for annual, semi-annual and quarterly payments are
available upon request. Illustrations are available upon request. If the cash
surrender value or accumulation value is applied under this option, a 10%
penalty tax may apply to the taxable portion of each income payment until the
annuitant reaches age 59 1/2.
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CHOOSING AN INCOME PLAN (CONTINUED)
OPTION 2. INCOME FOR LIFE
Payment is made in equal monthly installments and guaranteed for at least a
period certain. The period certain can be 10 or 20 years. Other periods
certain are available on request. A refund certain may be chosen instead.
Under this arrangement, income is guaranteed until payments equal the amount
applied. If the person named lives beyond the guaranteed period, payments
continue until his or her death. We guarantee that each payment will be at
least the amount set forth in the contract corresponding to the person's age
on his or her last birthday before the option's effective date. Amounts for
ages not shown in the contract are available upon request.
OPTION 3. JOINT LIFE INCOME
This option is available if there are two persons named to receive payments.
At least one of the persons named must be either the owner or beneficiary of
the contract. Monthly payments are guaranteed and are made as long as at least
one of the named persons is living. There is no minimum number of payments.
Monthly payment amounts are available upon request.
OPTION 4. ANNUITY PLAN
An amount can be used to buy any single premium annuity we offer on the
option's effective date.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided by the option agreement. The amounts still due are determined as
follows:
(1) For options 1, 2, or any remaining guaranteed
payments, payments will be continued. Under options 1 and 2, the discounted
values of the remaining guaranteed payments may be paid in a single sum.
This means we deduct the amount of the interest each remaining guaranteed
payment would have earned had it not been paid out early. The discount
interest rate is 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 agreement will state
the amount due, if any.
OTHER INFORMATION
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS ON THE APPLICATION OR ENROLLMENT FORM
If an age or sex given in the application or enrollment form is misstated, the
amounts payable or benefits provided by the contract shall be those that the
premium payment would have bought at the correct age or sex.
SENDING NOTICE TO US
Any written notices, inquiries or requests should be sent to our Customer
Service Center. Please include your name, your contract number and, if you are
not the annuitant, the name of the annuitant.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified contract as collateral security for a loan or
other obligation. This does not change the ownership. However, your rights and
any beneficiary's rights are subject to the terms of the assignment. See
Additional Considerations, Transfer of Annuity Contracts, and Assignments. An
assignment may have Federal tax consequences. See Federal Tax Considerations.
You must give us satisfactory written notice at our Customer Service Center in
order to make or release an assignment. We are not responsible for the
validity of any assignment.
NON-PARTICIPATING
The contract does not participate in the divisible surplus of Golden American.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by our president or a vice president
and by our secretary or an assistant secretary. No other person, including an
insurance agent or broker, can change any of the contract's terms, make any
agreements binding on us or extend the time for premium payments.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We reserve the right to make changes in the contract to the extent we deem it
necessary to continue to qualify the contract as an annuity. Any such changes
will apply uniformly to all contracts that are affected. You will be given
advance written notice of such changes.
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OTHER INFORMATION (CONTINUED)
YOUR RIGHT TO CANCEL OR EXCHANGE YOUR CONTRACT
CANCELLING YOUR CONTRACT
You may cancel your contract within your free look period, which is ten days
after you receive your contract. For purposes of administering our allocation
and administrative rules, we deem this period to expire 15 days after the
contract is mailed to you. Some states may require a longer free look period.
If you decide to cancel, you may mail or deliver the contract to us at our
Customer Service Center. We will refund the accumulation value plus any
charges we deducted, and the contract will be voided as of the date we receive
the contract and your request. Some states require that we return the premium
paid. In these states, we require that your premium be allocated to the
Specially Designated Division during the free look period. If you exercise
your right to cancel, we will return the greater of (a) the premium invested
and (b) the accumulation value of your contract plus any amounts deducted
under the contract or by the Trust for taxes, charges or fees. If you do not
choose to exercise your right to cancel during the free look period, then at
the end of the free look period your money will be invested in the division(s)
chosen by you, based on the index of investment experience next computed for
each division. See Measurement of Investment Experience, INDEX OF EXPERIENCE
AND UNIT VALUE.
EXCHANGING YOUR CONTRACT
For information regarding Section 1035 exchanges, see Federal Tax
Considerations.
OTHER CONTRACT CHANGES
You may change the contract to another annuity plan subject to our rules at the
time of the change.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any distribution fee,
surrender, administration, and mortality and expense risk charges. We may also
change the minimum initial and additional premium requirements, or reduce the
death benefit proceeds payable. Group arrangements include those in which a
trustee or an employer, for example, purchases contracts covering a group of
individuals on a group basis. Sponsored arrangements include those in which an
employer allows us to sell contracts to its employees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy contracts or that have been in existence less
than six months will not qualify for reduced charges.
We will make these and any similar reductions according to our rules in effect
when an application or enrollment form for a contract is approved. We may change
these rules from time to time. Any variation in the distribution fee or
administrative charge will reflect differences in costs or services and will not
be unfairly discriminatory.
SELLING THE CONTRACT
DSI is also principal underwriter and distributor of the contract as well as for
other contracts issued through the Accounts and other separate accounts of
Golden American. We pay DSI for acting as principal underwriter under a
distribution agreement. The offering of the contract will be continuous.
DSI has entered into and will continue to enter into sales agreements with
broker-dealers to solicit for the sale of the contract through registered
representatives who are licensed to sell securities and variable insurance
products including variable annuities. These agreements provide that
applications for contracts may be solicited by registered representatives of the
broker-dealers appointed by Golden American to sell its variable life insurance
and variable annuities. These broker-dealers are registered with the SEC and are
members of the National Association of Securities Dealers, Inc. ("NASD"). The
registered representatives are authorized under applicable state regulations to
sell variable life insurance and variable annuities. The writing agent will
receive commissions of up to 3.5% of any initial or additional premium payments
made.
REINSURANCE
Golden American reinsures its mortality risk associated with the contract's
guaranteed death benefit with Security Life of Denver Insurance Company
("Security Life Reinsurance").
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REGULATORY INFORMATION
VOTING RIGHTS
ACCOUNT B
We will vote the shares of the 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 the
Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a division by dividing the
contract's accumulation value in that division by the net asset value of one
share of the portfolio in which a division invests. Fractional votes will be
counted. We will determine the number of shares you can instruct us to vote
180 days or less before the Trust's meeting. We will ask you for voting
instructions by mail at least 10 days before the meeting.
If we do not get your instructions in time, we will vote the shares in the
same proportion as the instructions received from all contracts in that
division. We will also vote shares we hold in Account B which are not
attributable to owners in the same proportion.
ACCOUNT D
Owners with accumulation value in the Global Account have certain voting
rights. Each such owner will be given one vote for every $1.00 of accumulation
value in the Global Account with fractional interests counted, unless a
different allocation of voting rights is required under applicable law for an
investment medium for variable annuity contracts. Account D's rules do not
require Account D to hold annual meetings of owners of interests in Account D,
although special meetings may be called for Account D for purposes such as
electing or removing members of the Board of Governors, changing fundamental
policies, or approving a contract for investment advisory services. When
required, "the vote of a majority of the outstanding voting securities" of the
Global Account of Account D means the lesser of:
(1) The holders of more than 50% of all votes
entitled to be cast in respect to Account D; or,
(2) The holders of at least 67% of the votes
which are present at a meeting of such persons are the holders of more
than 50% of all votes entitled to be cast in respect to Account D are
present or represented by proxy.
We will determine the number of votes you can instruct us to vote 90 days or
less before Account D's meeting. We will ask you for voting instructions by
mail at least 14 days before the meeting.
STATE REGULATION
We are regulated and supervised by the Insurance Department of the State of
Delaware, which periodically examines our financial condition and operations. We
are also subject to the insurance laws and regulations of all jurisdictions
where we do business. The variable contract offered by this prospectus has been
approved by the Insurance Department of the State of Delaware and by the
Insurance Departments of other jurisdictions.
We are required to submit annual statements of our operations, including
financial statements, to the Insurance Departments of the various jurisdictions
in which we do business to determine solvency and compliance with state
insurance laws and regulations.
LEGAL PROCEEDINGS
Golden American, as an insurance company, is ordinarily involved in litigation.
We do not believe that any current litigation is material and we do not expect
to incur significant losses from such actions.
LEGAL MATTERS
The legal validity of the contract described in this prospectus has been passed
on by Bernard R. Beckerlegge, General Counsel and Secretary of Golden American.
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to Federal securities laws.
EXPERTS
The financial statements of Golden American Life Insurance Company, Separate
Account B and The Managed Global Account of Separate Account D, appearing in the
Statement of Additional Information and in the Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing in the Statement of Additional Information and in the
Registration Statement and are included 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
INTRODUCTION
The contract is designed for use by individuals or groups in retirement plans
which are qualified under Section 408 or non-qualified under the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect
of Federal income taxes on the amounts paid for the contract, on the investment
return on assets held under the contract, on annuity payments and on the
economic benefits to the owner, annuitant or beneficiary depends upon the terms
of the contract, upon Golden American's tax status and upon the tax status of
the individuals concerned.
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax advisor. No attempt is made
to consider any applicable state or other tax laws. Moreover, the discussion is
based upon Golden American's understanding of the Federal income tax laws as
they are currently interpreted. No representation is made regarding the
likelihood of continuation of the Federal income tax laws, the Treasury
Regulations, or the current interpretations by the Internal Revenue Service (the
"IRS"). For a discussion of Federal income taxes as they relate to the Trust,
please see the accompanying prospectus for the Trust.
GOLDEN AMERICAN TAX STATUS
Golden American is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the Accounts are not separate entities from Golden American
and their operations form a part of Golden American, they will not be taxed
separately as "regulated investment companies" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Accounts are
reinvested and taken into account in determining the accumulation value. Under
existing Federal income tax law, Golden American does not incur tax on the
Accounts' investment income, including realized net capital gains. Golden
American reserves the right to make a deduction for taxes should they be imposed
with respect to such items in the future.
TAXATION OF NON-QUALIFIED ANNUITIES
1. IN GENERAL
Code Section 72 generally governs the taxation of non-qualified annuities.
Under this provision, except as described below, any increase in the
contract's value is generally not taxable to the owner until a distribution
is made from the contract, either in the form of annuity payments as
contemplated by the contract, or in some other form of distribution. (For
purposes of this rule, the amount of any indebtedness that is secured by a
pledge or assignment of the contract is treated as a payment received on
account of a partial withdrawal from the contract.) However, this rule
applies only if (1) the investments of the Accounts are "adequately
diversified" in accordance with Treasury Department regulations, (2) Golden
American, rather than the owner, is considered the owner of the assets of the
Accounts for Federal income tax purposes, and (3) the owner is an individual.
DIVERSIFICATION REQUIREMENTS. Treasury Department regulations ("Regulations")
issued under Code Section 817(h) prescribe the manner in which the investments
of a segregated asset account, such as the Accounts, are to be "adequately
diversified." The Regulations generally require that on the last day of each
quarter of a calendar year (i) no more than 55% of the value of each
segregated asset account is represented by any one investment; (ii) no more
than 70% is represented by any two investments; (iii) no more than 80% is
represented by any three investments; and (iv) no more than 90% is represented
by any four investments. For purposes of complying with these requirements,
all securities of the same issuer are treated as a single investment, and each
U.S. government agency or instrumentality will be treated as a separate
issuer. In addition, where a segregated asset account invests in other
regulated investment companies or certain other entities (E.G., the divisions
of Account B do), a "look-through" rule applies and, as a result, each
division of an Account must be tested for compliance with the percentage
limitations by looking through to the assets of that division.
If the Accounts failed to comply with these diversification standards, the
contract would not be treated as an annuity contract for Federal income tax
purposes and the owner would generally be taxable currently on the income on
the contract (as defined in the tax law) beginning with the first period of
non-diversification. Golden American expects that the Accounts, including each
of the divisions, will comply with the diversification requirements prescribed
by the Regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for Federal income tax purposes,
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
of the assets of the segregated asset account, such as the Accounts, used to
support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owners' gross
income. The IRS has stated in published rulings that a variable contract owner
will be considered the owner of the assets of the segregated asset account if
the owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. In addition, the
Treasury Department announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts [of a segregated asset account]
without being treated as owners of the underlying assets." As of the date of
this prospectus, no such guidance has been issued.
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the owner of this contract has the choice of more
investment options to which to allocate premium payments and accumulation
values, and may be able to transfer among investment options more frequently,
than in such rulings. In addition, the owner of this contract has the choice
of certain investment options which may be more similar to each other in their
investment objectives than in such rulings. These differences could result in
the owner being treated as the owner of a portion of the assets of the
Accounts. In addition, Golden American does not know what standards will be
set forth in the regulations or rulings which the Treasury Department has
stated it expects to issue. Golden American therefore reserves the right to
modify the contract as necessary to attempt to prevent contract owners from
being considered the owners of the assets of the Accounts.
Frequently, if the IRS or the Treasury Department sets forth a new position
which is adverse to taxpayers, the position is applied on a prospective basis
only. Thus, if the IRS or the Treasury Department were to issue regulations or
a ruling which treated an owner of this contract as the owner of the Accounts,
that treatment might apply on a prospective basis. However, if the ruling or
regulations were not considered to set forth a new position, an owner might
retroactively be determined to be the owner of the assets of the Accounts.
NON-NATURAL OWNER. As a general rule, contracts held by "non-natural persons"
such as a corporation, trust or other similar entity, as opposed to a natural
person, are not treated as annuity contracts for Federal tax purposes. The
income on such contracts (as defined in the tax law) is taxed as ordinary
income that is received or accrued by the owner of the contract during the
taxable year. There are several exceptions to this general rule for
non-natural owners. First, contracts will generally be treated as held by a
natural person if the nominal owner is a trust or other entity which holds the
contract as an agent for a natural person. However, this special exception
will not apply in the case of any employer who is the nominal owner of a
contract under a non-qualified deferred compensation arrangement for its
employees.
In addition, exceptions to the general rule for non-natural owners will apply
with respect to (1) contracts acquired by an estate of a decedent by reason of
the death of the decedent, (2) contracts issued in connection with certain
qualified plans, (3) contracts purchased by employers upon the termination of
certain qualified plans, (4) certain contracts used in connection with
structured settlement agreements, and (5) contracts purchased with a single
purchase payment when the annuity starting date is no later than a year from
purchase of the contract and substantially equal periodic payments are made,
not less frequently than annually, during the annuity period.
In addition to the foregoing, if the contract's annuity commencement date
occurs at a time when the annuitant is at an advanced age, such as over age
85, it is possible that the owner will be taxable currently on the annual
increase in the accumulation value. The remainder of this discussion assumes
that the contract will be treated as an annuity contract for Federal income
tax purposes.
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
2. WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE
Code Section 72 provides that the proceeds of a total surrender of a contract
prior to the annuity commencement date will be taxed to the extent that the
amount distributed exceeds the "investment in the contract" and that any
conventional or systematic partial withdrawal from a contract prior to the
annuity commencement date will be treated as taxable income to the extent the
amount held under the contract immediately before the withdrawal occurs
exceeds the "investment in the contract." The "investment in the contract" is
defined in the Code as that portion, if any, of premium payments by or on
behalf of an individual under a contract which was not excluded from the
individual's gross income at the time of such payment less any amounts
previously received under the contract which were excluded from the
individual's gross income at the time of their receipt. The taxable portion of
any distribution received prior to the annuity commencement date will be
subject to tax at ordinary income tax rates. For purposes of this rule, a
pledge or assignment of a contract is treated as a payment received on account
of a partial withdrawal of a contract.
In the case of systematic partial withdrawals, the amount of each withdrawal
should be considered as a distribution and taxed in the same manner as a
partial withdrawal prior to the annuity commencement date, as described above.
However, there is some uncertainty regarding the tax treatment of systematic
partial withdrawals, and it is possible that additional amounts may be
includible in income.
In addition, the contract provides a death benefit that in certain
circumstances may exceed the greater of the premium payments and the
accumulation value. As described elsewhere in this prospectus, Golden American
imposes certain charges with respect to, among other things, the death
benefit. It is possible that some portion of those charges could be treated
for Federal tax purposes as a partial withdrawal from the contract.
3. ANNUITY PAYMENTS AND WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE
Proceeds of a total surrender of the contract after the annuity commencement
date are taxable to the extent the proceeds exceed the investment in the
contract. In addition, proceeds of a partial withdrawal after the annuity
commencement date are fully taxable. Also, a portion of each annuity payment
under the contract is taxable if the value of the contract exceeds the
investment in the contract. The taxable portion of an annuity payment will be
subject to tax at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment is determined
by using a formula known as the "exclusion ratio," which establishes the ratio
that the investment in the contract (allocated to the fixed annuity option)
bears to the total expected amount of fixed annuity payments for the term of
the contract. That ratio is then applied to each payment to determine the
non-taxable portion of the payment. The remaining portion of each payment is
taxed at ordinary income rates.
For variable annuity payments, in general, the taxable portion is determined
by a formula which establishes a specific dollar amount of each payment that
is not taxed. The dollar amount is determined by dividing the investment in
the contract (allocated to the variable annuity option) by the total number of
expected periodic payments. The remaining portion of each payment is taxed at
ordinary income rates.
Once the excludable portion of annuity payments to date equals the investment
in the contract, the balance of the annuity payments will be fully taxable.
If amounts have become payable under the contract (such as where the owner
elects to surrender an amount) and if the distribution-at-death rules do not
apply to such amount, the amount will be treated as a partial or full
surrender for Federal income tax purposes if applied under an annuity option
later than 60 days after the time when the amount became payable. Thus, if
such an amount is applied under an annuity option after the 60 day period, it
will be treated as a partial or full surrender, even if the full amount has
not been distributed from the contract.
4. WITHHOLDING AND REPORTING REQUIREMENTS
Golden American will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a contract unless the taxpayer
notifies Golden American at or before the time of the distribution that he or
she elects not to have any amounts withheld. The withholding rates applicable
to the taxable portion of periodic annuity payments typically are the same as
the withholding rates generally
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
applicable to payments of wages. In addition, the withholding rate applicable
to the taxable portion of non-periodic payments (including surrenders prior to
the annuity commencement date) is 10%. Golden American also has tax reporting
obligations with respect to distributions from the contract.
5. PENALTY TAX ON CERTAIN WITHDRAWALS
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the owner, or where the owner
is not an individual, the death of the "primary annuitant" (i.e., the
individual the events in whose life are of primary importance in affecting the
timing or amount of the payout under the contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code
Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments made at least annually for the life (or life expectancy) of
the taxpayer, or the joint lives (or joint life expectancies) of the taxpayer
and his beneficiary; (iv) from a qualified plan; (v) allocable to investment
in the contract before August 14, 1982; (vi) under a qualified funding asset
(as defined in Code Section 130(d)); (vii) under an immediate annuity
contract, or (viii) which are purchased by an employer on termination of
certain types of qualified plans and which are held by the employer until the
employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments is subsequently
modified (other than by reason of death or disability), the tax for the year
when the modification occurs will be increased by an amount (as determined by
regulations) equal to the tax that would have been imposed but for item (iii)
above, plus interest for the deferral period, if the modification takes place
(a) before the close of the period which is within five years of the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
In the case of systematic withdrawals, it is unclear whether such withdrawals
will qualify for exception (iii) above.
TAXATION OF INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408 permits individuals or their employers to contribute to an
individual retirement program known as an Individual Retirement Annuity. If the
contract is used for this purpose, the owner must be the annuitant. In addition,
distributions from certain other types of qualified retirement plans may be
placed into an Individual Retirement Annuity on a tax deferred basis.
Individual Retirement Annuities are subject to limitations on the amount which
may be contributed and the time when distributions may commence. Tax penalties
may apply to contributions in excess of specified limits, loans or assignments,
distributions in excess of a specified amount annually or that do not meet
specified requirements, and in certain other circumstances.
Under the Internal Revenue Code, distributions from qualified retirement plans,
including Individual Retirement Annuities, Simplified Employee Pensions, and Tax
Sheltered Annuities, generally must begin not later than April 1st of the
calendar year following the calendar year in which an owner attains age 70 1/2.
If the required minimum distribution is not withdrawn, there may be a penalty
tax in an amount equal to 50% of the difference between the amount required to
be withdrawn and the amount actually withdrawn. See the Statement of Additional
Information for a discussion of the various special rules concerning the minimum
distribution requirements.
If all premium payments made to an Individual Retirement Annuity were
deductible, all amounts distributed from the contract are included in the
recipient's income when distributed. However, if nondeductible premium payments
were made to the Individual Retirement Annuity (within the limits allowed by the
tax law), a portion of each distribution from the contract typically is included
in income when it is distributed. In such a case, any amount distributed as an
annuity payment or in a lump sum upon death or a full surrender is taxed as
described above in connection with such a distribution from a non-qualified
contract, treating the investment in the contract as the sum of the
non-deductible premium payments at the end of the taxable year in which the
distribution commences or is made (less any amounts previously distributed that
were excluded from income). Also in such a case, any amount distributed upon a
partial surrender is partially includible in income. The includible amount is
the excess of the distribution over the
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
exclusion amount, which in turn equals the distribution multiplied by the ratio
of the investment in the contract to the amount held under the contract. The
amount includible in income may be subject to a 10% penalty tax if the recipient
is under age 59 1/2.
Individual Retirement Annuities generally may not provide life insurance
coverage, but they may provide a death benefit that equals the greater of the
premiums paid and the contract value. The contract provides a death benefit that
in certain circumstances may exceed the greater of the premium payments and the
accumulation value. It is possible that the death benefit could be viewed as
violating the prohibition on investment in life insurance contracts with the
result that the contract would not be viewed as satisfying the requirements of
an IRA.
Subject to certain direct rollover and mandatory withholding requirements
(discussed below), amounts generally may be "rolled over" from a qualified
retirement plan to an Individual Retirement Annuity (or from an Individual
Retirement Annuity or individual retirement account to an Individual Retirement
Annuity) without incurring tax if certain conditions are met. Only certain types
of distributions from qualified retirement plans or Individual Retirement
Annuities may be rolled over.
In the case of annuity contracts used in connection with a pension,
profit-sharing, or annuity plan qualified under Code Section 401(a) or
Section 403(a), or in the case of a Code Section 403(b) "Tax Sheltered Annuity,"
any "eligible rollover distribution" from the contract will be subject to direct
rollover and mandatory withholding requirements. An eligible rollover
distribution generally is any taxable distribution from a qualified pension plan
under Code Section 401(a), qualified annuity plan under Code Section 403(a), or
Code Section 403(b) Tax Sheltered Annuity or custodial account, excluding
certain amounts (such as minimum distributions required under Code
Section 401(a)(9) and distributions which are part of a "series of substantially
equal periodic payments" made for life or a specified period of 10 years or
more. Under these requirements, withholding at a rate of 20 percent will be
imposed on any eligible rollover distribution. In addition, the participant in
these qualified retirement plans cannot elect out of withholding with respect to
an eligible rollover distribution. However, this 20 percent withholding will not
apply if, instead of receiving the eligible rollover distribution, the
participant elects to have amounts directly transferred to certain qualified
retirement plans (such as to this contract when issued as an Individual
Retirement Annuity).
It is important that you consult your tax advisor before purchasing an
Individual Retirement Annuity.
ADDITIONAL CONSIDERATIONS
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract for Federal tax purposes, a
non-qualified contract must provide the following two distribution rules: (a) if
any holder dies on or after the annuity commencement date, and before the entire
interest in the contract has been distributed, the remainder of his or her
interest will be distributed at least as quickly as under the method of
distribution in effect on the holder's death; and (b) if any holder dies before
the annuity commencement date, the entire interest in the contract must
generally be distributed within five years after the date of death, or to the
extent such interest is payable to a designated beneficiary, such interest must
be distributed over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, so long as the
distributions begin within one year after the date of death. If the beneficiary
is the surviving spouse of the holder, the contract (together with the deferral
of tax on the accrued and future income thereunder) may be continued in the name
of the spouse. Before the annuity commencement date, the holder will generally
be the owner, and after the annuity commencement date, the holder generally may
be the annuitant and the owner.
Where the holder is not an individual, solely for the purpose of the
distribution at death rules, the primary annuitant is considered the holder. The
primary annuitant is the individual the events in the life of whom are of
primary importance in affecting the timing or amount of payment under a
contract. Finally, in the case of joint holders, the distribution will be
required at the death of the first of the holders to die.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a non-qualified contract because of the death of
an owner or annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (a) if distributed in a lump sum, they are taxed in
the
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ADDITIONAL CONSIDERATIONS (CONTINUED)
same manner as a full surrender of the contract, as described above, or (b) if
distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
TRANSFER OF ANNUITY CONTRACTS
Transfers of non-qualified annuity contracts for less than the full and adequate
consideration will trigger tax on the gain in the contract, at the time of such
transfer, with the transferee getting a step-up in basis for the amount included
in the owner's income. Such a transfer could result on the annuity commencement
date if the annuitant is not the owner or the owner's spouse. This provision
does not apply to transfers between spouses or incident to a divorce.
SECTION 1035 EXCHANGES
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of an annuity contract for another. If the exchanged contract was
issued prior to August 14, 1982, the tax rules which formerly provided that the
surrender was taxable only to the extent the amount received exceeds the owner's
investment in the contract, will continue to apply to the new contract. In
contrast, contracts issued on or after January 19, 1985, in a Code Section 1035
exchange are treated as new contracts for purposes of the penalty tax and
distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective owners wishing to take advantage of Code
Section 1035 should consult their tax advisors.
ASSIGNMENTS
A transfer of ownership, a collateral assignment, or the designation of an
annuitant or other beneficiary who is not also the owner may result in tax
consequences to the owner, annuitant or beneficiary that are not discussed
herein. An owner contemplating such a transfer or assignment of a contract
should contact a competent tax advisor with respect to the potential tax effects
of such a transaction.
MULTIPLE CONTRACTS RULE
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includible in gross
income, all non-qualified deferred annuity contracts issued by the same (or
affiliate) insurer to the same owner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's annuity starting date (as defined in the tax
law), such as a partial surrender, dividend, or loan, will be taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined income in
all such contracts. The Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. In addition, there may be other
situations in which the Treasury Department may conclude that it would be
appropriate to aggregate two or more contracts purchased by the same owner.
Accordingly, an owner should consult a competent tax advisor before purchasing
more than one annuity contract.
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PART II
THE MANAGED GLOBAL
ACCOUNT OF ACCOUNT D
INTRODUCTION PART II GIVES FURTHER BACKGROUND INFORMATION ON ACCOUNT D AND
THE GLOBAL ACCOUNT, INCLUDING ITS INVESTMENT POLICIES AND ACTIVITIES.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
THE GLOBAL ACCOUNT
The Global Account is a non-diversified investment company which invests
directly in securities. There can be no assurance that the Global Account will
meet its investment objective. Account D may also offer other securities which
are not available through the purchase of the contract offered by this
prospectus. DSI serves as the Manager of Account D and Warburg, Pincus serves as
the Portfolio Manager of the Global Account.
INVESTMENT OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT
The Global Account's investment objective is to seek high total investment
return consistent with a prudent regard for capital preservation. In seeking
this objective, the Global Account employs an asset allocation strategy
involving shifts among a wide range of investments and market sectors throughout
the world. The Global Account may invest in the following classes of securities:
equity securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities, and warrants; debt securities of
domestic and foreign issuers, including bonds, debentures, asset-backed
securities, and notes; and money market instruments of domestic and foreign
issuers. The Global Account may also use various investment strategies and
techniques in seeking its investment objective including entering into forward
currency contracts; purchasing and writing put and call options on securities,
securities indexes, and currencies; purchasing and selling futures contracts
including interest rate futures contracts, stock index futures contracts,
futures contracts based upon securities, which may be domestic or foreign and
corporate or governmental, foreign exchange futures contracts, and other
financial futures contracts; purchasing and writing put and call options on
financial futures contracts; engaging in short sales of securities; and entering
into repurchase agreements and reverse repurchase agreements.
The total investment return that the Global Account seeks may consist (i) of
capital appreciation from several possible sources, including appreciation in
the value of securities held by the Global Account, the sale of securities whose
market value has changed, the use of futures and options, and the use of forward
currency contracts; (ii) of interest from underlying securities; and (iii) of
income received from the writing of options. Changes in the value of securities
denominated in foreign currencies may be attributable in whole or in part to
changes in the value of the underlying currency relative to the U.S. dollar.
In seeking the Global Account's investment objective, the Portfolio Manager will
use an opportunistic approach to allocating the Global Account's assets through
varying economic and financial conditions. The Portfolio Manager believes that a
successful investment approach in the current global environment must be based
upon careful analysis of the global economic and geopolitical environment with a
view to capitalizing upon sector and market opportunities and to quickly
adapting to changing circumstances. Thus, the Portfolio Manager will allocate
the Global Account's assets among securities and currencies based upon the
Portfolio Manager's assessment of the most favorable markets, currencies, and
issuers. In this regard, the percentage of the Global Account's assets invested
in a particular country or denominated in a particular currency will vary in
accordance with the Portfolio Manager's assessment of the appreciation potential
of such assets and the relationship of the country's currency to the U.S.
dollar.
The Portfolio Manager may allocate the Global Account's assets among the various
types of securities and other assets and among issuers located in various
countries and regions as the Portfolio Manager deems appropriate, except that
the Global Account's assets normally will be invested in securities of issuers
domiciled or primarily traded in at least three different countries, which may
include the United States. (Certain additional foreign diversification
requirements apply as described below.) The Portfolio Manager is free to
allocate the Global Account's assets such that, at any time, the Global Account
may be primarily invested in equity securities or, alternatively, the Global
Account may have little or no assets in equity securities. Similarly, at any
time, the Global Account may be primarily invested in securities of issuers
domiciled or primarily traded in one region, such as the United States, Europe,
or the Pacific Basin, or the Global Account may have little or no assets
committed to that region.
In considering equity securities, the Portfolio Manager will emphasize large,
well-capitalized companies with strong balance sheets. The Portfolio Manager may
also consider other factors in selecting equity securities, including
price-earnings ratios, cash flows, and the relationship of an issuer's book
value to its market value.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
In selecting debt instruments for the Global Account, the Portfolio Manager
emphasizes credit quality. The Global Account will invest only in the following:
(1) fixed-income instruments issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities ("U.S. Government Securities"); (2) obligations
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities, or by supranational
entities ("foreign government securities"), which, at the time of investment,
are rated A or better by Standard & Poor's Corporation ("S&P") or A or better by
Moody's Investors Services, Inc. ("Moody's") or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; and (3) debt
securities of domestic or foreign issuers which, at the time of investment, are
rated A or better by S&P or A or better by Moody's or, if not rated by S&P or
Moody's, determined by the Portfolio Manager to be of equivalent quality. In the
event that a debt security held by the Global Account is downgraded to a rating
that would render the security ineligible for purchase by the Global Account,
the Global Account may nonetheless retain the security.
Debt securities purchased by the Global Account may be of any maturity. It is
anticipated that the weighted average maturity of the debt securities in the
portfolio (excluding money market instruments) generally will be between 5 and
15 years, but may be shorter or longer at the discretion of the Portfolio
Manager.
The Global Account invests only in high-quality money market instruments. These
include the following: (1) short-term U.S. Government securities; (2) short-term
foreign government securities which, at the time of investment, are rated AA or
better by S&P or Aa or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; (3)
certificates of deposit, time deposits, bankers' acceptances, and short-term
obligations of banks and other depository institutions, both U.S. and foreign,
that have total assets of at least $10 billion (U.S.) and are determined by the
Portfolio Manager to be of high quality; and (4) commercial paper and other
short-term corporate obligations which, at the time of investment, are rated A-2
or better by S&P or P-2 or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality.
The Global Account may employ various investment strategies involving
currencies, including entering into forward currency contracts, foreign exchange
futures contracts, and options on currencies. (See "Securities and Investment
Techniques," below.) These strategies may be employed for purposes of exposing
the Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another. These strategies may
also be employed as hedging techniques to help protect against declines in the
U.S. dollar (or other currency) value of the Global Account's assets that might
result from adverse changes in currency exchange rates. The Global Account may
engage in forward currency transactions in anticipation of or to protect itself
against fluctuations in currency exchange rates. The Global Account may purchase
put and call options on foreign currencies as a hedge against changes in the
value of the U.S. dollar (or another currency) in relation to a foreign currency
in which securities of the Global Account may be denominated. Hedging against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such hedging transactions
may reduce or preclude the opportunity for gain if the value of the hedged
currency should change relative to the U.S. dollar.
NON-DIVERSIFIED
The Global Account is classified as a "non-diversified" investment company under
the 1940 Act, as amended, which means that the Global Account is not limited by
the 1940 Act in the amount of its assets that it may invest in the securities of
a single issuer. However, the Global Account will meet the diversification
requirements of Code Section 817(h) and the Treasury Department Regulations
issued thereunder. Under applicable state law requirements, the Global Account
may not acquire the securities of any issuer if, as a result of such investment,
more than 10% of the Global Account's total assets would be invested in the
securities of any one issuer, except that this restriction shall not apply to
U.S. Government securities or foreign government securities, and the Global
Account will not invest in a security if, as a result of such investment, it
would hold more than 10% of the outstanding voting securities of any one issuer.
Nonetheless, because the Global Account, as a non-diversified investment company
under the 1940 Act, may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Global Account may, under
certain circumstances,
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
present greater risk to an investor than an investment in a diversified company.
This risk may include greater exposure to the risk of poor earnings or default
of one issuer than would be the case for a more diversified fund.
The Global Account is also subject to the following guidelines for
diversification of foreign security investments. If the Global Account has less
then 20% of its assets in foreign issuers, then all of such investment may be in
issuers domiciled or primarily traded in one country. If the Global Account has
at least 20% but less than 40% of its assets in foreign issuers, then such
investment must be allocated to issuers domiciled or primarily traded in at
least two different countries. Similarly, if the Global Account has at least 40%
but less than 60% of its assets in foreign issuers, such investment must be
allocated in at least three different countries. Foreign investments must be
allocated to at least four different countries if at least 60% of the Global
Account's assets is in foreign issuers, and to at least five different countries
if at least 80% of its assets is in foreign issuers.
The Global Account may have no more than 20% of its net assets invested in
securities of issuers domiciled or primarily traded in any one country, except
that the Global Account may have an additional 15% of its net assets invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Germany, Japan and The United Kingdom. The
Global Account's investments in U.S. issuers are not subject to these foreign
country diversification guidelines.
RISK FACTORS
The Global Account's investment policies and certain of the investment
techniques in which the Global Account may engage involve certain risks. For
instance, the Global Account will invest in non-U.S. dollar-denominated
securities of foreign issuers. Investing in such securities involves different
risk considerations than investing in securities of U.S. issuers, including the
risks of investment in foreign countries, foreign exchange rate fluctuations,
exchange controls, and others. The Global Account may also engage in
transactions in financial futures contracts, both domestic and foreign, and in
various put and call options. The Global Account may also engage in foreign
currency transactions and options on foreign currencies. Risks associated with
these techniques are described more fully under "Securities and Investment
Techniques."
In general, because investment in foreign issuers will usually involve
currencies of foreign countries, and because the Global Account may be exposed
to currency risk independent of its securities positions, the value of the
assets of the Global Account as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. To the extent that the Global
Account's assets consist of investments denominated in a particular currency,
the Global Account's exposure to adverse developments affecting the value of
that currency will increase. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investment in different countries, actual or perceived changes in
interest rates, and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention by U.S. or foreign governments or central banks in the availability
of money or interest rates, by the failure to intervene, by currency controls,
or by political and economic developments in the U.S. or abroad. The market in
forward foreign currency exchange contracts and other privately negotiated
currency instruments offers less protection against defaults by the other party
to such instruments than is available for currency instruments traded on an
exchange. To the extent that a substantial portion of the Global Account's total
assets, adjusted to reflect the Global Account's net position after giving
effect to currency transactions, is denominated in the currencies of foreign
countries, the Global Account will be more susceptible to the risk of adverse
economic and political developments within those countries.
In addition, because of the Global Account's flexible investment policy,
portfolio turnover may be greater than for a portfolio that does not allocate
assets among various types of securities and among various countries and
regions. A higher rate of portfolio turnover involves correspondingly greater
brokerage expenses which must be borne by the Global Account (and indirectly by
investors allocating accumulation value to the Global Account), and may under
certain circumstances make it more difficult for the Global Account to qualify
as a regulated investment company under the Code.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
There can be no assurance that the Global Account will achieve its investment
objective. Investors should be aware that the value of the Global Account's
assets will fluctuate and a contract owner's accumulation value will increase
and decrease in value as the market value of the securities and other assets in
which the Global Account invests fluctuates.
The Global Account is intended for long-term investors who can accept the risks
involved in investments in foreign securities. The Global Account does not
purport to offer a complete investment program to which a prudent investor would
commit all of his or her investment capital, nor is it intended for investors
whose principal objective is income.
BOARD OF GOVERNORS OF ACCOUNT D
The business and affairs of Account D are managed under the direction of a Board
of Governors, which currently consists of four members. The Board of Governors
has responsibility for the investment management-related operations of Account D
and matters arising under the 1940 Act. The Board of Governors does not have
responsibility for the payment of obligations under the contract and
administration of the contract. These matters are Golden American's
responsibility. The business and affairs of Account D are governed under a set
of rules adopted by the Board of Governors called "Rules and Regulations of
Separate Account D."
THE MANAGER
DSI serves as Manager to Account D pursuant to a Management Agreement with
Account D. The Manager is a corporation organized under the laws of the State of
New York. Its address is 280 Park Avenue, New York, New York 10017. DSI is a
wholly owned subsidiary of BT Variable, Inc., which is an indirect subsidiary of
Bankers Trust Company. DSI's business activities include those of a distributor
and underwriter of variable insurance products, broker-dealer and investment
manager. DSI is registered with the SEC as a broker-dealer and investment
adviser and is a member of the NASD. It is also registered as a broker-dealer
and/or investment adviser in various states.
U.S. banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System (the
"Board"), prohibit a bank holding company registered under the Bank Holding
Company Act of 1956, or any affiliate thereof, from sponsoring, organizing,
controlling, or distributing the shares of a registered open-end investment
company, which may for these purposes include the Global Account, continuously
engaged in the issuance of its securities and, except as otherwise provided by
order of the Board, prohibit banks generally from issuing, underwriting,
selling, or distributing securities. The same laws and regulations generally
permit a bank or bank affiliate to act as investment adviser, transfer, dividend
disbursing, and shareholder servicing agent and custodian to an investment
company and to purchase such shares as agent for and upon the order of a
customer.
Golden American and DSI perform the activities described above in this
prospectus and in Part I, under the caption "Selling the Contracts." As
discussed in Part I, under the caption "Golden American," while Bankers Trust
has no immediate intent to divest its ownership of the stock of Golden American
and DSI, such a divestiture may occur in the future. In addition, judicial or
administrative decisions or interpretations, as well as changes in either U.S.
Federal or state banking statutes or regulations, could prevent Golden American
from performing activities with respect to Account D, prevent DSI from
performing the activities described in this prospectus, or prevent Bankers Trust
Company from continuing to own the stock of Golden American or DSI. If any such
event were to occur, changes in the operation of Account D and the Global
Account might occur. It is not expected, however, that Account D or the Global
Account would suffer adverse financial consequences as a result of such
occurrence.
As discussed in Part I, DSI also currently provides management and
administrative services to the Trust. DSI's officers have extensive experience
in the development and distribution of investment products, specifically,
variable life insurance policies, variable annuity contracts, and management
investment companies that serve as investment media for such policies and
contracts.
Under the Management Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Governors, for administering all operations of the
Global Account and for monitoring and evaluating the management of the assets of
the Global Account by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objective and
policies of the Global Account. The Management Agreement
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
may be terminated without penalty by the vote of the Board of Governors or the
contract owners of the Global Account, or by the Manager, on 60 days' written
notice by the Board or the Manager and will terminate automatically if assigned
as that term is described in the 1940 Act.
As Manager, DSI provides the overall business management and administrative
services necessary for the Global Account's operation. The Manager furnishes or
procures on behalf of the Global Account the services and information necessary
to the proper conduct of the Global Account's business. The Manager also acts as
liaison among the various service providers to the Global Account, including the
custodian, portfolio accounting personnel, Portfolio Manager, counsel, and
auditors. The Manager is also responsible for ensuring that the Global Account
operates in compliance with applicable legal requirements and for monitoring the
Portfolio Manager for compliance with requirements under applicable law and with
the investment policies and restrictions of the Global Account.
Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of the Global Account's assets and the purchase and sale of securities for the
Global Account in the event that at any time a portfolio manager is not engaged
to manage the assets of the Global Account. In such event, the Management
Agreement provides that the Manager will be entitled to, in addition to its
usual compensation for services as Manager, as described below, a fee that would
otherwise be paid to the Portfolio Manager. For more information on the
Management Agreement, see the Statement of Additional Information.
For operating expenses under the Management Agreement see Part I, Charges and
Fees, Operating Expenses of Account D.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the period
through December 31, 1994 so that such expenses do not exceed on an annual
basis: 1.25% of the first $500 million of average daily net assets and 1.05% of
the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
THE PORTFOLIO MANAGER
Warburg, Pincus serves as the Portfolio Manager of the Global Account and in
that capacity provides investment advisory services for the Global Account,
including asset allocation and security selection. The Portfolio Manager's
address is 466 Lexington Avenue, New York, New York 10017. The Global Account,
the Manager, and the Portfolio Manager have entered into a Portfolio Management
Agreement under which the Portfolio Manager has full investment discretion and
makes all determinations with respect to the investment of the Global Account's
assets and the purchase and sale of securities and other investments. The
Portfolio Management Agreement may be terminated without penalty by the vote of
the Board of Governors or the contract owners of the Global Account, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any party to
the Portfolio Management Agreement and will terminate automatically if assigned
as that term is described in the 1940 Act.
Warburg, Pincus was incorporated in Delaware on December 15, 1970. Warburg,
Pincus is a professional investment counselling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. The Portfolio Manager is
registered with the SEC as an investment adviser.
The individual primarily in charge of portfolio management decisions for the
Global Account is Richard H. King. Mr. King has been a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("EMW") since 1989, before which time he was Chief
Investment Officer and a Director at Fiduciary Trust Company International.
Nicholas P.W. Horsley and Vincent McBride, both of whom are research analysts
and associate portfolio managers of another investment company advised by
Warburg, Pincus, also exercise significant portfolio management responsibility
with respect to the Global Account. Mr. Horsley has been with EMW since 1993,
before which time he was a director, portfolio manager and analyst at Barclays
deZoete Wedd in New York City. Mr. McBride has been with Warburg, Pincus since
1994, before which time he was an international equity analyst at Smith Barney
Shearson Inc. (1993-1994) and at General Electric Investment Corp. (1992-1993).
Prior to
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
this, Mr. McBride was a portfolio manager/analyst at United Jersey Bank
(1989-1992) and a portfolio/ manager at First Fidelity Bank (1987-1989).
As of November 30, 1994, Warburg, Pincus managed approximately $10 billion of
assets and served as investment adviser to thirteen investment companies which
had total assets of approximately $4.0 billion. The Portfolio Manager is a
wholly-owned subsidiary of Warburg, Pincus Counsellors G.P., a New York general
partnership. EMW controls Warburg, Pincus through its ownership of a class of
voting preferred stock of Warburg, Pincus. Warburg, Pincus Counsellors G.P. has
no business other than being a holding company of Warburg, Pincus and its
subsidiaries.
From the commencement of operations of the Global Account through June 30, 1994,
Zulauf Asset Management AG served as portfolio manager for the Global Account.
Warburg, Pincus assumed management of the Global Account on July 1, 1994.
For operating expenses under the Portfolio Management Agreement see Part I,
Charges and Fees, Operating Expenses of Account D.
CUSTODIAN
The Custodian for the Global Account is Bankers Trust Company. DSI provides
portfolio accounting services for the Global Account.
SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes different types of securities and investment
techniques that may be used by the Global Account, as well as the risks
associated with such securities and techniques. For more detailed information on
these securities and investment techniques, and for information on other
securities and investment techniques that may be used by the Global Account,
including U.S. Government securities, debt securities, foreign securities,
repurchase agreements, short sales, futures contracts, options on securities and
foreign currency transactions, see the discussion in the Statement of Additional
Information on "Securities and Investment Techniques."
FOREIGN SECURITIES
The Global Account may invest in equity and debt securities of foreign
issuers, in American Depository Receipts ("ADRs"), in foreign government
securities that are denominated in either U.S. dollars or foreign currencies,
and in foreign branches of commercial banks and foreign banks.
Investments in foreign securities offer potential benefits not available
solely in securities of domestic issuers by offering the opportunity to invest
in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies or business cycles different from those of
the United States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a manner parallel to
U.S. markets. Investments in securities of foreign issuers involve certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls, restrictions on investment or the flow of capital, or other foreign
governmental laws or restrictions. Since the Global Account may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of
investments as denominated in U.S. dollars. While the Global Account may
employ certain investment techniques to hedge its foreign currency exposure,
such techniques also entail certain risks. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social
instability, or diplomatic developments that could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. The Global Account might have greater difficulty taking appropriate
legal action with respect to foreign investments in non-U.S. courts than with
respect to domestic issuers in U.S. courts. In addition, transactions in
foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions. Clearance and settlement
procedures in
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
certain foreign countries have not developed at the same pace as the related
securities markets, making it difficult to execute desired transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Global Account are uninvested and no return is earned thereon.
The inability of the Global Account to make intended investments due to
settlement problems could cause it to miss attractive investment
opportunities. Inability to dispose of securities or other investments due to
settlement problems could result either in losses to the Global Account due to
subsequent declines in value of the investment, or possible liability to a
purchaser. Foreign investments also involve the risk of possible losses
through the holding of securities by custodians and securities depositories in
foreign countries.
Interest income and gains from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located.
SHORT SALES
The Global Account may make short sales of securities. A short sale is a
transaction in which the Global Account sells a security it does not own in
anticipation of a decline in market price. The Global Account may make short
sales to offset a potential decline in a long position or a group of long
positions, or if the Portfolio Manager believes that a decline in the price of
a particular security or group of securities is likely.
The Global Account's obligation to replace a security borrowed in connection
with the short sale will be secured by collateral deposited with the broker,
consisting of cash or U.S. Government securities or other securities
acceptable to the broker. In addition, with respect to any short sale, other
than short sales against the box, the Global Account will be required to
deposit collateral consisting of cash, cash items, or U.S. Government
securities in a segregated account with its custodian in an amount such that
the value of the sum of both collateral deposits (not including the proceeds
from the short sale) is at all times equal to at least 100% of the current
market value of the securities sold short. The deposits do not necessarily
limit the Global Account's potential loss on a short sale, which may exceed
the entire amount of the collateral.
If the price of the security sold short increases between the time of the
short sale and the time the Global Account replaces the borrowed security, the
Global Account will incur a loss, and if the price declines during this
period, the Global Account will realize a capital gain. Any realized gain will
be decreased, and any incurred loss increased, by the amount of transactional
costs and any premium, dividend, or interest which the Global Account may have
to pay in connection with such short sale. Account D may have to pay a premium
to borrow the securities sold short and must pay any dividends or interest
payable on the securities until they are replaced. Possible losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from
purchases of a security can equal only the total amount invested.
The Global Account may make a short sale only if, at the time the short sale
is made and after giving effect thereto, the market value of all securities
sold short is 25% or less of the value of its net assets. The Global Account
is not required to liquidate an existing short sale position solely because a
change in market values has caused this percentage limitation to be exceeded.
FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts.
The Global Account may engage in such futures transactions as an adjunct to
its securities activities. The Global Account's transactions in futures
transactions must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodity Futures Trading
Commission ("CFTC"), under which a fund engaging in futures transactions would
not be deemed a "commodity pool." Under these regulations, the Global Account
may enter into futures and options (1) for "bona fide hedging" purposes,
without regard to the percentage of assets committed to initial margin and
options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of the Global Account's portfolio, after taking
into account unrealized profits and unrealized gains on any such contracts
entered into. Transactions in futures contracts and options on futures
contracts may also be limited by the requirements of the Code for
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
qualification as a regulated investment company. Other requirements are
described in the Statement of Additional Information.
There are several risks associated with the use of futures and futures
options. While the Global Account's hedging transactions may protect the
Global Account against adverse movements in the general level of interest
rates, securities prices, currency exchange rates, or other economic
conditions, such transactions could also preclude the Global Account from the
opportunity to benefit from favorable movements in the level of interest
rates, securities prices, currency exchange rates, or other economic
conditions. There can be no guarantee that there will be correlation between
price movements in the hedging vehicle and in the portfolio securities or
currency being hedged. An incorrect correlation could result in a loss on both
the hedged securities in the Global Account and the hedging vehicle so that
the Global Account's return might have been better if hedging had not been
attempted. The loss that could be incurred by the Global Account in writing
options on futures is potentially unlimited.
There can be no assurance that a liquid market will exist at a time when the
Global Account seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Lack of a liquid market for any reason may prevent the
Global Account from liquidating an unfavorable position and the Global Account
would remain obligated to meet margin requirements and continue to incur
losses until the position is closed.
The Global Account will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system, or in
the case of futures options, for which an established over-the-counter market
exists.
The Global Account may engage in futures contracts and options on futures
contracts not only on U.S. domestic markets, but also on exchanges and other
markets outside of the United States. Foreign markets may offer advantages
such as trading in indices that are not currently traded in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading on foreign
commodity markets is not regulated by the CFTC and may be subject to greater
risk than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. Trading in
foreign futures or foreign options contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
futures exchanges. In addition, the Global Account could incur losses or lose
any profits that had been realized in trading by adverse changes in the
exchange rate of the currency in which the transaction is denominated.
Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and boards of trade and those that are not.
OPTIONS ON SECURITIES AND
SECURITIES INDICES
The Global Account may purchase and write put and call options on securities
and on securities indices. The Global Account will purchase and write only
options that are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
The ability to terminate over-the-counter options is more limited than
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
with exchange-traded options, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Global Account
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.
The Global Account may write a call or put option only if the option is
"covered" by the Global Account holding a position in the underlying
securities or by other means that would permit immediate satisfaction of the
Global Account's obligation as writer of the option, typically deposit with
the Global Account's custodian of cash, U.S. Government securities, or other
high grade liquid debt securities with a value at least equal to the exercise
price of the put option, or the price at which a security underlying a call
option can be acquired.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Global Account is not sold
when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Global Account will lose its entire investment in the option. Also,
where a put or call option on a particular security is purchased to hedge
against price movements in a related security, the price of the put or call
option may move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out an option position. Furthermore, if trading
restrictions or a suspension is imposed on the options markets, the Global
Account may be unable to close out a position. If the Global Account cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though
it might otherwise be advantageous to do so. The Global Account pays brokerage
commissions or spreads in connection with its options transactions. The
writing of options could significantly increase portfolio turnover rate.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward
currency contract is an obligation to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Global Account may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract. The
Global Account may engage in forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange rates, and
entering into a forward currency contract will expose the Global Account to
the risk of adverse changes in the exchange rate of the currency that is
subject to the contract. The Global Account may also enter into a forward
currency contract for non-hedging purposes. Forward currency contracts are
further described in the Statement of Additional Information.
If the Global Account engages in an offsetting transaction to terminate its
contractual obligation under a forward currency contract, the Global Account
will incur a gain or a loss to the extent that there has been movement in
forward contract prices. For more information on closing a forward currency
position, including information on associated risks, see the Statement of
Additional Information.
In hedging transactions, the precise matching of forward currency contracts
and the value of the securities involved will not generally be possible since
the future value of the securities in foreign currencies will change as a
consequence of market movements in the value of those securities
50
<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
between the date the forward contract is entered into and the date it matures.
Projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
While forward foreign currency contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when the Global Account seeks
to enter into or close out a forward currency position, in which case the
Global Account might not be able to effect a closing purchase transaction at
any particular time. In addition, the Global Account entering a forward
foreign currency contract incurs the risk of default by the counter party to
the transaction. Forward currency contracts offer less protection against
defaults than is available when trading in currencies on an exchange. Because
a forward currency contract is not guaranteed by an exchange or clearinghouse,
a default on the contract would deprive the Global Account of unrealized
profits or force the Global Account to cover its commitments for purchase or
resale, if any, at the current market price.
Although the Global Account values its assets daily in terms of U.S. dollars,
it does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Global Account may do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Global Account at one rate, while offering a
lesser rate of exchange should the Global Account desire to resell that
currency to the dealer.
The Global Account will place cash or high grade liquid debt securities into a
segregated account in an amount equal to the value of the Global Account's
total assets committed to the consummation of forward currency contracts
requiring the Global Account to purchase foreign currencies or forward
contracts entered into for non-hedging purposes. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Global Account's commitments with
respect to such contracts. The segregated account will be marked-to-market on
a daily basis. Although the contracts are not presently regulated by the CFTC,
the CFTC may in the future assert authority to regulate these contracts. In
such event, the Global Account's ability to utilize forward currency contracts
may be restricted.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may purchase and write call and put options on foreign
currencies. Such options will expose the Global Account to the risk of adverse
changes in the exchange rate of the currency that is subject to the option.
The Global Account may employ options on foreign currencies to increase or
shift exposure to a currency and as a hedge against changes in the value of
the U.S. dollar (or another currency) in relation to a foreign currency in
which portfolio securities of the Global Account may be denominated. Hedging
against a change in the value of a foreign currency with an option on the
foreign currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar. The Global Account may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits that may limit the ability of the Global Account to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. There is no assurance that a liquid
secondary market will exist for any particular option, or at any particular
time. In the event no liquid secondary market exists, it might not be possible
to effect closing transactions in particular currency options. If the Global
Account cannot close out an option that it holds, it would have to
51
<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
exercise its option in order to realize any profit and would incur
transactional costs on the sale of the underlying assets.
BORROWING
The Global Account may borrow up to 10% of the value of its net assets. For
temporary purposes, such as to facilitate redemptions, the Global Account may
increase its borrowings up to 25% of its net assets. Reverse repurchase
agreements, short sales of securities, and sales of securities against the box
will be included as borrowing subject to the borrowing limitations described
above, except that the Global Account is permitted to engage in short sales of
securities with respect to an additional 15% of the Global Account's net
assets in excess of the limits otherwise applicable to borrowing. Securities
purchased on a when-issued or delayed delivery basis will not be subject to
the Global Account's borrowing limitations to the extent that the Global
Account establishes and maintains liquid assets in a segregated account with
the Global Account's custodian equal to the Global Account's obligations under
the when-issued or delayed delivery arrangement.
INVESTMENT RESTRICTIONS
The Global Account is subject to investment restrictions that are described in
the Statement of Additional Information. Those investment restrictions so
designated and the investment objective are "fundamental policies" of the Global
Account, which means that they may not be changed without a majority vote of the
contract owners with accumulation value allocated to the Global Account. Except
for those restrictions specifically identified as fundamental and the Global
Account's investment objective, all other investment policies and practices
described in this prospectus and Statement of Additional Information are not
fundamental, meaning that the Board of Governors may change them without
contract owner approval.
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreement, the Portfolio Manager places
orders for the purchase and sale of portfolio investments for the Global Account
with brokers or dealers selected by the Portfolio Manager in its discretion. In
executing transactions, the Portfolio Manager will attempt to obtain the best
execution. In transactions on stock exchanges in the United States, payment of
brokerage commissions are negotiated. In effecting purchases and sales of
portfolio securities in transactions on U.S. stock exchanges, the Global Account
may pay higher commission rates than the lowest available when the Portfolio
Manager believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Portfolio Manager may be unable to
negotiate commission rates for these transactions. In the case of securities
traded on the over-the-counter markets, there is generally no stated commission,
but the price includes an undisclosed commission or markup.
Some securities considered for investment by the Global Account may also be
appropriate for other clients served by the Portfolio Manager and/or its
affiliates. If a purchase or sale of securities consistent with the investment
policies of the Global Account and one or more of these clients served by the
Portfolio Manager and/or its affiliates is considered at or about the same time,
transactions in such securities will be allocated among the Global Account and
clients in a manner deemed fair and reasonable by the Portfolio Manager and/or
its affiliates. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Portfolio Manager, and
the results of such allocations, are subject to periodic review by the Manager
and Account D's Board of Governors.
The Portfolio Manager may place orders for the purchase of portfolio securities
with an affiliated broker-dealer where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and an affiliate of the Portfolio Manager.
PORTFOLIO TURNOVER
It is anticipated that the Global Account's annual rate of portfolio turnover
normally will not exceed 100%. Portfolio turnover for the Global Account will
vary from year to year, and depending on market conditions, the portfolio
turnover rate could be greater in periods of unusual market movement. A higher
turnover rate would result in heavier brokerage commissions or other
transactional expenses which must be borne, directly or indirectly, by the
Global Account and ultimately by the Global Account's contract owners. For
information on the calculation of the portfolio turnover rate, see the
Statement of Additional Information.
52
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
INTRODUCTION......................................................................................................... 1
PART I
Description of Golden American Life Insurance Company................................................................ 1
Safekeeping of Assets................................................................................................ 1
The Administrator.................................................................................................... 1
Independent Auditors................................................................................................. 1
Reinsurance.......................................................................................................... 1
Distribution of Contracts............................................................................................ 2
Performance Information.............................................................................................. 2
IRA Partial Withdrawal Option........................................................................................ 6
Other Information.................................................................................................... 6
PART II
Securities and Investment Techniques................................................................................. 7
U.S. Government Securities......................................................................................... 7
Debt Securities.................................................................................................... 7
Short Sales Against the Box........................................................................................ 8
Futures Contracts and Options on Futures Contracts................................................................. 8
Options on Securities.............................................................................................. 9
Options of Securities Indexes...................................................................................... 10
Foreign Currency Transactions...................................................................................... 10
Options on Foreign Currencies...................................................................................... 11
Repurchase Agreements.............................................................................................. 12
Banking Industry and Savings Industry Obligations.................................................................. 12
Commercial Paper................................................................................................... 13
When Issued or Delayed Delivery Securities......................................................................... 13
Investment Restrictions.............................................................................................. 14
Management of Separate Account D..................................................................................... 16
The Manager.......................................................................................................... 17
Portfolio Manager.................................................................................................... 18
Custodian and Portfolio Accounting Agent............................................................................. 18
Portfolio Transactions and Brokerage................................................................................. 18
Purchase and Pricing of the Global Account........................................................................... 20
Financial Statements of Separate Account B........................................................................... 21
Financial Statements of The Managed Global Account of Separate Account D............................................. 21
Financial Statements of Golden American Life Insurance Company....................................................... 21
Appendix -- Description of Bond Ratings
</TABLE>
53
<PAGE>
(This page has been left blank intentionally.)
54
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO OUR CUSTOMER SERVICE CENTER, THE ADDRESS IS SHOWN ON THE COVER.
...............................................................................
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B AND THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.
PLEASE PRINT OR TYPE
----------------------------------------------------------------
NAME
----------------------------------------------------------------
SOCIAL SECURITY NUMBER
----------------------------------------------------------------
STREET ADDRESS
----------------------------------------------------------------
CITY, STATE, ZIP
(DVA 5/95 6%)
...............................................................................
55
<PAGE>
APPENDIX
GOLDENSELECT SERVICE FORMS
- - Deferred Variable Annuity Application -- Use in all states except MN
- - Contact the Sales Desk for the Special Form to be used in MN
(Golden Select DVA is currently Not Available in ME and NY)
- - Absolute Assignment to Effect Section 1035(a) Exchange
- - Request to Effect IRA Or Other Qualified Account Transfer
- - Certificate of Deposit Transfer Form
Submit all forms (with all other necessary documents)
to the Customer Service Center
WITHHOLDING ELECTION INSTRUCTIONS (BEFORE THE WITHHOLDING ELECTION SECTION ON
THE APPLICATION IS COMPLETED, PLEASE HAVE THE OWNER READ THE FOLLOWING
CAREFULLY)
Your withdrawals under annuity contracts may be subject to Federal income tax
withholding unless you elect not to have withholding apply. You may elect not to
have withholding apply by checking the box by line A and signing in the
signature section. Check the box by line B to make an election to have
withholding apply. If you want additional withholding made, check the box by
line C.
Withholding will only apply to the portion of your withdrawal that is subject to
Federal income tax and it will be like wage withholding. Thus, there will be no
withholding on the portion of each payment representing a return of your
premium. You may change your withholding as often as you wish by sending in IRS
Form W-4P to Golden American. Your election will remain in effect until you
revoke it. You may revoke it at any time.
If you elect not to have withholding apply to your withdrawals, or if you do not
have enough Federal income tax withheld from your withdrawal payments, you may
be responsible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
By signing the application and completing the withholding election, you certify
that no bankruptcy proceeding, attachment or other lien or claims are pending
against you.
A1
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED VARIABLE ANNUITY
A Subsidiary of Bankers Trust Company APPLICATION
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS
A STOCK COMPANY DOMICILED IN WILMINGTON, DELAWARE
<TABLE>
<S> <C> <C>
1. OWNER(S) (FIRST, MIDDLE, LAST NAME)
Street, City, State, Zip Code Date of Birth (Mo. Day Yr.)
/ /
Social Security No./TIN
Phone Number(s): o Male o Female
2. ANNUITANT (IF OTHER THAN OWNER)
Street, City, State, Zip Code Date of Birth (Mo. Day Yr.)
/ /
Social Security No./TIN
Relation to Owner: o Male o Female
3. CONTINGENT ANNUITANT (OPTIONAL)
Street, City, State, Zip Code Date of Birth (Mo. Day Yr.)
/ /
Social Security No./TIN
Relation to Annuitant: o Male o Female
4. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Relation to Annuitant:
5. CONTINGENT BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Relation to Annuitant:
6. PLAN (CHECK ONE) o DVA o Other_________________
7. ANNUITY OPTION AND COMMENCEMENT DATE
Annuity Option (CHECK ONE): o Variable Annuity Certain o Income for Life with 10 Years Certain o Other___________________
Annuity Commencement Date:_____________________
o Check here for maximum age (specified in the prospectus) or fill in date: / / (month, day, year)
8. (A) INITIAL PREMIUM AND ALLOCATION INFORMATION
Initial Premium Paid $_________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE INSURANCE COMPANY
Fill in percentages for initial allocation in INITIAL column below.
(B) OPTIONAL DOLLAR COST AVERAGING ("DCA"): o CHECK BOX TO ELECT.
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION CHECKED BELOW)
Amount of Monthly Transfer $___________________ (minimum $250)
Division Transferred From: o Limited Maturity Bond Division or
o Liquid Asset Division
Divisions Transferred To: Fill in percentages in DCA column below.
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
- ------------------------------------------------------------------------------------------------------
MULTIPLE ALLOCATION ZWEIG ADVISORS INC. % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES, INC. % %
ALL-GROWTH WARBURG, PINCUS COUNSELLORS INC. % %
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
EMERGING MARKETS BANKERS TRUST COMPANY % %
LIMITED MATURITY BOND BANKERS TRUST COMPANY % %
LIQUID ASSET BANKERS TRUST COMPANY % %
-------- --------
TOTAL 100% 100%
-------- --------
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P.O. Box 8794, Wilmington, DE 19899-8794
<PAGE>
<TABLE>
<S> <C> <C>
9. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
FREQUENCY: o Monthly or o Quarterly START DATE: / (month, day).
WITHDRAWAL: o ___________% of Accumulation Value or o $_____________.
(THE MINIMUM WITHDRAWAL IS $100, NOT TO EXCEED 1.25% MONTHLY / 3.75% QUARTERLY OF THE ACCUMULATION VALUE.)
WITHHOLDING ELECTION INFORMATION (MUST BE COMPLETED IF SYSTEMATIC PARTIAL WITHDRAWALS ARE CHOSEN)
A. o I do not want to have Federal income tax withheld.
B. o I want to have Federal income tax withheld from each withdrawal using the number of allowances and marital status
indicated. (You may also designate an ADDITIONAL amount in Section "C".)
Allowances _________; o Single o Married o Married, but withhold at a higher single rate.
C. o I want the following ADDITIONAL amount withheld from each withdrawal $________. (You must also complete Section "B".)
SEE PAGE A1 OF THE PROSPECTUS FOR WITHHOLDING ELECTION INSTRUCTIONS.
10. TELEPHONE REALLOCATION AUTHORIZATION _______________OWNER'S INITIALS
I authorize Golden American to act upon reallocation instructions given by telephone from _________________________________
(name of your registered representative) upon furnishing his/her social security number. Neither Golden American nor any person
authorized by Golden American will be responsible for any claim, loss, liability or expense in connection with reallocation
instructions received by telephone from such person if Golden American or such other person acted on such telephone instructions
in good faith in reliance upon this authorization. Golden American will continue to act upon this authorization until such time as
the person indicated above is no longer affiliated with the broker/dealer under which my contract was purchased or until
such time that I notify Golden American otherwise in writing.
11. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY WHAT TYPE:
o IRA o IRA Rollover o SEP/IRA o Other____________________
12. REPLACEMENT Will the contract applied for replace any existing annuity or life insurance on the annuitant's life? o No
o Yes IF "YES", PLEASE OUTLINE IN THE REMARKS SECTION.
13.
REMARKS________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
14. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
- - BY SIGNING BELOW I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I UNDERSTAND THAT THIS CONTRACT'S CASH SURRENDER VALUE MAY
INCREASE OR DECREASE ON ANY DAY DEPENDING ON THE INVESTMENT RESULTS. NO MINIMUM CASH SURRENDER VALUE IS GUARANTEED. THIS
CONTRACT IS IN ACCORD WITH MY ANTICIPATED FINANCIAL NEEDS.
- -I AGREE THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND ANSWERS IN THE APPLICATION ARE COMPLETE AND TRUE
AND MAY BE RELIED UPON IN DETERMINING WHETHER TO ISSUE THE CONTRACT. MY ANSWERS WILL FORM A PART OF ANY CONTRACT TO BE
ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE AUTHORITY TO MODIFY THIS APPLICATION.
- -IF GOLDEN AMERICAN AMENDS THE APPLICATION AS INDICATED IN THE AMENDMENTS SECTION BELOW, I WILL APPROVE OF THE CHANGE BY
ACCEPTING THE CONTRACT WHERE PERMITTED BY STATE REGULATION. I UNDERSTAND THAT ANY CHANGE IN PLAN, ANNUITY OPTION, BENEFITS
APPLIED FOR, OR AGE AT ISSUE MUST BE AGREED TO IN WRITING.
_______________________________________________ ________________________________________________________________________________
Signature of Owner Signed at (City, State) Date
_______________________________________________ ________________________________________________________________________________
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
_______________________________________________ ________________________________________________________________________________
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (IF APPLICABLE)__________________________
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE ON THE
LIFE OF THE ANNUITANT? o YES o NO
_________________________________________________________________________________
(In Florida Only) Florida License ID#
__________________________________________________________________________________________________________________________________
Agent Signature Print Name & No. of Agent Social Security No. Broker/Dealer/Branch
AMENDMENTS TO THE APPLICATION_____________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P.O. Box 8794, Wilmington, DE 19899-8794
GAL-DVA-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
REQUEST TO EFFECT IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TO: -------------------------------------
PRESENT SPONSOR
------------------------------------- ACCOUNT NO.------------------------------------------
ADDRESS
------------------------------------- -----------------------------------------------------
ADDRESS PARTICIPANT'S NAME
RE: IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
</TABLE>
ATTN: QUALIFIED TRANSFER DEPARTMENT
Dear Sirs:
I wish to transfer the entire value of my present Qualified Account to the
"GoldenSelect IRA" sponsored by Golden American Life Insurance Company.
I adopted the "GoldenSelect IRA" on ____________________________________________
DATE OF APPLICATION
Please make the check payable to GoldenSelect/Golden American Life Insurance
Company. As indicated below, Golden American has already indicated its
willingness to accept from you all my Qualified Account assets.
Please send all such proceeds and details to:
Golden American Life Insurance Company
IRA and Pension Operations
P.O. Box 8794
Wilmington, DE 19899-8794
Your prompt attention to this matter is appreciated.
<TABLE>
<S> <C> <C>
Sincerely, (Signature Guarantee if Required)
X------------------------------------------- ----------------------------------------
PARTICIPANT'S SIGNATURE (NAME OF BANK/FIRM)
----------------------------------------
(SIGNATURE OF OFFICER/TITLE)
</TABLE>
- -
GOLDEN AMERICAN APPROVAL FOR QUALIFIED ACCOUNT TRANSFER
Golden American Life Insurance Company has established the "GoldenSelect IRA"
application number __________________________ for the participant named above.
We are willing to accept the transfer. Please forward all proceeds accordingly.
<TABLE>
<S> <C>
By: -------------------------------------- Date: ----------------------------------------------
Name: ----------------------------------- Title: ----------------------------------------------
</TABLE>
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-IRA-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
ABSOLUTE ASSIGNMENT TO EFFECT SECTION 1035(A) EXCHANGE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OWNER:___________________________________________ ANNUITANT OR INSURED:_____________________________________________
CURRENT CONTRACT NO.:____________________________ EXISTING INSURANCE CO.:___________________________________________
</TABLE>
I hereby make a complete and absolute assignment and transfer all rights, titles
and interest of every nature and character in and to the above contract to
Golden American Life Insurance Company ("Golden American") in an exchange
intended to qualify under Section 1035 of the Internal Revenue Code.
Upon receipt, Golden American is directed to surrender the above contract and
apply the value to the GoldenSelect product for which I have submitted an
application.
I understand that, by executing this assignment, I irrevocably waive all rights,
claims and demands under the above contract.
I acknowledge that Golden American is furnishing this form and participating in
this transaction as an accommodation to me, and that Golden American assumes no
responsibility or liability for my tax treatment under Section 1035 of the
Internal Revenue Code or otherwise.
Signed this ______________ day of ________________, 19 __________ at ___________
X_____________________________________ X________________________________________
WITNESS SIGNATURE OF OWNER
NOTIFICATION OF ASSIGNMENT AND SURRENDER
To (Existing Insurance Company): Re: Contract No.________________________
________________________________________
________________________________________
This is to notify you that an absolute assignment of all rights, title and
interest in and to the above contract has been made to Golden American Life
Insurance Company, for the purpose of making an exchange under Section 1035 of
the Internal Revenue Code. Golden American, owner of the above contract, hereby
surrenders it and requests its full surrender value for the purpose of an
exchange under Section 1035 of the Internal Revenue Code. Upon surrender of this
contract, please issue a check for its cash value to Golden American Life
Insurance Company, and mail to Golden American Life Insurance Company, Customer
Service Center, P.O. Box 8794, Wilmington, DE, 19899-8794, Attn: New Business
Department. Please provide Golden American with the cost basis, issue date and
other payment information along with your check.
___________________________________________
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By:________________________________________
DATE OFFICER OF ABOVE-NAMED INSURANCE COMPANY
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-1035-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
CERTIFICATE OF DEPOSIT TRANSFER FORM
- --------------------------------------------------------------------------------
APPOINTMENT OF ATTORNEY-IN-FACT TO SURRENDER CERTIFICATE OF DEPOSIT
(NON-QUALIFIED ONLY)
CERTIFICATE(S) OF DEPOSIT
Issued By: _____________________________________________________________________
INSTITUTION
Address: _______________________________________________________________________
Certificate Number(s): _________________________ Issued to: ____________________
Maturity Date(s): ______________________________________________________________
Estimated Amount(s): ___________________________________________________________
I/We do hereby name and appoint Golden American Life Insurance Company ("Golden
American") through its duly authorized officers as lawful agent and
attorney-in-fact for me/us, to surrender the above Certificate(s) of Deposit
upon the respective maturity date(s).
I/We request that upon maturity all funds available be transferred to Golden
American. Golden American will apply all such funds received to a variable
contract issued to me/us.
I/We understand that Golden American assumes no responsibility for the tax
treatment of this matter and that I/ we shall be responsible for the payment of
all federal, state and local taxes and any other fees and charges incurred with
respect to the Certificate(s).
I/We acknowledge that the investment earnings credited under the variable
contract will begin to accrued when Golden American receives the proceeds from
the Certificate(s). Golden American has the responsibility only to present the
Certificate(s) for payment upon maturity and shall not be responsible for the
solvency of the issuing Financial Institution.
Dated at ______________________________ on this ______ day of
____________________, 19________________________________________________________
X____________________________________ X________________________________________
Witness Signature of Certificate Owner
X____________________________________ X________________________________________
Witness Signature of Joint Certificate Owner
Special Handling Instructions: _________________________________________________
________________________________________________________________________________
ACKNOWLEDGMENT
Golden American will accept any and all funds which discharge the obligation
listed above and request that such funds be sent to: Golden American Life
Insurance Company, Customer Service Center, P.O. Box 8794, Wilmington, DE
19899-8794
By _____________________________________________________________________________
Name Title Date
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-CDTF-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3107 5/95
<PAGE>
GOLDENSELECT DVA SERIES 100
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
DEFERRED VARIABLE ANNUITY PROSPECTUS
GOLDENSELECT DVA SERIES 100
- --------------------------------------------------------------------------------
This prospectus describes group and individual deferred variable annuity
contracts (the "contract") offered by Golden American Life Insurance Company
("Golden American," "we," "our" or "us"). The owner ("you" or "your") purchases
the contract with an initial premium of $25,000 or more and is permitted to make
additional premium payments.
The contract is funded by two separate accounts, Separate Account B ("Account
B") and Separate Account D ("Account D") (collectively, the "Accounts").
Eleven divisions of Account B are currently available under the contract. The
investments available through the divisions of Account B include mutual fund
portfolios (the "Series") of The GCG Trust (the "Trust"). Account D is an
open-end management investment company. The only division of Account D available
for investment is The Managed Global Account (the "Global Account") which
invests directly in securities.
Part I of this prospectus describes the contract and provides background
information regarding Account B and Account D. Part II of this prospectus
(beginning on page 39) provides information regarding the investment activities
of Account D and the Global Account, including its investment policies. The
prospectus for the Trust, which must accompany this prospectus, provides
information regarding investment activities and policies of the Trust.
You may allocate your premiums among the twelve divisions currently available
under the contract in any way you choose, subject to certain restrictions. You
may change the allocation of your accumulation value up to five times per
contract year free of charge.
You may surrender the contract for its cash surrender value at any time before
the annuity commencement date provided the annuitant and owner are living. The
cash surrender value will vary daily with the investment results of the
contract. We do not guarantee any minimum cash surrender value. You may make
partial withdrawals under the contract, subject to certain restrictions.
We will pay a death benefit to the beneficiary if the annuitant (when there is
no contingent annuitant) or owner dies prior to the annuity commencement date.
See Part I, Proceeds Payable to the Beneficiary.
This prospectus describes your principal rights and limitations and sets forth
the information concerning the Accounts that investors should know before
investing. A Statement of Additional Information dated May 1, 1995 relating to
the Accounts has been filed with the Securities and Exchange Commission ("SEC")
and is available without charge upon request. To obtain a copy of this document
call or write our Customer Service Center. The Table of Contents of the
Statement of Additional Information may be found on the last page of this
prospectus. The Statement of Additional Information is incorporated herein by
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTRACTS AND UNDERLYING SERIES SHARES WHICH FUND THE CONTRACTS ARE NOT INSURED
BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE GCG TRUST.
<TABLE>
<S> <C> <C>
ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company New York, New York 10017 Mailing Address: P.O. Box 8794
Wilmington, Delaware 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATED: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITION OF TERMS.................................. 3
FEE TABLE............................................ 5
SUMMARY OF THE CONTRACT.............................. 7
CONDENSED FINANCIAL INFORMATION...................... 10
Index of Investment Experience
Financial Statements
Performance Related Information
PART I
Introduction....................................... 13
FACTS ABOUT THE COMPANY AND THE ACCOUNTS............. 14
Golden American
The Accounts
Account B Divisions
The Managed Global Account of Account D
Changes Within the Accounts
FACTS ABOUT THE CONTRACT............................. 18
The Owner
The Annuitant
The Beneficiary
Change of Owner or Beneficiary
Availability of the Contract
Types of Contracts
Your Right to Select or Change Contract Options
Premiums
Making Additional Premium Payments
Crediting Premium Payments
Restrictions on Allocation of Premium Payments
Your Right to Reallocate
Dollar Cost Averaging Option
What Happens if a Division is Not Available
Your Accumulation Value
Accumulation Value in Each Division
Measurement of Investment Experience
Cash Surrender Value
Surrendering to Receive the Cash Surrender Value
Partial Withdrawals
Proceeds Payable to the Beneficiary
Reports to Owners
When We Make Payments
CHARGES AND FEES..................................... 27
Charge Deduction Division
Charges Deducted from the Accumulation Value
Charges Deducted from the Divisions
Trust Expenses
Operating Expenses of Account D
<CAPTION>
PAGE
<S> <C>
CHOOSING AN INCOME PLAN.............................. 28
The Income Plan
Annuity Commencement Date Selection
Frequency Selection
The Annuity Options
Payment When Named Person Dies
OTHER INFORMATION.................................... 30
Other Contract Provisions
Contract Changes -- Applicable Tax Law
Your Right to Cancel or Exchange Your Contract
Other Contract Changes
Group or Sponsored Arrangements
Selling the Contract
Reinsurance
REGULATORY INFORMATION............................... 31
Voting Rights
State Regulation
Legal Proceedings
Legal Matters
Experts
FEDERAL TAX CONSIDERATIONS........................... 32
Introduction
Golden American Tax Status
Taxation of Non-Qualified Annuities
Taxation of Individual Retirement Annuities
ADDITIONAL CONSIDERATIONS............................ 37
Distribution-at-Death Rules
Taxation of Death Benefit Proceeds
Transfer of Annuity Contracts
Section1035 Exchanges
Assignments
Multiple Contracts Rule
PART II
Introduction....................................... 39
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.............. 40
The Global Account
Investment Objective and Policies of the Global
Account
Non-Diversified
Risk Factors
Board of Governors of Account D
The Manager
The Portfolio Manager
Securities and Investment Techniques
Investment Restrictions
Brokerage Services
STATEMENT OF ADDITIONAL INFORMATION.................. 51
Table of Contents
APPENDIX............................................. A1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
DEFINITION OF TERMS
ACCOUNTS
Separate Account B and Separate Account D.
ACCUMULATION VALUE
The amount that the contract provides for investment at any time. Initially,
this amount is equal to the premium paid. Thereafter, the accumulation value
will reflect the premiums paid, investment experience, charges deducted and
partial withdrawals taken.
ANNUITANT
The person designated by the owner to receive the annuity payments and whose
death initiates payment of the death benefit.
ANNUITY COMMENCEMENT DATE
The date on which annuity payments begin.
ANNUITY OPTIONS
Options the owner selects that determine the form and amount of annuity
payments.
ANNUITY PAYMENT
The periodic payment an annuitant receives. It may be either a fixed or a
variable amount based on the annuity option chosen.
ATTAINED AGE
The issue age of the annuitant plus the number of full years elapsed since the
contract date.
BENEFICIARY
The person designated to receive benefits in the case of the death of the
annuitant (when there is no contingent annuitant) or owner.
BUSINESS DAY
Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of
Federal holidays, or any day on which the SEC requires that mutual funds, unit
investment trusts or other investment portfolios be valued.
CASH SURRENDER VALUE
The amount the owner receives if the owner surrenders the contract.
CHARGE DEDUCTION DIVISION
The Liquid Asset Division, which is the division from which all charges are
deducted if so designated on the application or enrollment form, or later
elected by the owner.
CONTINGENT ANNUITANT
The person designated by the owner who, upon the annuitant's death prior to the
annuity commencement date, becomes the annuitant.
CONTRACT
The entire contract consisting of the basic contract, the application or
enrollment form and any riders or endorsements.
CONTRACT ANNIVERSARY
The anniversary of the contract date.
CONTRACT DATE
The date on which we have received the initial premium and upon which we begin
determining the contract values. It may or may not be the same as the issue
date. This date is used to determine contract months, processing dates, years
and anniversaries.
CONTRACT PROCESSING DATES
The days when we deduct certain charges from the accumulation value. If the
contract processing date is not a valuation date, it will be on the next
succeeding valuation date. The contract processing dates will be once each year
on the contract anniversary.
CONTRACT PROCESSING PERIOD
The period between successive contract processing dates unless it is the first
contract processing period. In that case, it is the period from the contract
date to the first contract processing date.
CONTRACT YEAR
The period between contract anniversaries.
CUSTOMER SERVICE CENTER
Where service is provided to our contract owners. The mailing address and
telephone number of the Customer Service Center are shown on the cover.
DEFERRED ANNUITY
A contract which provides for the accumulation of funds that will reflect
investment experience. These funds may be applied under an annuity option at the
annuity commencement date.
ENDORSEMENTS
An endorsement changes or adds provisions to the contract.
3
<PAGE>
DEFINITION OF TERMS (CONTINUED)
EXPERIENCE FACTOR
The factor which reflects the investment experience of the portfolio in which a
division invests and also reflects the charges assessed against the division for
a valuation period.
FREE LOOK PERIOD
The period of time within which the contract owner may examine the contract and
return it for a refund.
GENERAL ACCOUNT
The account which contains all of our assets other than those held in our
separate accounts.
INDEX OF INVESTMENT EXPERIENCE
The index that measures the performance of a separate account division.
INITIAL PREMIUM
The payment amount required to put a contract into effect.
ISSUE AGE
The annuitant's age on his or her last birthday on or before the contract date.
ISSUE DATE
The date the contract is issued at our Customer Service Center.
OWNER
The person who owns the contract and is entitled to exercise all rights under
the contract. This person's death also initiates payment of the death benefit.
RIDER
A rider adds benefits to the contract.
SPECIALLY DESIGNATED DIVISION
The Liquid Asset Division. Distributions from a portfolio underlying a division
(or from a division of Separate Account D) in which reinvestment is not
available will be allocated to this division unless you specify otherwise.
VALUATION DATE
The day at the end of a valuation period when each division is valued.
VALUATION PERIOD
Each business day together with any non-business days before it.
4
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES (deducted from accumulation value)
DISTRIBUTION FEE (ANNUAL SALES LOAD) AS A PERCENTAGE OF THE INITIAL AND EACH ADDITIONAL PREMIUM,
deducted at the end of each contract processing period following receipt of each premium (or at the
time of surrender if surrendered before the end of a contract processing period) over a ten year
period from the date we receive and accept each premium payment..................................... 0.65%(1)
EXCESS ALLOCATION CHARGE for each allocation change in excess of the five free allocation changes
allowed per contract year........................................................................... $25
PARTIAL WITHDRAWAL CHARGE (2.0% of the withdrawal for each additional conventional partial withdrawal
after the first in a contract year) not to exceed:.................................................. $25
ANNUAL CONTRACT FEES (deducted from the accumulation value)
ADMINISTRATIVE CHARGE................................................................................ $0
SEPARATE ACCOUNT ANNUAL EXPENSES (percentage of assets in each separate account division)
MORTALITY AND EXPENSE RISK CHARGE.................................................................... 1.25%(1)
ASSET BASED ADMINISTRATIVE CHARGE.................................................................... 0.10%
Total Separate Account Annual Expenses............................................................... 1.35%
</TABLE>
TRUST ANNUAL EXPENSES (based on combined assets of the indicated groups of
Series)
<TABLE>
<CAPTION>
OTHER TOTAL
SERIES FEES(2) EXPENSES(3) EXPENSES
- ------------------------------------------------------ ------------ ----------------- -------------
<S> <C> <C> <C>
Multiple Allocation, Fully Managed, Capital
Appreciation, Rising Dividends, All-Growth, 1.00% 0.00% 1.00%
Real Estate, Natural Resources, and Value Equity
Series:
Emerging Markets Series: 1.50% 0.02% 1.52%
Limited Maturity Bond: 0.60% 0.00% 0.60%
Liquid Asset Series: 0.60% 0.01% 0.61%
</TABLE>
THE MANAGED GLOBAL ACCOUNT ANNUAL EXPENSES AFTER REIMBURSEMENT (percentage of
average net assets)
<TABLE>
<CAPTION>
MANAGEMENT TOTAL
AND OTHER ANNUAL
ASSETS ADVISORY FEES EXPENSES EXPENSES(4)
- ------------------------------------------------------------------------ ----------------- ------------- -----------------
<S> <C> <C> <C>
$0 to $500 million...................................................... 1.00% 0.25% 1.25%
in excess of $500 million............................................... 0.80% 0.25% 1.05%
<FN>
- --------------------------
(1) We also offer a DVA through another prospectus, which is a contract with a
different charging structure.
(2) Fees decline as combined assets increase (see Part I, Account B Divisions
and the Trust prospectus for details).
(3) Other expenses generally consist of independent trustees fees and expenses.
The Emerging Markets Series incurred transfer and repatriation taxes of
0.21% of average daily net assets which are not reflected as Other Expenses
in this Fee Table.
(4) Reflects any expense reimbursement or waiver through December 31, 1994. See
Part I, The Managed Global Account of Account D. In the absence of expense
reimbursement or waiver, the total annual expenses would have been 1.40% of
the Global Account's average daily net assets for 1994. This figure
includes non-recurring expenses and interest expense of approximately .06%
of average daily net assets which were not reimbursed.
</TABLE>
5
<PAGE>
FEE TABLE (CONTINUED)
EXAMPLE:
Whether you surrender or do not surrender your contract at the end of the
applicable time period, you would pay the following expenses for each $1,000 of
initial premium, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation....................................... $ 30.31 $ 92.35 $ 156.37 $ 325.75
Fully Managed............................................. 30.31 92.35 156.37 325.75
Capital Appreciation...................................... 30.31 92.35 156.37 325.75
Rising Dividends.......................................... 30.31 92.35 156.37 325.75
All-Growth................................................ 30.31 92.35 156.37 325.75
Real Estate............................................... 30.31 92.35 156.37 325.75
Natural Resources......................................... 30.31 92.35 156.37 325.75
Value Equity.............................................. 30.31 92.35 156.37 325.75
Emerging Markets.......................................... 35.51 107.79 181.82 375.07
Global Account............................................ 32.81 99.80 168.69 349.81
Limited Maturity Bond..................................... 26.30 80.31 136.32 285.88
Liquid Asset.............................................. 26.40 80.62 136.83 286.90
</TABLE>
For purposes of computing the annual per contract administrative charge, the
dollar amounts shown in the examples are based on an initial premium of $57,000.
In the example, the numbers for the Global Account reflect expenses based on
assumed assets in the Global Account of $500 million or less. If the Global
Account's assets exceed $500 million, these expenses will decrease.
The purpose of the fee table is to assist you in understanding the various costs
and expenses that you may bear directly or indirectly. The fee table reflects
expenses of the Accounts as well as the Trust. Premium taxes may also be
applicable. See Part I, Charges and Fees, PREMIUM TAXES. For a complete
description of contract costs and expenses and the charges and expenses for
Account D, see the section titled Charges and Fees in Part I of this prospectus.
For a more complete description of the Trust's costs and expenses, see the Trust
prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES UNDER THE CONTRACT.
6
<PAGE>
SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information regarding the
contract and the Accounts which fund the contract. Information concerning the
divisions of Account B is set forth in the Trust prospectus. Part II of this
prospectus, beginning on page 39, pertains to Account D which invests directly
in securities.
This summary is intended to provide only a very brief overview of the more
significant aspects of the contract. Further detail is provided in this
prospectus and in the contract. The contract, together with its attached
application or enrollment form and any riders or endorsements, constitutes the
entire agreement between you and us and should be retained.
This prospectus has been designed to provide you with the necessary information
to make a decision on purchasing the contract offered by Golden American and
funded by the Accounts.
You have a choice of investments. We do not promise that your accumulation value
will increase. Depending on the contract's investment experience for funds
invested in the Accounts, the accumulation value, cash surrender value and death
benefit may increase or decrease on any day. You bear the investment risk.
DESCRIPTION OF THE CONTRACT
The contract is designed to establish retirement benefits for two types of
purchasers. The first type of purchaser is one who is eligible to participate
in, and purchases a contract for use with, an individual retirement annuity
("IRA") meeting the requirements of section 408(b) of the Internal Revenue Code
of 1986 ("qualified plan"). For a contract funding a qualified plan,
distribution must commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. The second type of
purchaser is one who purchases a contract outside of a qualified plan
("non-qualified plan").
The contract also offers a choice of annuity options to which you may apply the
accumulation value on the annuity commencement date or the cash surrender value
upon surrender of the contract. See Part I, Choosing an Income Plan.
AVAILABILITY
We can issue a contract if both the annuitant and the owner are not older than
age 85 and accept additional premium payments until either the annuitant or
owner reaches the attained age of 85 for non-qualified plans (age 70 1/2 for
qualified plans, except for rollover contributions). The minimum initial premium
is $25,000 for qualified and non-qualified plans. In connection with qualified
plans, we will only accept rollover contributions of $25,000 or more as the
initial premium. We also offer a DVA through another prospectus, which is a
contract with a different charging structure. We may change the minimum initial
or additional premium requirements for certain group or sponsored arrangements.
See Part I, Group or Sponsored Arrangements.
The minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan. We will take under
consideration and may refuse to accept a premium payment if the sum of all
premium payments received under the contract totals more than $1,500,000.
THE DIVISIONS
Each of the twelve divisions offered under this prospectus have their own
distinct investment objectives and policies. There are eleven divisions of
Account B currently available under the contract. Each division of Account B
invests in a corresponding Series of the Trust, managed by Directed Services,
Inc. ("DSI" or the "Manager"). The Trust and DSI have retained several portfolio
managers to manage the assets of each Series. The division of Account D is The
Managed Global Account. DSI is the Manager and Warburg, Pincus Counsellors, Inc.
("Warburg, Pincus") is the portfolio manager (the "Portfolio Manager"). See Part
I, Facts About the Company and the Accounts, Account B Divisions, and The
Managed Global Account of Account D.
HOW THE ACCUMULATION VALUE VARIES
The accumulation value varies each day based on investment results. You bear the
risk of poor investment performance and you receive the benefits from favorable
investment performance. The accumulation value also reflects premium payments,
charges deducted and partial withdrawals. See Part I, Accumulation Value in Each
Division.
SURRENDERING YOUR CONTRACT
The cash surrender value varies each day depending on investment results. We do
not guarantee any minimum cash surrender value. You may surrender the contract
and receive its cash surrender value at any time while both the annuitant and
owner are living and before the annuity commencement date. See Part I, Cash
Surrender Value and Surrendering to Receive the Cash Surrender Value.
7
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
TAKING PARTIAL WITHDRAWALS
After the free look period, prior to the annuity commencement date and while the
contract is in effect, you may take partial withdrawals from the accumulation
value of the contract. You may take conventional partial withdrawals once per
contract year without charge. Alternatively, you may elect in advance to take
systematic partial withdrawals on a monthly or quarterly basis. If you have an
IRA contract, you may elect IRA partial withdrawals on a monthly, quarterly or
annual basis.
Partial withdrawals are subject to certain restrictions as defined in this
prospectus. See Part I, Partial Withdrawals.
DOLLAR COST AVERAGING
Under this option, you may choose to have a specified dollar amount transferred
from either the Limited Maturity Bond Division or Liquid Asset Division to the
other divisions on a monthly basis with the objective of shielding your
investment from short term price fluctuations. See Part I, Dollar Cost Averaging
Option.
YOUR RIGHT TO CANCEL THE CONTRACT
You may cancel your contract within the free look period which is a ten day
period of time beginning when you receive the contract. For purposes of
administering our allocation and certain other administrative rules, we deem
this period to end 15 days after the contract is mailed from our Customer
Service Center. Some states may require that we provide a longer free look
period. In some states we restrict the initial premium allocation during the
free look period. See Part I, Your Right to Cancel or Exchange Your Contract.
YOUR RIGHT TO CHANGE THE CONTRACT
The contract may be changed to another annuity plan subject to our rules at the
time of the change. See Part I, Other Contract Changes.
DEATH BENEFIT PROCEEDS
The contract provides a death benefit to the beneficiary if the annuitant (when
there is no contingent annuitant) or an owner dies prior to the annuity
commencement date. See Part I, Proceeds Payable to the Beneficiary. We may
reduce the death benefit proceeds payable under certain group or sponsored
arrangements. See Part I, Group or Sponsored Arrangements.
CONTRACT PROCESSING PERIODS
The first contract processing period begins with the contract date and ends at
the close of business on the first contract processing date. All subsequent
contract processing periods begin at the close of business on the most recent
contract processing date and extend to the close of business on the next
contract processing date. There is one contract processing period each year.
DEDUCTIONS FOR CHARGES AND FEES
We invest the entire amount of the initial and any additional premium payments
in the divisions you select, subject to certain restrictions we impose. See Part
I, Restrictions on Allocation of Premium Payments. We then periodically deduct
certain amounts from your accumulation value. See Part I, Charges and Fees. We
may reduce certain charges under group or sponsored arrangements. See Part I,
Group or Sponsored Arrangements. We may also reduce certain charges for
contracts purchased in combination with certain flexible premium variable life
products that we offer. Charges are deducted proportionately from all divisions
in which you are invested, unless you have elected the Charge Deduction
Division. The charges we deduct are:
DISTRIBUTION FEE
We deduct a sales load in an annual amount of 0.65% of each premium at the end
of each contract processing period (or at the time of surrender if surrendered
before the end of the processing period) for a period of ten years from the
date we receive and accept each premium payment.
We also offer a DVA through another prospectus, which is a contract with a
different charging structure.
MORTALITY AND EXPENSE RISK CHARGE
We charge each division of the Accounts with a daily asset based charge for
mortality and expense risks equivalent to an annual rate of 1.25%.
PREMIUM TAXES
Generally, premium taxes are incurred on the annuity commencement date, and a
charge for premium taxes is then deducted from the accumulation value on such
date. Some jurisdictions impose a premium tax at the time the initial or
additional premiums are paid, regardless of the annuity commencement date.
8
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
EXCESS ALLOCATION CHARGE
The first five allocation changes in any contract year may be made without
charge. Each subsequent allocation change is subject to a $25 excess
allocation charge.
PARTIAL WITHDRAWAL CHARGE
If you take more than one conventional partial withdrawal during a contract
year, we impose a charge of the lesser of $25 and 2.0% of the amount withdrawn
for each additional conventional partial withdrawal. See Part I, Partial
Withdrawals, Conventional Partial Withdrawal Option.
ASSET BASED ADMINISTRATIVE CHARGE
We charge each division of the Accounts with a daily asset based charge to
cover contract administration equivalent to an annual rate of 0.10%.
TRUST EXPENSES
There are fees and expenses deducted from each Series. The investment
performance of the Series and deductions for fees and expenses from the Trust
will affect your accumulation value. Please read the Trust prospectus for
details.
OPERATING EXPENSES OF ACCOUNT D
There are management and other operating expenses deducted from Account D. The
investment performance of the Global Account and the deduction of operating
expenses of Account D will affect your accumulation value. For information on
the operating expenses of Account D, see Part I, Charges and Fees.
TAX PENALTIES
The ultimate effect of Federal income taxes on the amounts held under an annuity
contract, on annuity payments and on the economic benefits to the owner,
annuitant or beneficiary depends on Golden American's tax status and upon the
tax status of the individuals concerned. In general, an owner is not taxed on
increases in value under an annuity contract until some form of distribution is
made under it. There may be tax penalties if you make a withdrawal or surrender
the contract before reaching age 59 1/2. See Part I, Federal Tax Considerations.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
INDEX OF INVESTMENT EXPERIENCE
The upper table gives the index of investment experience for each division of
Account B and for the Global Account on their respective commencement of
operations and on December 31, 1989, 1990, 1991, 1992, 1993 and 1994, as
applicable. The index of investment experience is equal to the value of a unit
for each division of the Accounts. The total value of each division as of the
end of each period indicated is shown in the lower table.
<TABLE>
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE
---------------------------------------------------------------------------------------------
DIVISION 1/25/89 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
- ------------------------------------- --------- -------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Multiple Allocation.................. $ 10.00 $ 10.76 $ 11.12 $ 13.16 $ 13.22 $ 14.50
Fully Managed........................ 10.00 10.38 9.78 12.46 13.06 13.86
Capital Appreciation................. * * * * 10.99 11.74
Rising Dividends..................... *** *** *** *** *** 10.28
All-Growth........................... 10.00 10.71 9.74 13.03 12.52 13.16
Real Estate.......................... 10.00 9.85 7.65 10.08 11.32 13.10
Natural Resources.................... 10.00 11.71 9.91 10.31 9.17 13.57
Value Equity......................... **** **** **** **** **** ****
Emerging Markets..................... *** *** *** *** *** 12.40
Global Account....................... ** ** ** ** 10.01 10.48
Limited Maturity Bond................ 10.00 10.83 11.55 12.65 13.09 13.71
Liquid Asset......................... 10.00 10.64 11.31 11.78 11.98 12.13
<CAPTION>
TOTAL ACCUMULATION VALUE
----------------------------------------------------------------------------------
DIVISION 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93
- ------------------------------------- -------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Multiple Allocation.................. $ 15,556,366 $ 23,963,356 $ 57,739,245 $ 115,124,744 $ 273,158,122
Fully Managed........................ 5,333,885 5,414,160 9,834,436 37,352,585 108,290,963
Capital Appreciation................. * * * 18,366,222 86,798,642
Rising Dividends..................... *** *** *** *** 14,387,382
All-Growth........................... 3,077,542 4,528,380 11,159,814 23,418,811 56,055,565
Real Estate.......................... 650,003 309,556 696,180 3,600,461 28,772,896
Natural Resources.................... 2,320,696 2,460,399 2,646,183 2,882,417 21,436,544
Value Equity......................... **** **** **** **** ****
Emerging Markets..................... *** *** *** *** 30,488,589
Global Account....................... ** ** ** 38,699,402 88,477,493
Limited Maturity Bond................ 2,595,966 8,009,970 15,935,184 39,861,202 71,622,231
Liquid Asset......................... 2,190,649 8,419,953 9,224,303 12,769,536 16,497,588
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE
- -------------------------------------------------------
DIVISION 12/31/94
- ------------------------------------- ----------------
<S> <C> <C>
Multiple Allocation.................. $ 14.13
Fully Managed........................ 12.68
Capital Appreciation................. 11.40
Rising Dividends..................... 10.20
All-Growth........................... 11.58
Real Estate.......................... 13.74
Natural Resources.................... 13.73
Value Equity......................... ****
Emerging Markets..................... 10.38
Global Account....................... 9.03
Limited Maturity Bond................ 13.36
Liquid Asset......................... 12.41
TOTAL ACCUMULATION VALUE
- -------------------------------------------------------
DIVISION 12/31/94
- ------------------------------------- ----------------
<S> <C> <C>
Multiple Allocation.................. $ 297,507,994
Fully Managed........................ 98,836,207
Capital Appreciation................. 88,344,684
Rising Dividends..................... 50,384,765
All-Growth........................... 70,623,784
Real Estate.......................... 36,936,728
Natural Resources.................... 32,746,767
Value Equity......................... ****
Emerging Markets..................... 59,747,048
Global Account....................... 86,208,555
Limited Maturity Bond................ 71,573,009
Liquid Asset......................... 45,364,989
</TABLE>
- ------------------------
* The Capital Appreciation Division became available for investment on May
4, 1992 starting with an index of investment experience of $10.00.
** The Global Account Division of Account D became available for investment
on October 21, 1992 starting with an index of investment experience of
$10.00
*** The Rising Dividends and Emerging Markets Divisions became available for
investment on October 4, 1993 starting with an index of investment
experience of $10.00.
**** The Value Equity Division became available for investment on January 1,
1995.
In order to provide for continuity in results, the above table is based on
charges for the contract described in this prospectus. Contracts issued prior to
May 1, 1993, were based on lower asset charges and, thus, would have higher
values for the indices of investment experience.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B (as well as the auditors'
report thereon), the audited financial statements of The Managed Global Account
of Separate Account D (as well as the auditors' report thereon) and the audited
financial statements of Golden American Life Insurance Company (as well as the
auditors' reports thereon) are included in the Statement of Additional
Information.
PERFORMANCE RELATED INFORMATION
Performance information for the divisions of the Accounts, including the yield
and effective yield of the Liquid Asset Division, the yield of the remaining
divisions, and the total return of all divisions may appear in reports and
promotional literature to current or prospective owners.
Current yield for the Liquid Asset Division will be based on income received by
a hypothetical investment over a given 7-day period (less expenses accrued
during the period), and then "annualized" (I.E., assuming that the 7-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). "Effective yield" for the Liquid Asset Division is
calculated in a manner similar to that used to calculate yield, but when
annualized, the income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of earnings.
For the remaining divisions, quotations of yield will be based on all investment
income per unit (accumulation value divided by the index of investment
experience -- see Part I, Measurement of Investment Experience, INDEX OF
INVESTMENT EXPERIENCE AND UNIT VALUE) earned during a given 30-day period, less
expenses accrued during the period ("net investment income"). Quotations of
average annual total return for any division will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
contract over a period of one, five, and ten years (or, if less, up to the life
of the division), and will reflect the deduction of the applicable distribution
fee, the asset based administrative charge and the mortality and expense risk
charge. Quotations of total return may simultaneously be shown for other periods
that do not take into account certain contractual charges such as the
distribution fee for example.
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices measuring performance of a pertinent
group of securities so that investors may compare a division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services, a widely
used independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, including VARDS, companies, publications, or persons
who rank separate accounts or other investment products on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the contract. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Performance information for any division reflects only the performance of a
hypothetical contract under which the accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the division invests or, the securities in which
Account D invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the divisions, see the Statement of Additional Information.
Reports and promotional literature may also contain other information including
the ranking of any division derived from rankings of variable annuity separate
accounts or other investment products tracked by Lipper Analytical Services or
by rating services, companies, publications, or other persons who rank separate
accounts or other investment products on overall performance or other criteria.
11
<PAGE>
(This page has been left blank intentionally.)
12
<PAGE>
PART I
INTRODUCTION THE FOLLOWING INFORMATION IN PART I DESCRIBES THE CONTRACT AND
THE SEPARATE ACCOUNTS WHICH FUND THE CONTRACT, ACCOUNT B AND ACCOUNT D. ACCOUNT
B INVESTS IN MUTUAL FUND PORTFOLIOS OF THE TRUST. ACCOUNT D INVESTS DIRECTLY IN
SECURITIES.
13
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden American
is a wholly owned indirect subsidiary of Bankers Trust Company. We are
authorized to do business in all jurisdictions except New York. We offer
variable annuities and variable life insurance. Administrative services for the
contract are provided at our Customer Service Center, the address is shown on
the cover. As of December 31, 1994 Golden American had stockholder's equity of
approximately $89.5 million and total assets of approximately $1.04 billion,
including approximately $950.3 million of separate account assets.
Bankers Trust Company is a New York banking corporation with executive offices
at 280 Park Avenue, New York, New York 10017. As of December 31, 1994, Bankers
Trust New York Corporation, parent of Bankers Trust Company, was the seventh
largest bank holding company in the United States with total assets of
approximately $98 billion. Bankers Trust Company conducts a variety of general
banking and trust activities and is a leading wholesale supplier of financial
services to the domestic and international markets.
In a transaction that closed on September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding capital stock
of Golden American and DSI, an affiliate of Golden American, and related assets.
The transaction involved settlement of pre-existing claims of Bankers Trust
Company against the former parent company of Golden American and DSI. Under
applicable banking law, stock so acquired is subject to various divestiture
requirements. While Bankers Trust Company has no immediate intent to divest its
ownership of the stock of Golden American and DSI, such a divestiture may occur
in the future. In addition, judicial or administrative decisions or
interpretations, as well as changes in either Federal or state banking statutes
or regulations, could prevent Bankers Trust Company from continuing to own the
stock of Golden American or DSI.
Effective October 3, 1994, First Colony Corporation ("First Colony") and BT
Variable, Inc. ("BT Variable") entered into an agreement providing for the
acquisition by First Colony of a minority interest in BT Variable. BT Variable,
an indirect subsidiary of Bankers Trust Company, is the corporate parent of
Golden America and DSI. The acquisition is subject to the approval of the
appropriate regulators. First Colony is the corporate parent of two insurance
companies, First Colony Life Insurance Company and American Mayflower Life
Insurance Company, which together provide life insurance and annuity products
throughout the United States.
THE ACCOUNTS
All obligations under the contract are general obligations of Golden American.
The Accounts are separate investment accounts used to support our variable
annuity contracts and for other purposes as permitted by applicable laws and
regulations. The assets of the Accounts are kept separate from our general
account and any other separate accounts we may have. We may offer other variable
annuity contracts investing in the Accounts which are not discussed in this
prospectus. The Accounts may also invest in other series which are not available
to the contract described in this prospectus.
We own all the assets in the Accounts. Income and realized and unrealized gains
or losses from assets in an Account are credited to or charged against that
Account without regard to other income, gains or losses in our other investment
accounts. As required, the assets in an Account are at least equal to the
reserves and other liabilities of that Account. These assets may not be charged
with liabilities from any other business we conduct.
They may, however, be subject to liabilities arising from divisions of the
Accounts whose assets are attributable to other variable annuity contracts
supported by the Accounts. If the assets exceed the required reserves and other
liabilities, we may transfer the excess to our general account.
ACCOUNT B
Account B was established on July 14, 1988, and may invest in mutual funds,
unit investment trusts or other investment portfolios which we determine to be
suitable for the contract's purposes. Account B is treated as a unit
investment trust under Federal securities laws. It is registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act") as an investment
company. It is governed by the laws of Delaware, our state of domicile, and
may also be governed by the laws of other states in which we do business.
Registration with the SEC does not involve any supervision by the SEC of the
management or investment policies or practices of Account B.
14
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
ACCOUNT D
Account D was established on April 18, 1990 and invests directly in securities
in accordance with the investment objectives and policies of Account D.
Account D is registered with the SEC under the 1940 Act as an open-end
management investment company and meets the definition of a separate account
under the federal securities laws. It is governed by the laws of Delaware, our
state of domicile, and may also be governed by laws of other states in which
we do business. Registration with the SEC does not involve any supervision by
the SEC of the management or investment policies or practices of Account D.
ACCOUNT B DIVISIONS
Account B is divided into divisions. Currently, each division of Account B
offered under this prospectus invests in a portfolio of The GCG Trust. DSI
serves as the Manager to each Series of the Trust. See the Trust prospectus for
details. The Trust and DSI have retained several portfolio managers to manage
the assets of each Series as indicated below. There may be restrictions on the
amount of the allocation to certain divisions based on state laws and
regulations. The investment objectives of the various Series in the Trust are
described below. There is no guarantee that any portfolio or Series will meet
its investment objectives. Meeting objectives depends on various factors,
including, in certain cases, how well the portfolio managers anticipate changing
economic and market conditions. Account B may also have other divisions
investing in other series which are not available to the contract described in
this prospectus.
DSI provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series. DSI
is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series. DSI does not bear
the expense of brokerage fees and other transactional expenses for securities or
other assets (which are generally considered part of the cost for assets), taxes
(if any) paid by a Series, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the Trust prospectus for details.
The Trust pays DSI for its services a monthly fee based on the following
percentages of the average daily net assets of the Series. DSI (and not the
Trust) pays each portfolio manager a monthly fee for managing the assets of the
Series.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEES (based on combined assets of the indicated groups of
SERIES Series)
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising Dividends, 0.95% of next $1.250 billion;
All-Growth, Real Estate, Natural Resources, and Value Equity 0.90% of next $1.5 billion; and
Series: 0.85% of amount in excess of $3.5 billion
Emerging Markets Series: 1.50% of average daily net assets
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
The following divisions invest in shares of the Series designated.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current
income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS
Investment in equity and debt securities and the use of certain sophisticated
investment strategies and techniques.
PORTFOLIO MANAGER
Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE
High total investment return over the long term, consistent with the
preservation of capital and prudent investment risk.
INVESTMENTS
Invests primarily in common stocks. The Series also may invest in fixed income
securities and money market instruments to preserve its principal value during
uncertain or declining market conditions. The Series' strategy is based on the
premise that, from time to time, certain asset classes are more attractive
long term investments than others.
PORTFOLIO MANAGER
T. Rowe Price Associates, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE
Long-term capital growth.
INVESTMENTS
Invests in common stocks and preferred stock that will be allocated among
various categories of stocks referred to as "components" which consist of the
following: (i) The Growth Component -- Securities that the portfolio manager
believes have the following characteristics: stability and quality of earnings
and positive earnings momentum; dominant competitive positions; and
demonstrate above-average growth rates as compared to published S&P 500
earnings projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e., securities
selling at a discount to asset value and securities with a relatively low
price/earnings ratio. The securities eligible for this component may include
real estate stocks, such as securities of publicly-owned companies that, in
the portfolio manager's judgement, offer an optimum combination of current
dividend yield, expected dividend growth, and discount to current real estate
value.
PORTFOLIO MANAGER
Chancellor Trust Company
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment in equity securities of high quality companies that meet the
following four criteria: consistent dividend increases; substantial dividend
increases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, Inc.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long term growth prospects.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE
Capital appreciation, with current income as a secondary objective.
INVESTMENTS
Investment in publicly traded equity securities of companies in the real
estate industry listed on national exchanges or on the National Association of
Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
E.I.I. Realty Securities, Inc.
NATURAL RESOURCES DIVISION
NATURAL RESOURCES SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the
exploration, development, production, and distribution of natural resources.
PORTFOLIO MANAGER
Van Eck Associates Corporation
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment primarily in equity securities of U.S. and foreign issuers which,
when purchased, meet quantitative standards believed by the Portfolio
16
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
Manager to indicate above average financial soundness and high intrinsic value
relative to price.
PORTFOLIO MANAGER
Eagle Asset Management, Inc.
EMERGING MARKETS DIVISION
EMERGING MARKETS SERIES
OBJECTIVE
Long term growth of capital.
INVESTMENTS
Investment primarily in equity securities of companies that are considered to
be in emerging market countries in the Pacific Basin and Latin America. Income
is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Bankers Trust Company
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE
Highest current income consistent with low risk to principal and liquidity.
Also seeks to enhance its total return through capital appreciation when
market factors indicate that capital appreciation may be available without
significant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt
securities. No individual security will at the time of purchase have a
remaining maturity longer than seven years and the dollar-weighted average
maturity of the Series will not exceed five years.
PORTFOLIO MANAGER
Bankers Trust Company
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
INVESTMENTS
Obligations of the U.S. Government and its agencies and instrumentalities;
bank obligations; commercial paper and short-term corporate debt securities.
TERM
All issues maturing in less than one year.
PORTFOLIO MANAGER
Bankers Trust Company
The Trust is an open-end management investment company, more commonly called a
mutual fund. The Trust's shares may also be available to certain separate
accounts funding variable life insurance policies offered by Golden American.
This is called "mixed funding."
The Trust may also sell its shares to separate accounts of other insurance
companies, both affiliated and not affiliated with Golden American. This is
called "shared funding." Although we do not anticipate any inherent difficulties
arising from either mixed or shared funding it is theoretically possible that,
due to differences in tax treatment or other considerations, the interest of
owners of various contracts participating in the Trust might at sometime be in
conflict. After the Trust receives the requisite order from the SEC, shares of
the Trust may also be sold to certain qualified pension and retirement plans.
The Board of Trustees of the Trust, the Trust's Manager, and we and any other
insurance companies participating in the Trust are required to monitor events to
identify any material conflicts that arise from the use of the Trust for mixed
and/or shared funding or between various policyowners and pension and retirement
plans. For more information about the risks of mixed and shared funding please
refer to the Trust prospectus.
You will find complete information about the Trust, including the risks
associated with each Series, in the accompanying Trust prospectus. You should
read it carefully in conjunction with this prospectus before investing.
Additional copies of the Trust prospectus may be obtained by contacting our
Customer Service Center.
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
The Global Account is the only portfolio of Account D available under the
contract. The Global Account is a non-diversified investment company which
invests directly in securities. There can be no assurance that the Global
Account will meet its investment objective. Account D may also offer other
portfolios which are not available through the purchase of the contract offered
by this prospectus. DSI serves as Manager of Account D and Warburg, Pincus
serves as Portfolio Manager of the Global Account.
THE MANAGED GLOBAL ACCOUNT DIVISION
THE MANAGED GLOBAL ACCOUNT PORTFOLIO
OBJECTIVE
High total investment return, consistent with a prudent regard for capital
preservation.
INVESTMENTS
Investment in a wide range of equity and debt securities and money market
instruments of both domestic and foreign issuers.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
17
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
ADVISORY FEE
0.60% of the first $500 million of average daily net assets on an annual
basis; and 0.50% of the excess over $500 million.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the period
October 1, 1993 through December 31, 1994 so that such expenses do not exceed on
an annual basis: 1.25% of the first $500 million of average daily net assets and
1.05% of the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
FOR COMPLETE INFORMATION ABOUT THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D,
INCLUDING THE RISKS ASSOCIATED WITH ITS INVESTMENTS, SEE PART II, INVESTMENT
OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT, PAGE 39.
CHANGES WITHIN THE ACCOUNTS
We may from time to time make additional divisions available. These divisions
will invest in investment portfolios we find suitable for the contract. We also
have the right to eliminate investment divisions from the Accounts, to combine
two or more divisions, or to substitute a new portfolio for the portfolio in
which a division invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the contract. This may
happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. In addition, we reserve the
right to transfer assets of the Accounts, which we determine to be associated
with the class of contracts to which your contract belongs, to another account.
If necessary, we will get prior approval from the insurance department of our
state of domicile before making such a substitution or transfer. We will also
get any required approval from the SEC and any other required approvals before
making such a substitution or transfer. We will notify you as soon as
practicable of any proposed changes.
When permitted by law, We reserve the right to:
(1) deregister an account under the 1940 Act;
(2) operate an account as a management company
under the 1940 Act if it is operating as a unit investment trust;
(3) operate an account as a unit investment trust
under the 1940 Act if it is operating as a managed separate account;
(4) restrict or eliminate any voting rights as to the
Accounts; and
(5) combine an account with other accounts.
FACTS ABOUT THE CONTRACT
THE OWNER
You are the owner. You are also the annuitant unless another annuitant is named
in the application or enrollment form. You have the rights and options described
in the contract. One or more persons may own the contract.
Death of an owner activates the death benefit provision. In the case of a sole
owner who dies prior to the annuity commencement date, we will pay the
beneficiary the death benefit then due. The sole owner's estate will be the
beneficiary if no beneficiary designation is in effect, or if the designated
beneficiary has predeceased the owner. In the case of a joint owner of the
contract dying prior to the annuity commencement date, we will designate the
surviving owner(s) as the beneficiary(ies). This supersedes any previous
beneficiary designation. In the case where the owner is a trust, the beneficial
owner of the trust will be treated as the owner of the contract solely for the
purpose of activating the death benefit provision. See Contracts Owned by
Non-Natural Persons.
THE ANNUITANT
The annuitant will receive the annuity benefits of the contract if living on the
annuity commencement date. If the annuitant dies before the annuity commencement
date, and a contingent annuitant has been named, the contingent annuitant
becomes the annuitant. Once named, neither the annuitant nor the contingent
annuitant, if any, may be changed at any time.
If there is no contingent annuitant when the annuitant dies prior to the annuity
commencement date, we will pay the beneficiary the death benefit then due. The
beneficiary will be as provided in the beneficiary designation then in effect.
If no beneficiary designation is in effect, or if there is no designated
beneficiary living, the owner will be the
18
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
beneficiary. If the annuitant was the sole owner and there is no beneficiary
designation, the annuitant's estate will be the beneficiary.
THE BENEFICIARY
The beneficiary is the person to whom we pay death benefit proceeds if the
annuitant (when there is no contingent annuitant) or owner dies prior to the
annuity commencement date. We pay death benefit proceeds to the primary
beneficiary. See Proceeds Payable to the Beneficiary.
If the beneficiary dies before the annuitant or owner, the death benefit
proceeds are paid to the contingent beneficiary, if any. If there is no
surviving beneficiary, we pay the death benefit proceeds to the owner (if other
than the annuitant). If the owner was the annuitant, we pay any death benefit
proceeds to the annuitant's estate.
One or more persons who must be individuals may be named as 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 may specify other than equal shares.
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 must act
together to exercise the rights and options under the contract.
CHANGE OF OWNER OR BENEFICIARY
During the annuitant's lifetime and while the contract is in effect, you may
transfer ownership of the contract (if purchased in connection with a non-
qualified plan) subject to our published rules at the time of the change. You
may also change the beneficiary. To make either of these changes, you must send
us written notice of the change in a form satisfactory to us. The change will
take effect as of the day the notice is signed. The change will not affect any
payment made or action taken by us before recording the change at our Customer
Service Center. See Additional Considerations, Transfer of Annuity Contracts,
and Assignments.
AVAILABILITY OF THE CONTRACT
We can issue a contract if both the annuitant and the owner are not older than
age 85.
TYPES OF CONTRACTS
QUALIFIED CONTRACTS
The contract may be issued as an Individual Retirement Annuity or in
connection with an individual retirement account. In the latter case, the
contract will be issued without an Individual Retirement Annuity endorsement,
and the rights of the participant under the contract will be affected by the
terms and conditions of the particular individual retirement trust or
custodial account, and by provisions of the Code and the regulations
thereunder. For example, the individual retirement trust or custodial account
will impose minimum distribution rules, which require distributions to
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. For both Individual Retirement Annuities
and individual retirement accounts, we will only accept a $25,000 rollover
contribution as the minimum initial premium.
IF THE CONTRACT IS PURCHASED TO FUND A QUALIFIED PLAN, DISTRIBUTION MUST
COMMENCE NOT LATER THAN APRIL 1ST OF THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH YOU ATTAIN AGE 70 1/2.
NON-QUALIFIED CONTRACTS
The contract may fund any non-qualified plan. Non-qualified contracts do not
qualify for any tax-favored treatment other than the benefits provided for by
annuities.
YOUR RIGHT TO SELECT OR CHANGE
CONTRACT OPTIONS
Before the annuity commencement date, you may change the annuity commencement
date, frequency of annuity payments or the annuity option by sending a written
request to the Customer Service Center. The annuitant named on the application
or enrollment form may not be changed at any time.
PREMIUMS
You purchase the contract with an initial premium. After the end of the free
look period, you may make additional premium payments. See Making Additional
Premium Payments. The minimum initial premium is $25,000 for qualified and
non-qualified contracts. In connection with qualified plans, we will only accept
rollover contributions of $25,000 or more as the initial premium. We also offer
a DVA through another prospectus which is a contract with a different charging
structure.
19
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
We may refuse a premium payment if an initial premium or the sum of all premium
payments is more than $1,500,000. We may change the minimum initial or
additional premium requirements for certain group or sponsored arrangements. See
Group or Sponsored Arrangements.
QUALIFIED PLANS
For IRA contracts, the annual premium on behalf of any individual contract may
not exceed $2,000. Provided your spouse does not make a contribution to an
IRA, you may set up a spousal IRA even if your spouse has earned some
compensation during the year. The maximum deductible amount for a spousal IRA
program is the lesser of $2,250 or 100% of your compensation reduced by the
contribution (if any) made by you for the taxable year to your own IRA.
However, no more than $2,000 can go to either your or your spouse's IRA in any
one year. For example, $1,750 may go to your IRA and $500 to your spouse's
IRA. These maximums are not applicable if the premium is the result of a
rollover from another qualified plan.
WHERE TO MAKE PAYMENTS
Remit premium payments to our Customer Service Center. The address is shown on
the cover. We will send you a confirmation notice.
MAKING ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments after the end of the free look period.
We can accept additional premium payments until either the annuitant or owner
reaches the attained age of 85 under non-qualified plans. For qualified plans,
no contributions may be made to an IRA contract for the taxable year in which
you attain age 70 1/2 and thereafter (except for rollover contributions). The
minimum additional premium payment we will accept is $500 for a non-qualified
plan and $250 for a qualified plan.
CREDITING PREMIUM PAYMENTS
The initial premium will be accepted or rejected within two business days of
receipt by us of a completed application or enrollment form. We may retain the
initial premium for up to five days while attempting to complete an incomplete
application or enrollment form. If the application or enrollment form cannot be
made complete within five valuation days, the applicant or enrollee will be
informed of the reasons for the delay and the initial premium will be returned
immediately unless the applicant or enrollee specifically consents to our
retaining the initial premium until the application or enrollment form is made
complete. Thereafter, all premiums will be accepted on the day received.
We will accept, by agreement with broker-dealers who use wire transmittals,
transmittal of initial and additional premium payments by wire order from the
broker-dealer to the Customer Service Center. Such transmittals must be
accompanied by a simultaneous telephone facsimile transmission containing the
essential information we require to open an account and allocate the premium
payment.
Premium payments accepted via wire order and accompanying facsimile
transmissions will be invested at the value next determined following receipt.
Wire orders not accompanied by facsimile transmissions, or accompanied by
facsimile transmissions which do not contain the essential information we
require to open an account and allocate the premium payment, may be retained for
a period not exceeding five business days while an attempt is made to obtain the
required facsimile transmission. If the required facsimile transmission cannot
be obtained within five business days, the Customer Service Center will inform
the broker-dealer, on behalf of the applicant/enrollee, of the reasons for the
delay and return the premium payment immediately to the broker-dealer for return
to the applicant/enrollee, unless the applicant/enrollee specifically consents
to allow us to retain the premium payment until the required facsimile
transmission is received by the Customer Service Center.
We will issue the contract; however, until we have received and accepted at the
Customer Service Center a properly completed application or enrollment form, we
reserve the right to rescind the contract. If an application or enrollment form
is not received within ten days of receipt of the initial premium via wire
order, or if an incomplete application or enrollment form is received and cannot
be completed within ten days of receipt of the initial premium, the amount of
the initial premium, with any gain, will be returned to the broker-dealer for
return to the applicant/enrollee. In no event will less than the full amount of
the initial premium be returned to the applicant/enrollee.
On the date we receive and accept your initial or additional premium payment:
(1) We allocate the initial premium among the
divisions according to your instructions, subject to any restrictions. See
Restrictions on Allocation of Premium Payments. For additional premium
payments, the accumulation value will increase by the amount of the premium.
If
20
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
we do not receive instructions from you, the increase in the accumulation
value will be allocated among the divisions in proportion to the amount of
accumulation value in each division as of the date we receive and accept the
additional premium payment.
(2) For an initial premium, we calculate the distribution fee and any charge
for premium taxes, if applicable. When an additional premium payment is
made we increase any distribution fee and any charge for premium taxes, if
applicable. These charges will be collected by us from the contract's
accumulation value. HOWEVER, WE CURRENTLY WAIVE THE DEDUCTION OF THE CHARGE
FOR PREMIUM TAXES. (See Charges and Fees, PREMIUM TAXES).
(3) For an initial premium, we calculate the guaranteed death benefit. When an
additional premium payment is made we increase the guaranteed death benefit.
ELECTRONIC DATA TRANSMISSION OF
APPLICATION INFORMATION
In certain states, we will also accept, by agreement with broker-dealers who
use electronic data transmissions of application information, wire
transmittals of initial premium payments from the broker-dealer to the
Customer Service Center for purchase of the contract. Contact the Customer
Service Center to find out about state availability.
Upon receipt of the electronic data and wire transmittal, we will open an
account and allocate the premium payment according to the client's
instructions. Based on the information provided, we will generate an
application or enrollment form and contract to be forwarded to the
applicant/enrollee for signature.
During the period from receipt of the initial premium until the signed
application or enrollment form is received, the owner may not execute any
financial transactions with respect to the contract unless such transactions
are requested in writing and signature guaranteed.
RESTRICTIONS ON ALLOCATION OF
PREMIUM PAYMENTS
We may require that the initial premium be allocated to the Specially Designated
Division during the free look period for initial premiums received from some
states. After the free look period, if your initial premium was allocated to the
Specially Designated Division, we will transfer the accumulation value to the
divisions you previously selected based on the index of investment experience
next computed for each division. See Measurement of Investment Experience, INDEX
OF INVESTMENT EXPERIENCE AND UNIT VALUE.
YOUR RIGHT TO REALLOCATE
You may reallocate your accumulation value among the divisions of the Accounts
at the end of the free look period. You are allowed five allocation changes per
contract year without charge. There will be a charge of $25 deducted from the
accumulation value for each additional allocation change. When a reallocation is
made, we redeem shares of the Series underlying the divisions you are
transferring from at their net asset value. Reinvestment is then made in shares
of the Series of the divisions you are transferring to at their net asset value.
To make a reallocation change, you must provide us with satisfactory notice at
our Customer Service Center.
RESTRICTIONS ON REALLOCATIONS
Some restrictions may apply based on the free look provisions of the state
where the contract is issued. See Your Right to Cancel or Exchange Your
Contract.
DOLLAR COST AVERAGING OPTION
If you have at least $10,000 of accumulation value in the Limited Maturity Bond
Division or the Liquid Asset Division, you may choose to have a specified dollar
amount transferred from this division to other divisions in the Accounts on a
monthly basis. The main objective of dollar cost averaging is to attempt to
shield your investment from short term price fluctuations. Since the same dollar
amount is transferred to other divisions each month, more units are purchased in
a division if the value per unit is low and less units are purchased if the
value per unit is high.
Therefore, a lower than average value per unit may be achieved over the long
term. This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in declining
markets. See Measurement of Investment Experience, INDEX OF INVESTMENT
EXPERIENCE AND UNIT VALUE.
This dollar cost averaging option may be elected at the time the application or
enrollment form is completed or at a later date. The minimum amount that may be
transferred each month is $250. The maximum amount which may be transferred is
equal to the accumulation value in the Limited Maturity Bond Division or the
Liquid Asset Division when elected, divided by 12.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
The transfer date will be the same calendar day each month as the contract date.
The dollar amount will be allocated to the divisions in which you are invested
in proportion to your accumulation value in each division unless you specify
otherwise. If, on any transfer date, the accumulation value is equal to or less
than the amount you have elected to have transferred, the entire amount will be
transferred and the option will end. You may change the transfer amount once
each contract year, or cancel this option by sending us satisfactory notice to
the Customer Service Center at least seven days before the next transfer date.
Any allocation under this option will not be included in determining if the
excess allocation charge will apply.
WHAT HAPPENS IF A DIVISION IS
NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a division
of Account B or The Managed Global Account Division of Account D in which
reinvestment is not available, we will allocate the distribution, unless you
specify otherwise, to the Specially Designated Division.
Such a distribution can occur when (a) an investment portfolio matures, or (b) a
distribution from a portfolio or division cannot be reinvested in the portfolio
or division due to the unavailability of securities for acquisition. When an
investment portfolio matures, we will notify you in writing 30 days in advance
of that date. To elect an allocation to other than the Specially Designated
Division, you must provide satisfactory notice to us at least seven days prior
to the date the portfolio matures. Such allocations are not counted as an
allocation change of the accumulation value for purposes of the number of free
allocation changes permitted. When a distribution from a portfolio or division
cannot be reinvested in the portfolio due to the unavailability of securities
for acquisition, we will notify you promptly after the allocation has occurred.
If within 30 days you allocate the accumulation value from the Specially
Designated Division to other divisions of your choice, such allocations are not
counted as an allocation change of the accumulation value for purposes of the
number of free allocation changes permitted.
YOUR ACCUMULATION VALUE
Your accumulation value is the sum of the amounts in each of the divisions in
which you are invested, and is the amount available for investment at any time.
You select the divisions to which to allocate the accumulation value. We adjust
your accumulation value on each Valuation Date to reflect the divisions'
investment performance and on each contract processing date to reflect the
removal of any charges. The accumulation value is applied to your choice of an
annuity option on the annuity commencement date. See Choosing an Income Plan.
You may choose up to eleven divisions and allocate your accumulation value among
them in any way you choose.
ACCUMULATION VALUE IN EACH DIVISION
ON THE CONTRACT DATE
On the contract date, the accumulation value is allocated to each division as
specified on the application or enrollment form, unless the contract is issued
in a state that requires the return of premium payments during the free look
period, in which case, your initial premium will be allocated to the Specially
Designated Division during the free look period. See Your Right to Cancel or
Exchange Your Contract.
ON EACH VALUATION DATE
At the end of each subsequent valuation period, the amount of accumulation
value in each division will be calculated as follows:
(1) We take the accumulation value in the division at the end of the preceding
valuation period.
(2) We multiply (1) by the division's net rate of return for the current
valuation period.
(3) We add (1) and (2).
(4) We add to (3) any additional premium payments allocated to the division
during the current valuation period.
(5) We add or subtract allocations to or from that division during the current
valuation period.
(6) We subtract from (5) any partial withdrawals
and any associated charges allocated to that division during the current
valuation period.
(7) We subtract from (6) the amounts allocated
to that division for:
(a) any contract fees; and
(b) any distribution fee and any charge for
premium taxes. HOWEVER, WE CURRENTLY WAIVE THE DEDUCTION OF THE CHARGE
FOR PREMIUM TAXES. (See Charges and Fees, PREMIUM TAXES.)
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
All amounts in (7) are allocated to each division in the proportion that (6)
bears to the accumulation value, unless the Charge Deduction Division has been
specified.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE
AND UNIT VALUE
The investment experience of a division is determined on each valuation date.
We use an index to measure changes in each division's experience during a
valuation period. We set the index at $10 when the first investments in a
division are made. The index for a current valuation period equals the index
for the preceding valuation period multiplied by the experience factor for the
current valuation period.
We may express the value of amounts allocated to the divisions in terms of
units. We determine the number of units for a given amount on a valuation date
by dividing the dollar value of that amount by the index of investment
experience for that date. The index of investment experience is equal to the
value of a unit.
HOW WE DETERMINE THE EXPERIENCE FACTOR
For divisions of Account B the experience factor reflects the investment
experience of the Series in which a division invests as well as the charges
assessed against the division for a valuation period. The factor is calculated
as follows:
(1) We take the net asset value of the portfolio
in which the division invests at the end of the current valuation period.
(2) We add to (1) the amount of any dividend or
capital gains distribution declared for the investment portfolio and
reinvested in such portfolio during the current valuation period. We
subtract from that amount a charge for our taxes, if any.
(3) We divide (2) by the net asset value of the
portfolio at the end of the preceding valuation period.
(4) We subtract the daily mortality and expense
risk charge from each division for each day in the valuation period.
(5) We subtract the daily asset based administrative charge from each division
for each day in the valuation period.
Calculations for divisions investing in a Series are made on a per share
basis.
For the Global Account the experience factor reflects the investment
experience of the Global Account as well as the charges assessed against the
Global Account for a valuation period. The factor is calculated as follows:
(1) We take the value of the assets in the Global
Account at the end of the preceding valuation period.
(2) We add to (1) any investment income and
capital gains, realized or unrealized, credited to the assets during the
current valuation period.
(3) We subtract from (2) any capital losses,
realized or unrealized, charged against the assets during the current
valuation period.
(4) We subtract from (3) any amount charged
against the Global Account for any taxes.
(5) We divide (4) by the value of the assets in the
Global Account at the end of the preceding valuation period.
(6) We subtract from (5) the daily charge for
management and investment advice for each day in the valuation period.
(7) We subtract from (6) a daily charge for
estimated operating expenses for each day in the valuation period.
(8) We subtract from (7) the daily charge for
mortality and expense risks for each day in the valuation period.
(9) We subtract from (8) the asset based administrative charge for each day in
the valuation period.
NET RATE OF RETURN FOR A DIVISION
OF THE ACCOUNTS
The net rate of return for a division during a valuation period is the
experience factor for that valuation period minus one.
CASH SURRENDER VALUE
Your contract's cash surrender value fluctuates daily with the investment
results of the divisions you have selected. We do not guarantee any minimum. On
any date before the annuity commencement date while the contract is in effect,
the cash surrender value is calculated as follows:
(1) We take the contract's accumulation value;
(2) We deduct any incurred distribution fee and
any unrecovered charge for premium taxes. (See Charges and Fees, PREMIUM
TAXES);
(3) We deduct any charges incurred but not yet
deducted.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
SURRENDERING TO RECEIVE THE
CASH SURRENDER VALUE
The contract may be surrendered by the owner at any time while the annuitant is
living and before the annuity commencement date.
A surrender will be effective on the date your written request and the contract
are received by us at our Customer Service Center and the cash surrender value
is determined accordingly as of that date. All benefits under the contract will
then be terminated as of that date. You may receive the cash surrender value in
a single sum payment or apply it under one or more annuity options. See The
Annuity Options. We will usually pay the cash surrender value within seven days
but we may delay payment as described in the When We Make Payments provision.
PARTIAL WITHDRAWALS
Prior to the annuity commencement date, while the annuitant is living and the
contract is in effect, you may take partial withdrawals from the accumulation
value by sending satisfactory notice to the Customer Service Center. Unless you
specify otherwise, the amount of the withdrawal will be taken in proportion to
the amount of accumulation value in each division in which you are invested.
There are three options available for selecting partial withdrawals, the
Conventional Partial Withdrawal Option, the Systematic Partial Withdrawal Option
and the IRA Partial Withdrawal Option. All three options are described below.
Partial withdrawals may not be repaid.
CONVENTIONAL PARTIAL WITHDRAWAL OPTION
After the free look period, you may take a conventional partial withdrawal
once each contract year without charge. If you take more than one conventional
partial withdrawal in a contract year, we impose a charge of the lesser of $25
and 2.0% of the amount withdrawn. The minimum amount you may withdraw under
this option is $1,000. In no event may a conventional partial withdrawal or a
combination of a conventional partial withdrawal and systematic partial
withdrawals received or expected to be received during the contract year,
exceed 25% of the accumulation value as of the date of the current withdrawal.
Also, in no event may a combination of a conventional partial withdrawal and
IRA partial withdrawals received or expected to be received during a contract
year, exceed 25% of the accumulation value as of the date of the conventional
partial withdrawal.
SYSTEMATIC PARTIAL WITHDRAWAL OPTION
This option may be elected at the time the application or enrollment form is
completed, or at a later date. This option may be elected to commence in a
contract year where a conventional partial withdrawal has been taken. However,
it may not be elected while the IRA partial withdrawal option is in effect.
You may choose to receive systematic partial withdrawals on a monthly or
quarterly basis from the accumulation value in the divisions of the Accounts.
The commencement of payments under this option may not be elected to start
sooner than 28 days after the contract issue date. You select the date of the
quarter or month when the withdrawals will be made but no later than the 28th
day of the month. If no date is selected, the withdrawals will be made on the
same calendar day of each month as the contract date. You may select a dollar
amount or a percentage of the accumulation value as the amount of your
withdrawal subject to the following maximums, but in no event can a payment be
less than $100:
<TABLE>
<CAPTION>
FREQUENCY MAXIMUM PERCENTAGE
- ------------ -------------------------
<S> <C>
Monthly..... 1.25%
Quarterly... 3.75%
</TABLE>
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage of the accumulation value on
the withdrawal date, the amount withdrawn will be reduced so that it equals
such percentage. For example, if a $2,500 monthly withdrawal was elected and
on the withdrawal date 1.25% of the accumulation value equaled $1,500, the
withdrawal amount would be reduced to $1,500. If a percentage is selected and
the amount to be systematically withdrawn based on that percentage would be
less than the minimum of $100, we would increase the amount to $100 provided
it does not exceed the maximum percentage. If it is below the maximum
percentage we will send the minimum. If it is above the maximum percentage we
will send the amount and then cancel the option. For example, if you selected
1.0% to be systematically withdrawn on a monthly basis and that amount equaled
$90, and since $100 is less than 1.25% of the accumulation value, we would
send $100. If 1.0% equaled $75, since $100 is more than 1.25% of the
accumulation value we would send $75 and then cancel the option. In such a
case, in order to receive systematic partial withdrawals in the future, you
would be required to submit a new notice to our Customer Service Center.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
You may change the amount or percentage of your withdrawal once each contract
year or cancel this option at any time by sending satisfactory notice to us at
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date. However, you may not change the amount or percentage of your
withdrawals in any contract year during which you have previously taken a
conventional partial withdrawal.
In no event may a systematic partial withdrawal or a combination of a
conventional partial withdrawal and systematic partial withdrawals received or
expected to be received during the contract year, exceed 25% of the
accumulation value as of the date of the current withdrawal.
IRA PARTIAL WITHDRAWAL OPTION
If you have an IRA contract and will attain age 70 1/2 in the current calendar
year, distributions will be made to you to satisfy requirements imposed by
Federal tax law. IRA partial withdrawals provide payout of amounts required to
be distributed by the Internal Revenue Service rules governing mandatory
distributions under qualified plans. See Federal Tax Considerations, Taxation
of Individual Retirement Annuities. We will send you a notice before your
distributions must commence, and you may elect this option at that time, or at
a later date. You may not elect IRA partial withdrawals while the systematic
partial withdrawal option is in effect. If you do not elect the IRA partial
withdrawal option, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax law
will be made. Thus, if the systematic partial withdrawal option is in effect,
distribution under that option must be adequate to satisfy the mandatory
distribution rules imposed by Federal tax law.
You may choose to receive IRA partial withdrawals on a monthly, quarterly or
annual frequency. You select the day of the month when the withdrawals will be
made, but it cannot be later than the 28th day of the month. If no date is
selected, the withdrawals will be made on the same calendar day of the month
as the contract date.
We will determine the amount that is required to be withdrawn from your
contract each year based on the information you give us and various choices
you make. For information regarding the calculation and choices you have to
make, see the Statement of Additional Information. The minimum dollar amount
you can withdraw is $100. At the time we determine the required partial
withdrawal amount for a taxable year based on the frequency you select, if
that amount is less than $100, we will pay $100. At any time where the partial
withdrawal amount is greater than the accumulation value, we will cancel the
contract and send you the amount of the cash surrender value.
You may change the payment frequency of your withdrawals once each contract
year or cancel this option at any time by sending us satisfactory notice to
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date.
PARTIAL WITHDRAWALS IN GENERAL
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
PARTIAL WITHDRAWALS. A partial withdrawal made before the taxpayer reaches age
59 1/2 may result in imposition of a tax penalty of 10% of the taxable portion
withdrawn. Please refer to Federal Tax Considerations for more details.
PROCEEDS PAYABLE TO THE BENEFICIARY
If either the annuitant (when there is no contingent annuitant) or owner dies
prior to the annuity commencement date, we will pay the beneficiary the death
benefit proceeds under the contract. Such amount may be received in a single sum
or applied to any of the annuity options. See The Annuity Options. If we do not
receive a request to apply the death benefit proceeds to an annuity option, a
single sum distribution will be made. We may reduce the death benefit proceeds
payable under certain group or sponsored arrangements. See Part I, Group or
Sponsored Arrangements.
If the annuitant and owner are both age 75 or younger at issue the death benefit
is the greater of the accumulation value and the guaranteed death benefit.
MAXIMUM GUARANTEED DEATH BENEFIT
This amount is calculated as follows:
(1) We determine the total premiums paid;
(2) We multiply (1) by two;
(3) We determine the total partial withdrawals
taken; and
(4) We subtract (3) from (2).
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
GUARANTEED DEATH BENEFIT
On the contract date the guaranteed death benefit is equal to the initial
premium. On subsequent valuation dates, the guaranteed death benefit is
calculated as follows:
(1) We take the guaranteed death benefit from
the prior valuation date;
(2) We calculate interest on (1) for the current
valuation period at an annual rate of 7% (THE GUARANTEED DEATH BENEFIT
INTEREST RATE), except that with respect to amounts in the Liquid Asset
Division, the interest rate applied to such amounts will be the net rate
of return for the Liquid Asset Division during the current valuation
period, if it is less than 7%;
(3) We add (1) and (2);
(4) We add to (3) any additional premiums paid
during the current valuation period; and,
(5) We subtract from (4) any partial withdrawals
made during the current valuation period.
If (5) is greater than the maximum guaranteed death benefit, we will pay the
maximum guaranteed death benefit.
If the annuitant or owner is age 76 or older at issue, the death benefit is
the greater of:
(1) The cash surrender value; and
(2) The sum of the premiums paid, less any
partial withdrawals.
HOW TO CLAIM PAYMENTS TO BENEFICIARY
We must receive due proof of the death of the annuitant or owner (such as an
official death certificate) at our Customer Service Center before we will make
any payments to the beneficiary. We will calculate the death benefit as of the
date we receive due proof of death. The beneficiary should contact our
Customer Service Center for instructions.
REPORTS TO OWNERS
We will send you a report once each contract quarter within 31 days after the
end of each contract quarter. The report will show the accumulation value, the
cash surrender value, and the death benefit as of the end of the contract
quarter.
The report will also show the allocation of the accumulation value as of such
date and the amounts deducted from or added to the accumulation value since the
last report. The report will also include any other information that may be
currently required by the insurance supervisory official of the jurisdiction in
which the contract is delivered.
We will also send you copies of any shareholder reports of the portfolios or
securities in which the Accounts invest, as well as any other reports, notices
or documents required by law to be furnished to contract owners.
WHEN WE MAKE PAYMENTS
We will pay death benefit proceeds and the cash surrender value within seven
days after our Customer Service Center receives all the information needed to
process the payment.
However, we may delay payment of amounts derived from the divisions if it is not
practical for us to value or dispose of shares of the Accounts because:
(1) The NYSE is closed for trading;
(2) The SEC determines that a state of emergency
exists;
(3) An order or pronouncement of the SEC permits
a delay for the protection of contract owners; or,
(4) The check used to pay the premium has not
cleared through the banking system. This may take up to 15 days.
During such times, as to amounts allocated to the divisions, we may delay:
(1) Determination and payment of any cash surrender value;
(2) Determination and payment of any death benefit if death occurs before the
annuity commencement date;
(3) Allocation changes of the accumulation value; or,
(4) Application under an annuity option of the accumulation value.
26
<PAGE>
CHARGES AND FEES
CHARGE DEDUCTION DIVISION
You may specify on the application or enrollment form if you wish to use the
Charge Deduction Division Option. If you so specify, all charges against the
accumulation value will be deducted from the Liquid Asset Division. If the
amount of the charge is greater than the amount in the division, the charge will
be deducted proportionately from all the divisions in which you are invested.
You may also choose to elect or cancel this option while the contract is in
force by sending us satisfactory notice to our Customer Service Center. If you
do not elect this option, the charges will be deducted proportionately from all
the divisions in which you are invested.
CHARGES DEDUCTED FROM THE
ACCUMULATION VALUE
We invest the entire amount of the initial and any additional premium payments
in the divisions you select, subject to certain restrictions. See Restrictions
on Allocation of Premium Payments. We then periodically deduct certain amounts
from your accumulation value. We may reduce certain fees and charges, including
any distribution fees, surrender, administration, and mortality and expense risk
charges, under group or sponsored arrangements. See Group or Sponsored
Arrangements. Charges are deducted proportionately from all divisions in which
you are invested, unless you have elected the Charge Deduction Division. The
charges we deduct are:
DISTRIBUTION FEE
We deduct a sales load in an annual amount of 0.65% of each premium. This
charge is incurred at the beginning of each contract processing period and
deducted at the end of each contract processing period (or at the time of
surrender if surrendered before the end of a contract processing period) for a
period of ten years from the date we receive and accept each premium payment.
We also offer a DVA through another prospectus, which is a contract with a
different charging structure.
PREMIUM TAXES
We make a charge for state and local premium taxes in certain states which can
range from 0% to 3.5% of premium. The charge depends on the annuitant's state
of residence. We reserve the right to change this amount to conform with
changes in the law or if the annuitant or owner changes state of residence, as
applicable.
Premium taxes are generally incurred on the annuity commencement date and a
charge for such premium taxes is then deducted from your accumulation value on
such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity
commencement date. In those states we initially advance the amount of the
charge for premium taxes to your accumulation value and then deduct it in
equal installments on each contract processing date over a six year period,as
applicable.
Currently, in those states where we advance the charge for premium taxes, we
will waive the deduction of the applicable installments of the charge for
premium taxes on each contract processing date. However, we will deduct the
unrecovered charge for premium taxes (not including installments which were
waived) when determining the cash surrender value payable if you surrender
your contract. We reserve the right to deduct the total amount of the charge
for premium taxes previously waived and unrecovered on the annuity
commencement date.
In those cases when we advance the charge for premium taxes, since the charge
for premium taxes is advanced to the accumulation value, a positive net rate
of return will give a higher cash surrender value and a negative net rate of
return will give a lower cash surrender value than would be the case had the
charge for premium taxes been deducted from your premium payment.
EXCESS ALLOCATION CHARGE
We allow you five free allocation changes between divisions per contract year.
For each additional allocation change, we will charge you $25 at the time each
allocation change is processed. This amount represents the maximum we will
charge. The charge is deducted from the division(s) from which each such
reallocation is made in proportion to the amount being transferred from each
such division unless you have chosen to use the Charge Deduction Division. The
excess allocation charge is set at a level that is not designed to produce
profit for Golden American or any affiliate. Any allocation(s) or transfer(s)
due to the election of the Dollar Cost Averaging Option and reallocation under
the provision What Happens if a Division is Not Available will not be included
in determining if the excess allocation charge should apply.
PARTIAL WITHDRAWAL CHARGE
If you take more than one conventional partial withdrawal during a contract
year, we impose a
27
<PAGE>
CHARGES AND FEES (CONTINUED)
charge of the lesser of $25 and 2.0% of the amount withdrawn for each
additional conventional partial withdrawal. The charge is deducted from the
division(s) from which each such partial withdrawal is made in proportion to
the amount being withdrawn from each division unless you have chosen to use
the Charge Deduction Division. See Partial Withdrawals, CONVENTIONAL PARTIAL
WITHDRAWAL OPTION.
CHARGES DEDUCTED FROM THE DIVISIONS
Mortality and Expense Risk Charge The daily charge is at the rate of 0.003446%
(equivalent to an annual rate of 1.25%) on the assets in each division.
Approximately 0.60% of this annual charge is allocated to the mortality risk and
0.65% is allocated to the expense risk.
This charge will compensate us for mortality and expense risks we assume
under the contract. We will realize a gain from this charge to the extent it
is not needed to provide for benefits and expenses under the contract. We
will use any gain for any lawful purpose including any shortfalls on paying
distribution expenses.
The mortality risk assumed is the risk that annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would
be paying more in annuity income than we planned. Golden American also
assumes a risk under the contract for paying a guaranteed death benefit.
The expense risk assumed is the risk that it will cost us more to issue and
administer the contract than we expect.
ASSET BASED ADMINISTRATIVE CHARGE
We will deduct a daily charge from the assets in each division of the
Accounts, to compensate Golden American for administrative expenses under the
contract. The daily charge is at a rate of 0.000276% (equivalent to an annual
rate of 0.10%) on the assets in each division.
This asset based administrative charge will not exceed the cost of the
services to be provided over the life of the contract.
TRUST EXPENSES
There are fees and charges deducted from each Series. Please read the Trust
prospectus for details.
OPERATING EXPENSES OF ACCOUNT D
There are additional fees and charges to the Global Account in Account D for
management and advisory services as well as other operational expenses of the
Global Account. DSI as the Manager of Account D receives a monthly fee equal to
an annual rate based upon the following percentages of the Global Account's
average daily net assets: 0.40% of the first $500 million and 0.30% of the
amount over $500 million. Warburg, Pincus as the Portfolio Manager receives a
monthly fee equal to an annual rate based upon the following percentages of the
Global Account's average daily net assets: 0.60% of the first $500 million and
0.50% of the amount over $500 million. The total fees for management and
advisory services exceed the fees for similar services paid by some other
registered investment companies with similar objectives.
The Global Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, and legal and auditing services.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
The Global Account and DSI have agreed to limit the total expenses of the Global
Account. See Part I, The Managed Global Account of Account D.
CHOOSING AN INCOME PLAN
THE INCOME PLAN
If the annuitant and owner are living on the annuity commencement date, we will
begin making payments to the annuitant under an income plan. We will make these
payments under the annuity option chosen in the application or enrollment form
or as subsequently changed. You may change an annuity option by making a written
request to us at least 30 days prior to the annuity commencement date of the
contract. The amount of the payments will be determined by applying the
accumulation value on the annuity commencement date in accordance with The
Annuity Options section below. See When We Make Payments.
You may also elect an annuity option on surrender of the contract for its cash
surrender value or, you may choose one or more annuity options for the payment
of death benefit proceeds while it is in effect and before the annuity
commencement date. If, at the time of the annuitant's or owner's death, no
option has been chosen for paying death benefit proceeds, the beneficiary may
choose an option within one year.
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CHOOSING AN INCOME PLAN (CONTINUED)
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the accumulation value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20. For
each option we will issue a separate written agreement putting the option into
effect. Before we pay any annuity benefits, we require the return of the
contract. If your contract has been lost, we will require that you complete and
return the applicable lost contract form. Various factors will affect the level
of annuity benefits including the annuity option chosen, the assumed interest
rate used and the investment results of the division(s) in which the
accumulation value has been invested.
Fixed annuity payments are regular payments, the amount of which is fixed and
guaranteed by us. The amount of the payments will depend only on the form and
duration of payments chosen, the age of the annuitant or beneficiary (and sex,
where appropriate), the total accumulation value applied to purchase the fixed
option, and the applicable payment rate.
Our approval is needed for any option where:
(1) The person named to receive payment is other
than the owner or beneficiary;
(2) The person named is not a natural person,
such as a corporation; or
(3) Any income payment would be less than the
minimum annuity income payment allowed.
ANNUITY COMMENCEMENT DATE SELECTION
You select the annuity commencement date in the application or enrollment form.
You may select any date following the third contract anniversary but before the
contract processing date in the month following the annuitant's 90th birthday.
If you do not select a date, the annuity commencement date will be in the month
following the annuitant's 90th birthday. However, in the state of Pennsylvania
the annuity commencement date may not be later than in the month following the
annuitant's 85th birthday for annuitants with an issue age of 80 and under. If
the annuity commencement date occurs when the annuitant is at an advanced age,
such as over age 85, it is possible that the contract will not be considered an
annuity for Federal tax purposes. See Federal Tax Considerations. For a contract
purchased in connection with a qualified plan, distribution must commence not
later than April 1st of the calendar year following the calendar year in which
you attain age 70 1/2. Consult your tax advisor.
FREQUENCY SELECTION
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, the payments will be made monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITY OPTIONS
There are four options to choose from as shown below. Options 1 through 3 are
fixed and option 4 is variable. For a fixed option, the accumulation value is
transferred to the general account.
OPTION 1. INCOME FOR A FIXED PERIOD
Payment is made in equal installments for a fixed number of years based on the
accumulation value as of the annuity commencement date. We guarantee that each
monthly payment will be at least the amount set forth in the contract.
Guaranteed amounts for annual, semi-annual and quarterly payments are
available upon request. Illustrations are available upon request. If the cash
surrender value or accumulation value is applied under this option, a 10%
penalty tax may apply to the taxable portion of each income payment until the
annuitant reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE
Payment is made in equal monthly installments and guaranteed for at least a
period certain. The period certain can be 10 or 20 years. Other periods
certain are available on request. A refund certain may be chosen instead.
Under this arrangement, income is guaranteed until payments equal the amount
applied. If the person named lives beyond the guaranteed period, payments
continue until his or her death.
WE GUARANTEE THAT EACH PAYMENT WILL BE AT LEAST THE AMOUNT SET FORTH IN THE
CONTRACT CORRESPONDING TO THE PERSON'S AGE ON HIS OR HER LAST BIRTHDAY BEFORE
THE OPTION'S EFFECTIVE DATE. AMOUNTS FOR AGES NOT SHOWN IN THE CONTRACT ARE
AVAILABLE UPON REQUEST.
OPTION 3. JOINT LIFE INCOME
This option is available if there are two persons named to receive payments.
At least one of the persons named must be either the owner or beneficiary of
the contract. Monthly payments are guaranteed and are made as long as at least
one of the named persons is living. There is no minimum number of payments.
Monthly payment amounts are available upon request.
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CHOOSING AN INCOME PLAN (CONTINUED)
OPTION 4. ANNUITY PLAN
An amount can be used to buy any single premium annuity we offer on the
option's effective date.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided by the option agreement. The amounts still due are determined as
follows:
(1) For options 1, 2, or any remaining guaranteed
payments, payments will be continued. Under options 1 and 2, the discounted
values of the remaining guaranteed payments may be paid in a single sum.
This means we deduct the amount of the interest each remaining guaranteed
payment would have earned had it not been paid out early. The discount
interest rate is 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 agreement will state
the amount due, if any.
OTHER INFORMATION
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS ON THE APPLICATION OR ENROLLMENT FORM
If an age or sex given in the application or enrollment form is misstated, the
amounts payable or benefits provided by the contract shall be those that the
premium payment would have bought at the correct age or sex.
SENDING NOTICE TO US
Any written notices, inquiries or requests should be sent to our Customer
Service Center. Please include your name, your contract number and, if you are
not the annuitant, the name of the annuitant.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified contract as collateral security for a loan or
other obligation. This does not change the ownership. However, your rights and
any beneficiary's rights are subject to the terms of the assignment. See
Additional Considerations, Transfer of Annuity Contracts, and Assignments. An
assignment may have Federal tax consequences. See Federal Tax Considerations.
You must give us satisfactory written notice at our Customer Service Center in
order to make or release an assignment. We are not responsible for the
validity of any assignment.
NON-PARTICIPATING
The contract does not participate in the divisible surplus of Golden American.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by our president or a vice president
and by our secretary or an assistant secretary. No other person, including an
insurance agent or broker, can change any of the contract's terms, make any
agreements binding on us or extend the time for premium payments.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We reserve the right to make changes in the contract to the extent we deem it
necessary to continue to qualify the contract as an annuity. Any such changes
will apply uniformly to all contracts that are affected. You will be given
advance written notice of such changes.
YOUR RIGHT TO CANCEL OR
EXCHANGE YOUR CONTRACT
CANCELLING YOUR CONTRACT
You may cancel your contract within your free look period, which is ten days
after you receive your contract. For purposes of administering our allocation
and administrative rules, we deem this period to expire 15 days after the
contract is mailed to you. Some states may require a longer free look period.
If you decide to cancel, you may mail or deliver the contract to us at our
Customer Service Center. We will refund the accumulation value plus any
charges we deducted, and the contract will be voided as of the date we receive
the contract and your request. Some states require that we return the premium
paid. In these states, we require that your premium be allocated to the
Specially Designated Division during the free look period. If you exercise
your right to cancel, we will return the greater of (a) the premium invested
and (b) the accumulation value of your contract plus any amounts deducted
under the contract or by the Trust for taxes, charges or fees. If you do not
choose to exercise your right to cancel during the free look period, then at
the end of the free look period your
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OTHER INFORMATION (CONTINUED)
money will be invested in the division(s) chosen by you, based on the index of
investment experience next computed for each division. See Measurement of
Investment Experience, INDEX OF EXPERIENCE AND UNIT VALUE.
EXCHANGING YOUR CONTRACT
For information regarding Section 1035 exchanges, see Federal Tax
Considerations.
OTHER CONTRACT CHANGES
You may change the contract to another annuity plan subject to our rules at the
time of the change.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any distribution fee,
surrender, administration, and mortality and expense risk charges. We may also
change the minimum initial and additional premium requirements, or reduce the
death benefit proceeds payable. Group arrangements include those in which a
trustee or an employer, for example, purchases contracts covering a group of
individuals on a group basis. Sponsored arrangements include those in which an
employer allows us to sell contracts to its employees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy contracts or that have been in existence less
than six months will not qualify for reduced charges.
We will make these and any similar reductions according to our rules in effect
when an application or enrollment form for a contract is approved. We may change
these rules from time to time. Any variation in the distribution fee will
reflect differences in costs or services and will not be unfairly
discriminatory.
SELLING THE CONTRACT
DSI is also principal underwriter and distributor of the contract as well as for
other contracts issued through the Accounts and other separate accounts of
Golden American. We pay DSI for acting as principal underwriter under a
distribution agreement. The offering of the contract will be continuous.
DSI has entered into and will continue to enter into sales agreements with
broker-dealers to solicit for the sale of the contract through registered
representatives who are licensed to sell securities and variable insurance
products including variable annuities. These agreements provide that
applications for contracts may be solicited by registered representatives of the
broker-dealers appointed by Golden American to sell its variable life insurance
and variable annuities. These broker-dealers are registered with the SEC and are
members of the National Association of Securities Dealers, Inc. ("NASD"). The
registered representatives are authorized under applicable state regulations to
sell variable life insurance and variable annuities. The writing agent will
receive commissions of up to 0.75% of average annual contract assets per year
over the life of the contract.
REINSURANCE
Golden American reinsures its mortality risk associated with the contract's
guaranteed death benefit with Security Life of Denver Insurance Company
("Security Life Reinsurance").
REGULATORY INFORMATION
VOTING RIGHTS
ACCOUNT B
We will vote the shares of the 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 the
Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a division by dividing the
contract's accumulation value in that division by the net asset value of one
share of the portfolio in which a division invests. Fractional votes will be
counted. We will determine the number of shares you can instruct us to vote
180 days or less before the Trust's meeting. We will ask you for voting
instructions by mail at least 10 days before the meeting.
If we do not get your instructions in time, we will vote the shares in the
same proportion as the instructions received from all contracts in that
division. We will also vote shares we hold in Account B which are not
attributable to owners in the same proportion.
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REGULATORY INFORMATION (CONTINUED)
ACCOUNT D
Owners with accumulation value in the Global Account have certain voting
rights. Each such owner will be given one vote for every $1.00 of accumulation
value in the Global Account with fractional interests counted, unless a
different allocation of voting rights is required under applicable law for an
investment medium for variable annuity contracts.
Account D's rules do not require Account D to hold annual meetings of owners
of interests in Account D, although special meetings may be called for Account
D for purposes such as electing or removing members of the Board of Governors,
changing fundamental policies, or approving a contract for investment advisory
services. When required, "the vote of a majority of the outstanding voting
securities" of the Global Account of Account D means the lesser of:
(1)The holders of more than 50% of all votes entitled to be cast in respect to
Account D; or,
(2)The holders of at least 67% of the votes which are present at a meeting of
such persons are the holders of more than 50% of all votes entitled to be
cast in respect to Account D are present or represented by proxy.
We will determine the number of votes you can instruct us to vote 90 days or
less before Account D's meeting. We will ask you for voting instructions by
mail at least 14 days before the meeting.
STATE REGULATION
We are regulated and supervised by the Insurance Department of the State of
Delaware, which periodically examines our financial condition and operations. We
are also subject to the insurance laws and regulations of all jurisdictions
where we do business. The variable contract offered by this prospectus has been
approved by the Insurance Department of the State of Delaware and by the
Insurance Departments of other jurisdictions.
We are required to submit annual statements of our operations, including
financial statements, to the Insurance Departments of the various jurisdictions
in which we do business to determine solvency and compliance with state
insurance laws and regulations.
LEGAL PROCEEDINGS
Golden American, as an insurance company, is ordinarily involved in litigation.
We do not believe that any current litigation is material and we do not expect
to incur significant losses from such actions.
LEGAL MATTERS
The legal validity of the contract described in this prospectus has been passed
on by Bernard R. Beckerlegge, General Counsel and Secretary of Golden American.
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to Federal securities laws.
EXPERTS
The financial statements of Golden American Life Insurance Company, Separate
Account B and The Managed Global Account of Separate Account D, appearing in the
Statement of Additional Information and in the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing in the Statement of Additional Information and in the
Registration Statement and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The contract is designed for use by individuals or groups in retirement plans
which are qualified under Section 408 or non-qualified under the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect
of Federal income taxes on the amounts paid for the contract, on the investment
return on assets held under the contract, on annuity payments and on the
economic benefits to the owner, annuitant or beneficiary depends upon the terms
of the contract, upon Golden American's tax status and upon the tax status of
the individuals concerned.
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax advisor. No attempt is made
to consider any applicable state or other tax laws. Moreover, the discussion is
based upon Golden American's understanding of the Federal income tax laws as
they are currently interpreted. No representation is made regarding the
likelihood of continuation of the Federal income tax laws, the Treasury
Regulations, or the current interpretations by the Internal Revenue Service (the
"IRS").
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
For a discussion of Federal income taxes as they relate to the Trust, please see
the accompanying prospectus for the Trust.
GOLDEN AMERICAN TAX STATUS
Golden American is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the Accounts are not separate entities from Golden American
and their operations form a part of Golden American, they will not be taxed
separately as "regulated investment companies" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Accounts are
reinvested and taken into account in determining the accumulation value. Under
existing Federal income tax law, Golden American does not incur tax on the
Accounts' investment income, including realized net capital gains. Golden
American reserves the right to make a deduction for taxes should they be imposed
with respect to such items in the future.
TAXATION OF NON-QUALIFIED ANNUITIES
1. IN GENERAL
Code Section 72 generally governs the taxation of non-qualified annuities.
Under this provision, except as described below, any increase in the
contract's value is generally not taxable to the owner until a distribution is
made from the contract, either in the form of annuity payments as contemplated
by the contract, or in some other form of distribution. (For purposes of this
rule, the amount of any indebtedness that is secured by a pledge or assignment
of the contract is treated as a payment received on account of a partial
withdrawal from the contract.) However, this rule applies only if (1) the
investments of the Accounts are "adequately diversified" in accordance with
Treasury Department regulations, (2) Golden American, rather than the owner,
is considered the owner of the assets of the Accounts for Federal income tax
purposes, and (3) the owner is an individual.
DIVERSIFICATION REQUIREMENTS. Treasury Department regulations
("Regulations") issued under Code Section 817 (h) prescribe the manner in
which the investments of a segregated asset account, such as the Accounts,
are to be "adequately diversified." The Regulations generally require that
on the last day of each quarter of a calendar year (i) no more than 55% of
the value of each segregated asset account is represented by any one
investment; (ii) no more than 70% is represented by any two investments;
(iii) no more than 80% is represented by any three investments; and (iv) no
more than 90% is represented by any four investments. For purposes of
complying with these requirements, all securities of the same issuer are
treated as a single investment, and each U.S. government agency or
instrumentality will be treated as a separate issuer. In addition, where a
segregated asset account invests in other regulated investment companies or
certain other entities (E.G., the divisions of Account B do), a
"look-through" rule applies and, as a result, each division of an Account
must be tested for compliance with the percentage limitations by looking
through to the assets of that division.
If the Accounts failed to comply with these diversification standards, the
contract would not be treated as an annuity contract for Federal income tax
purposes and the owner would generally be taxable currently on the income on
the contract (as defined in the tax law) beginning with the first period of
non-diversification. Golden American expects that the Accounts, including
each of the divisions, will comply with the diversification requirements
prescribed by the Regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for Federal income tax purposes, of the
assets of the segregated asset account, such as the Accounts, used to
support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owners' gross
income. The IRS has stated in published rulings that a variable contract
owner will be considered the owner of the assets of the segregated asset
account if the owner possesses incidents of ownership in those assets, such
as the ability to exercise investment control over the assets. In addition,
the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations
"do not provide guidance concerning the circumstances in which investor
control of the investments of a segregated asset account may cause the
investor, rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts [of a
segregated asset
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
account] without being treated as owners of the underlying assets." As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a
segregated asset account. For example, the owner of this contract has the
choice of more investment options to which to allocate premium payments and
accumulation values, and may be able to transfer among investment options
more frequently, than in such rulings. In addition, the owner of this
contract has the choice of certain investment options which may be more
similar to each other in their investment objectives than in such rulings.
These differences could result in the owner being treated as the owner of a
portion of the assets of the Accounts. In addition, Golden American does not
know what standards will be set forth in the regulations or rulings which
the Treasury Department has stated it expects to issue. Golden American
therefore reserves the right to modify the contract as necessary to attempt
to prevent contract owners from being considered the owners of the assets of
the Accounts.
Frequently, if the IRS or the Treasury Department sets forth a new position
which is adverse to taxpayers, the position is applied on a prospective
basis only. Thus, if the IRS or the Treasury Department were to issue
regulations or a ruling which treated an owner of this contract as the owner
of the Accounts, that treatment might apply on a prospective basis. However,
if the ruling or regulations were not considered to set forth a new
position, an owner might retroactively be determined to be the owner of the
assets of the Accounts.
NON-NATURAL OWNER. As a general rule, contracts held by "non-natural
persons" such as a corporation, trust or other similar entity, as opposed to
a natural person, are not treated as annuity contracts for Federal tax
purposes. The income on such contracts (as defined in the tax law) is taxed
as ordinary income that is received or accrued by the owner of the contract
during the taxable year. There are several exceptions to this general rule
for non-natural owners. First, contracts will generally be treated as held
by a natural person if the nominal owner is a trust or other entity which
holds the contract as an agent for a natural person. However, this special
exception will not apply in the case of any employer who is the nominal
owner of a contract under a non-qualified deferred compensation arrangement
for its employees.
In addition, exceptions to the general rule for non-natural owners will
apply with respect to (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) contracts issued in connection with
certain qualified plans, (3) contracts purchased by employers upon the
termination of certain qualified plans, (4) certain contracts used in
connection with structured settlement agreements, and (5) contracts
purchased with a single purchase payment when the annuity starting date is
no later than a year from purchase of the contract and substantially equal
periodic payments are made, not less frequently than annually, during the
annuity period.
In addition to the foregoing, if the contract's annuity commencement date
occurs at a time when the annuitant is at an advanced age, such as over age
85, it is possible that the owner will be taxable currently on the annual
increase in the accumulation value. The remainder of this discussion assumes
that the contract will be treated as an annuity contract for Federal income
tax purposes.
2. WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE
Code Section 72 provides that the proceeds of a total surrender of a contract
prior to the annuity commencement date will be taxed to the extent that the
amount distributed exceeds the "investment in the contract" and that any
conventional or systematic partial withdrawal from a contract prior to the
annuity commencement date will be treated as taxable income to the extent the
amount held under the contract immediately before the withdrawal occurs
exceeds the "investment in the contract." The "investment in the contract" is
defined in the Code as that portion, if any, of premium payments by or on
behalf of an individual under a contract which was not excluded from the
individual's gross income at the time of such payment less any amounts
previously received under the contract which were excluded from the
individual's gross income at the time of their receipt. The taxable portion of
any distribution received prior to the annuity commencement date will be
subject to tax at ordinary income tax rates. For purposes of this
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
rule, a pledge or assignment of a contract is treated as a payment received on
account of a partial withdrawal of a contract.
In the case of systematic partial withdrawals, the amount of each withdrawal
should be considered as a distribution and taxed in the same manner as a
partial withdrawal prior to the annuity commencement date, as described above.
However, there is some uncertainty regarding the tax treatment of systematic
partial withdrawals, and it is possible that additional amounts may be
includible in income.
In addition, the contract provides a death benefit that in certain
circumstances may exceed the greater of the premium payments and the
accumulation value. As described elsewhere in this prospectus, Golden American
imposes certain charges with respect to, among other things, the death
benefit. It is possible that some portion of those charges could be treated
for Federal tax purposes as a partial withdrawal from the contract.
3. ANNUITY PAYMENTS AND WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE
Proceeds of a total surrender of the contract after the annuity commencement
date are taxable to the extent the proceeds exceed the investment in the
contract. In addition, proceeds of a partial withdrawal after the annuity
commencement date are fully taxable. Also, a portion of each annuity payment
under the contract is taxable if the value of the contract exceeds the
investment in the contract. The taxable portion of an annuity payment will be
subject to tax at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment is determined
by using a formula known as the "exclusion ratio," which establishes the ratio
that the investment in the contract (allocated to the fixed annuity option)
bears to the total expected amount of fixed annuity payments for the term of
the contract. That ratio is then applied to each payment to determine the
non-taxable portion of the payment. The remaining portion of each payment is
taxed at ordinary income rates.
For variable annuity payments, in general, the taxable portion is determined
by a formula which establishes a specific dollar amount of each payment that
is not taxed. The dollar amount is determined by dividing the investment in
the contract (allocated to the variable annuity option) by the total number of
expected periodic payments. The remaining portion of each payment is taxed at
ordinary income rates.
Once the excludable portion of annuity payments to date equals the investment
in the contract, the balance of the annuity payments will be fully taxable.
If amounts have become payable under the contract (such as where the owner
elects to surrender an amount) and if the distribution-at-death rules do not
apply to such amount, the amount will be treated as a partial or full
surrender for Federal income tax purposes if applied under an annuity option
later than 60 days after the time when the amount became payable. Thus, if
such an amount is applied under an annuity option after the 60 day period, it
will be treated as a partial or full surrender, even if the full amount has
not been distributed from the contract.
4. WITHHOLDING AND REPORTING REQUIREMENTS
Golden American will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a contract unless the taxpayer
notifies Golden American at or before the time of the distribution that he or
she elects not to have any amounts withheld. The withholding rates applicable
to the taxable portion of periodic annuity payments typically are the same as
the withholding rates generally applicable to payments of wages. In addition,
the withholding rate applicable to the taxable portion of non-periodic
payments (including surrenders prior to the annuity commencement date) is 10%.
Golden American also has tax reporting obligations with respect to
distributions from the contract.
5. PENALTY TAX ON CERTAIN WITHDRAWALS
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the owner, or where the owner
is not an individual, the death of the "primary annuitant" (i.e., the
individual the events in whose life are of primary importance in affecting the
timing or amount of the payout under the contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code
Section72(m)(7); (iii) which are part of a series of substantially equal
periodic payments made at least annually for the life (or life expectancy) of
the taxpayer, or the joint lives (or joint life expectancies) of the taxpayer
and his
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
beneficiary; (iv) from a qualified plan; (v) allocable to investment in the
contract before August 14, 1982; (vi) under a qualified funding asset (as
defined in Code Section130(d)); (vii) under an immediate annuity contract, or
(viii) which are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee
separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments is subsequently
modified (other than by reason of death or disability), the tax for the year
when the modification occurs will be increased by an amount (as determined by
regulations) equal to the tax that would have been imposed but for item (iii)
above, plus interest for the deferral period, if the modification takes place
(a) before the close of the period which is within five years of the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
In the case of systematic withdrawals, it is unclear whether such withdrawals
will qualify for exception (iii) above.
TAXATION OF INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408 permits individuals or their employers to contribute to an
individual retirement program known as an Individual Retirement Annuity. If the
contract is used for this purpose, the owner must be the annuitant. In addition,
distributions from certain other types of qualified retirement plans may be
placed into an Individual Retirement Annuity on a tax deferred basis.
Individual Retirement Annuities are subject to limitations on the amount which
may be contributed and the time when distributions may commence. Tax penalties
may apply to contributions in excess of specified limits, loans or assignments,
distributions in excess of a specified amount annually or that do not meet
specified requirements, and in certain other circumstances.
Under the Internal Revenue Code, distributions from qualified retirement plans,
including Individual Retirement Annuities, Simplified Employee Pensions, and Tax
Sheltered Annuities, generally must begin not later than April 1st of the
calendar year following the calendar year in which an owner attains age 70 1/2.
If the required minimum distribution is not withdrawn, there may be a penalty
tax in an amount equal to 50% of the difference between the amount required to
be withdrawn and the amount actually withdrawn. See the Statement of Additional
Information for a discussion of the various special rules concerning the minimum
distribution requirements.
If all premium payments made to an Individual Retirement Annuity were
deductible, all amounts distributed from the contract are included in the
recipient's income when distributed. However, if nondeductible premium payments
were made to the Individual Retirement Annuity (within the limits allowed by the
tax law), a portion of each distribution from the contract typically is included
in income when it is distributed. In such a case, any amount distributed as an
annuity payment or in a lump sum upon death or a full surrender is taxed as
described above in connection with such a distribution from a non-qualified
contract, treating the investment in the contract as the sum of the
non-deductible premium payments at the end of the taxable year in which the
distribution commences or is made (less any amounts previously distributed that
were excluded from income). Also in such a case, any amount distributed upon a
partial surrender is partially includible in income. The includible amount is
the excess of the distribution over the exclusion amount, which in turn equals
the distribution multiplied by the ratio of the investment in the contract to
the amount held under the contract. The amount includible in income may be
subject to a 10% penalty tax if the recipient is under age 59 1/2.
Individual Retirement Annuities generally may not provide life insurance
coverage, but they may provide a death benefit that equals the greater of the
premiums paid and the contract value. The contract provides a death benefit that
in certain circumstances may exceed the greater of the premium payments and the
accumulation value. It is possible that the death benefit could be viewed as
violating the prohibition on investment in life insurance contracts with the
result that the contract would not be viewed as satisfying the requirements of
an IRA.
Subject to certain direct rollover and mandatory withholding requirements
(discussed below), amounts generally may be "rolled over" from a qualified
retirement plan to an Individual Retirement Annuity (or from an Individual
Retirement Annuity or individual retirement account to an Individual Retirement
Annuity) without incurring tax if certain conditions are met. Only certain types
of distributions from qualified retirement plans or Individual Retirement
Annuities may be rolled over.
In the case of annuity contracts used in connection with a pension,
profit-sharing, or annuity plan
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<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
qualified under Code Section 401(a) or 403(a), or in the case of a Code
Section 403(b) "Tax Sheltered Annuity," any "eligible rollover distribution"
from the contract will be subject to direct rollover and mandatory withholding
requirements. An eligible rollover distribution generally is any taxable
distribution from a qualified pension plan under Code Section 401(a), qualified
annuity plan under Code Section 403(a), or Code Section 403(b) Tax Sheltered
Annuity or custodial account, excluding certain amounts (such as minimum
distributions required under Code Section 401 (a) (9) and distributions which
are part of a "series of substantially equal periodic payments" made for life
or a specified period of 10 years or more. Under these requirements, withholding
at a rate of 20 percent will be imposed on any eligible rollover distribution.
In addition, the participant in these qualified retirement plans cannot elect
out of withholding with respect to an eligible rollover distribution. However,
this 20 percent withholding will not apply if, instead of receiving the eligible
rollover distribution, the participant elects to have amounts directly
transferred to certain qualified retirement plans (such as to this contract when
issued as an Individual Retirement Annuity). It is important that you consult
your tax advisor before purchasing an Individual Retirement Annuity.
ADDITIONAL CONSIDERATIONS
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract for Federal tax purposes, a
non-qualified contract must provide the following two distribution rules: (a) if
any holder dies on or after the annuity commencement date, and before the entire
interest in the contract has been distributed, the remainder of his or her
interest will be distributed at least as quickly as under the method of
distribution in effect on the holder's death; and (b) if the holder dies before
the annuity commencement date, his or her entire interest in the contract must
generally be distributed within five years after the date of death, or to the
extent such interest is payable to a designated beneficiary, such interest must
be distributed over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, so long as the
distributions begin within one year after the date of death. If the beneficiary
is the surviving spouse of the holder, the contract (together with the deferral
of tax on the accrued and future income thereunder) may be continued in the name
of the spouse. Before the annuity commencement date, the holder will generally
be the owner, and after the annuity commencement date, the holder generally may
be the annuitant and the owner.
Where the holder is not an individual, solely for the purpose of the
distribution at death rules, the primary annuitant is considered the holder. The
primary annuitant is the individual the events in the life of whom are of
primary importance in affecting the timing or amount of payment under a
contract. Finally, in the case of joint holders, the distribution will be
required at the death of the first of the holders to die.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a non-qualified contract because of the death of
an owner or annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (a) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the contract, as described above, or (b)
if distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
TRANSFER OF ANNUITY CONTRACTS
Transfers of non-qualified annuity contracts for less than the full and adequate
consideration will trigger tax on the gain in the contract, at the time of such
transfer, with the transferee getting a step-up in basis for the amount included
in the owner's income. Such a transfer could result on the annuity commencement
date if the annuitant is not the owner or the owner's spouse. This provision
does not apply to transfers between spouses or incident to a divorce.
SECTION 1035 EXCHANGES
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of an annuity contract for another. If the exchanged contract was
issued prior to August 14, 1982, the tax rules which formerly provided that the
surrender was taxable only to the extent the amount received exceeds the owner's
investment in the contract, will continue to apply to the new contract. In
contrast, contracts issued on or after January 19, 1985, in a Code Section 1035
exchange are treated as new contracts for purposes of the penalty tax and
distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective owners wishing to take advantage of Code
Section 1035 should consult their tax advisors.
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<PAGE>
ADDITIONAL CONSIDERATIONS (CONTINUED)
ASSIGNMENTS
A transfer of ownership, a collateral assignment, or the designation of an
annuitant or other beneficiary who is not also the owner may result in tax
consequences to the owner, annuitant or beneficiary that are not discussed
herein. An owner contemplating such a transfer or assignment of a contract
should contact a competent tax advisor with respect to the potential tax effects
of such a transaction.
MULTIPLE CONTRACTS RULE
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includible in gross
income, all non-qualified deferred annuity contracts issued by the same (or
affiliate) insurer to the same owner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's annuity starting date (as defined in the tax
law), such as a partial surrender, dividend, or loan, will be taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined income in
all such contracts. The Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. In addition, there may be other
situations in which the Treasury Department may conclude that it would be
appropriate to aggregate two or more contracts purchased by the same owner.
Accordingly, an owner should consult a competent tax advisor before purchasing
more than one annuity contract.
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PART II
THE MANAGED GLOBAL
ACCOUNT OF ACCOUNT D
INTRODUCTION PART II GIVES FURTHER BACKGROUND INFORMATION ON ACCOUNT D AND
THE GLOBAL ACCOUNT, INCLUDING ITS INVESTMENT POLICIES AND ACTIVITIES.
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<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (GLOBAL ACCOUNT)
THE GLOBAL ACCOUNT
The Global Account is a non-diversified investment company which invests
directly in securities. There can be no assurance that the Global Account will
meet its investment objective. Account D may also offer other securities which
are not available through the purchase of the contract offered by this
prospectus. DSI serves as the Manager of Account D and Warburg, Pincus serves as
the Portfolio Manager of the Global Account.
INVESTMENT OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT
The Global Account's investment objective is to seek high total investment
return consistent with a prudent regard for capital preservation. In seeking
this objective, the Global Account employs an asset allocation strategy
involving shifts among a wide range of investments and market sectors throughout
the world. The Global Account may invest in the following classes of securities:
equity securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities, and warrants; debt securities of
domestic and foreign issuers, including bonds, debentures, asset-backed
securities, and notes; and money market instruments of domestic and foreign
issuers. The Global Account may also use various investment strategies and
techniques in seeking its investment objective including entering into forward
currency contracts; purchasing and writing put and call options on securities,
securities indexes, and currencies; purchasing and selling futures contracts
including interest rate futures contracts, stock index futures contracts,
futures contracts based upon securities, which may be domestic or foreign and
corporate or governmental, foreign exchange futures contracts, and other
financial futures contracts; purchasing and writing put and call options on
financial futures contracts; engaging in short sales of securities; and entering
into repurchase agreements and reverse repurchase agreements.
The total investment return that the Global Account seeks may consist (i) of
capital appreciation from several possible sources, including appreciation in
the value of securities held by the Global Account, the sale of securities whose
market value has changed, the use of futures and options, and the use of forward
currency contracts; (ii) of interest from underlying securities; and (iii) of
income received from the writing of options. Changes in the value of securities
denominated in foreign currencies may be attributable in whole or in part to
changes in the value of the underlying currency relative to the U.S. dollar.
In seeking the Global Account's investment objective, the Portfolio Manager will
use an opportunistic approach to allocating the Global Account's assets through
varying economic and financial conditions. The Portfolio Manager believes that a
successful investment approach in the current global environment must be based
upon careful analysis of the global economic and geopolitical environment with a
view to capitalizing upon sector and market opportunities and to quickly
adapting to changing circumstances. Thus, the Portfolio Manager will allocate
the Global Account's assets among securities and currencies based upon the
Portfolio Manager's assessment of the most favorable markets, currencies, and
issuers. In this regard, the percentage of the Global Account's assets invested
in a particular country or denominated in a particular currency will vary in
accordance with the Portfolio Manager's assessment of the appreciation potential
of such assets and the relationship of the country's currency to the U.S.
dollar.
The Portfolio Manager may allocate the Global Account's assets among the various
types of securities and other assets and among issuers located in various
countries and regions as the Portfolio Manager deems appropriate, except that
the Global Account's assets normally will be invested in securities of issuers
domiciled or primarily traded in at least three different countries, which may
include the United States. (Certain additional foreign diversification
requirements apply as described below.) The Portfolio Manager is free to
allocate the Global Account's assets such that, at any time, the Global Account
may be primarily invested in equity securities or, alternatively, the Global
Account may have little or no assets in equity securities. Similarly, at any
time, the Global Account may be primarily invested in securities of issuers
domiciled or primarily traded in one region, such as the United States, Europe,
or the Pacific Basin, or the Global Account may have little or no assets
committed to that region.
In considering equity securities, the Portfolio Manager will emphasize large,
well-capitalized companies with strong balance sheets. The Portfolio Manager may
also consider other factors in selecting equity securities, including
price-earnings ratios, cash flows, and the relationship of an issuer's book
value to its market value.
In selecting debt instruments for the Global Account, the Portfolio Manager
emphasizes credit quality. The Global Account will invest only in the following:
(1) fixed-income instruments issued or
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
guaranteed by the U.S. Government, its agencies, or instrumentalities ("U.S.
Government Securities"); (2) obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies, or
instrumentalities, or by supranational entities ("foreign government
securities"), which, at the time of investment, are rated A or better by
Standard & Poor's Corporation ("S&P") or A or better by Moody's Investors
Services, Inc. ("Moody's") or, if not rated by S&P or Moody's, determined by the
Portfolio Manager to be of equivalent quality; and (3) debt securities of
domestic or foreign issuers which, at the time of investment, are rated A or
better by S&P or A or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality. In the event
that a debt security held by the Global Account is downgraded to a rating that
would render the security ineligible for purchase by the Global Account, the
Global Account may nonetheless retain the security.
Debt securities purchased by the Global Account may be of any maturity. It is
anticipated that the weighted average maturity of the debt securities in the
portfolio (excluding money market instruments) generally will be between 5 and
15 years, but may be shorter or longer at the discretion of the Portfolio
Manager.
The Global Account invests only in high-quality money market instruments. These
include the following: (1) short-term U.S. Government securities; (2) short-term
foreign government securities which, at the time of investment, are rated AA or
better by S&P or Aa or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; (3)
certificates of deposit, time deposits, bankers' acceptances, and short-term
obligations of banks and other depository institutions, both U.S. and foreign,
that have total assets of at least $10 billion (U.S.) and are determined by the
Portfolio Manager to be of high quality; and (4) commercial paper and other
short-term corporate obligations which, at the time of investment, are rated A-2
or better by S&P or P-2 or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality.
The Global Account may employ various investment strategies involving
currencies, including entering into forward currency contracts, foreign exchange
futures contracts, and options on currencies. (See "Securities and Investment
Techniques," below.) These strategies may be employed for purposes of exposing
the Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another. These strategies may
also be employed as hedging techniques to help protect against declines in the
U.S. dollar (or other currency) value of the Global Account's assets that might
result from adverse changes in currency exchange rates. The Global Account may
engage in forward currency transactions in anticipation of or to protect itself
against fluctuations in currency exchange rates. The Global Account may purchase
put and call options on foreign currencies as a hedge against changes in the
value of the U.S. dollar (or another currency) in relation to a foreign currency
in which securities of the Global Account may be denominated. Hedging against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such hedging transactions
may reduce or preclude the opportunity for gain if the value of the hedged
currency should change relative to the U.S. dollar.
NON-DIVERSIFIED
The Global Account is classified as a "non-diversified" investment company under
the 1940 Act, as amended, which means that the Global Account is not limited by
the 1940 Act in the amount of its assets that it may invest in the securities of
a single issuer. However, the Global Account will meet the diversification
requirements of Code Section817 (h) and the Treasury Department Regulations
issued thereunder. Under applicable state law requirements, the Global Account
may not acquire the securities of any issuer if, as a result of such investment,
more than 10% of the Global Account's total assets would be invested in the
securities of any one issuer, except that this restriction shall not apply to
U.S. Government securities or foreign government securities, and the Global
Account will not invest in a security if, as a result of such investment, it
would hold more than 10% of the outstanding voting securities of any one issuer.
Nonetheless, because the Global Account, as a non-diversified investment company
under the 1940 Act, may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Global Account may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified company. This risk may include greater exposure to the risk of
poor earnings or default of one issuer than would be the case for a more
diversified fund.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
The Global Account is also subject to the following guidelines for
diversification of foreign security investments. If the Global Account has less
then 20% of its assets in foreign issuers, then all of such investment may be in
issuers domiciled or primarily traded in one country. If the Global Account has
at least 20% but less than 40% of its assets in foreign issuers, then such
investment must be allocated to issuers domiciled or primarily traded in at
least two different countries. Similarly, if the Global Account has at least 40%
but less than 60% of its assets in foreign issuers, such investment must be
allocated in at least three different countries. Foreign investments must be
allocated to at least four different countries if at least 60% of the Global
Account's assets is in foreign issuers, and to at least five different countries
if at least 80% of its assets is in foreign issuers.
The Global Account may have no more than 20% of its net assets invested in
securities of issuers domiciled or primarily traded in any one country, except
that the Global Account may have an additional 15% of its net assets invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Germany, Japan and The United Kingdom. The
Global Account's investments in U.S. issuers are not subject to these foreign
country diversification guidelines.
RISK FACTORS
The Global Account's investment policies and certain of the investment
techniques in which the Global Account may engage involve certain risks. For
instance, the Global Account will invest in non-U.S. dollar-denominated
securities of foreign issuers. Investing in such securities involves different
risk considerations than investing in securities of U.S. issuers, including the
risks of investment in foreign countries, foreign exchange rate fluctuations,
exchange controls, and others. The Global Account may also engage in
transactions in financial futures contracts, both domestic and foreign, and in
various put and call options. The Global Account may also engage in foreign
currency transactions and options on foreign currencies. Risks associated with
these techniques are described more fully under "Securities and Investment
Techniques."
In general, because investment in foreign issuers will usually involve
currencies of foreign countries, and because the Global Account may be exposed
to currency risk independent of its securities positions, the value of the
assets of the Global Account as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. To the extent that the Global
Account's assets consist of investments denominated in a particular currency,
the Global Account's exposure to adverse developments affecting the value of
that currency will increase. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investment in different countries, actual or perceived changes in
interest rates, and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention by U.S. or foreign governments or central banks in the availability
of money or interest rates, by the failure to intervene, by currency controls,
or by political and economic developments in the U.S. or abroad. The market in
forward foreign currency exchange contracts and other privately negotiated
currency instruments offers less protection against defaults by the other party
to such instruments than is available for currency instruments traded on an
exchange. To the extent that a substantial portion of the Global Account's total
assets, adjusted to reflect the Global Account's net position after giving
effect to currency transactions, is denominated in the currencies of foreign
countries, the Global Account will be more susceptible to the risk of adverse
economic and political developments within those countries.
In addition, because of the Global Account's flexible investment policy,
portfolio turnover may be greater than for a portfolio that does not allocate
assets among various types of securities and among various countries and
regions. A higher rate of portfolio turnover involves correspondingly greater
brokerage expenses which must be borne by the Global Account (and indirectly by
investors allocating accumulation value to the Global Account), and may under
certain circumstances make it more difficult for the Global Account to qualify
as a regulated investment company under the Code.
There can be no assurance that the Global Account will achieve its investment
objective. Investors should be aware that the value of the Global Account's
assets will fluctuate and a contract owner's accumulation value will increase
and decrease in value as the market value of the securities and other assets in
which the Global Account invests fluctuates.
The Global Account is intended for long-term investors who can accept the risks
involved in
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<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
investments in foreign securities. The Global Account does not purport to offer
a complete investment program to which a prudent investor would commit all of
his or her investment capital, nor is it intended for investors whose principal
objective is income.
BOARD OF GOVERNORS OF ACCOUNT D
The business and affairs of Account D are managed under the direction of a Board
of Governors, which currently consists of four members. The Board of Governors
has responsibility for the investment management-related operations of Account D
and matters arising under the 1940 Act. The Board of Governors does not have
responsibility for the payment of obligations under the contract and
administration of the contract. These matters are Golden American's
responsibility. The business and affairs of Account D are governed under a set
of rules adopted by the Board of Governors called "Rules and Regulations of
Separate Account D."
THE MANAGER
DSI serves as Manager to Account D pursuant to a Management Agreement with
Account D. The Manager is a corporation organized under the laws of the State of
New York. Its address is 280 Park Avenue, New York, New York 10017. DSI is a
wholly owned subsidiary of BT Variable, Inc., which is an indirect subsidiary of
Bankers Trust Company. DSI's business activities include those of a distributor
and underwriter of variable insurance products, broker-dealer and investment
manager. DSI is registered with the SEC as a broker-dealer and investment
adviser and is a member of the NASD. It is also registered as a broker-dealer
and/or investment adviser in various states.
U.S. banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System (the
"Board"), prohibit a bank holding company registered under the Bank Holding
Company Act of 1956, or any affiliate thereof, from sponsoring, organizing,
controlling, or distributing the shares of a registered open-end investment
company, which may for these purposes include the Global Account, continuously
engaged in the issuance of its securities and, except as otherwise provided by
order of the Board, prohibit banks generally from issuing, underwriting,
selling, or distributing securities. The same laws and regulations generally
permit a bank or bank affiliate to act as investment adviser, transfer, dividend
disbursing, and shareholder servicing agent and custodian to an investment
company and to purchase such shares as agent for and upon the order of a
customer.
Golden American and DSI perform the activities described above in this
prospectus and in Part I, under the caption "Selling the Contracts." As
discussed in Part I, under the caption "Golden American," while Bankers Trust
has no immediate intent to divest its ownership of the stock of Golden American
and DSI, such a divestiture may occur in the future. In addition, judicial or
administrative decisions or interpretations, as well as changes in either U.S.
Federal or state banking statutes or regulations, could prevent Golden American
from performing activities with respect to Account D, prevent DSI from
performing the activities described in this prospectus, or prevent Bankers Trust
Company from continuing to own the stock of Golden American or DSI. If any such
event were to occur, changes in the operation of Account D and the Global
Account might occur. It is not expected, however, that Account D or the Global
Account would suffer adverse financial consequences as a result of such
occurrence.
As discussed in Part I, DSI also currently provides management and
administrative services to the Trust. DSI's officers have extensive experience
in the development and distribution of investment products, specifically,
variable life insurance policies, variable annuity contracts, and management
investment companies that serve as investment media for such policies and
contracts.
Under the Management Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Governors, for administering all operations of the
Global Account and for monitoring and evaluating the management of the assets of
the Global Account by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objective and
policies of the Global Account. The Management Agreement may be terminated
without penalty by the vote of the Board of Governors or the contract owners of
the Global Account, or by the Manager, on 60 days' written notice by the Board
or the Manager and will terminate automatically if assigned as that term is
described in the 1940 Act.
As Manager, DSI provides the overall business management and administrative
services necessary for the Global Account's operation. The Manager furnishes or
procures on behalf of the Global
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
Account the services and information necessary to the proper conduct of the
Global Account's business. The Manager also acts as liaison among the various
service providers to the Global Account, including the custodian, portfolio
accounting personnel, Portfolio Manager, counsel, and auditors. The Manager is
also responsible for ensuring that the Global Account operates in compliance
with applicable legal requirements and for monitoring the Portfolio Manager for
compliance with requirements under applicable law and with the investment
policies and restrictions of the Global Account.
Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of the Global Account's assets and the purchase and sale of securities for the
Global Account in the event that at any time a portfolio manager is not engaged
to manage the assets of the Global Account. In such event, the Management
Agreement provides that the Manager will be entitled to, in addition to its
usual compensation for services as Manager, as described below, a fee that would
otherwise be paid to the Portfolio Manager. For more information on the
Management Agreement, see the Statement of Additional Information.
For operating expenses under the Management Agreement see Part I, Charges and
Fees, Operating Expenses of Account D.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the period
through December 31, 1994 so that such expenses do not exceed on an annual
basis: 1.25% of the first $500 million of average daily net assets and 1.05% of
the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
THE PORTFOLIO MANAGER
Warburg, Pincus serves as the Portfolio Manager of the Global Account and in
that capacity provides investment advisory services for the Global Account,
including asset allocation and security selection. The Portfolio Manager's
address is 466 Lexington Avenue, New York, New York 10017. The Global Account,
the Manager, and the Portfolio Manager have entered into a Portfolio Management
Agreement under which the Portfolio Manager has full investment discretion and
makes all determinations with respect to the investment of the Global Account's
assets and the purchase and sale of securities and other investments. The
Portfolio Management Agreement may be terminated without penalty by the vote of
the Board of Governors or the contract owners of the Global Account, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any party to
the Portfolio Management Agreement and will terminate automatically if assigned
as that term is described in the 1940 Act.
Warburg, Pincus was incorporated in Delaware on December 15, 1970. Warburg,
Pincus is a professional investment counselling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. The Portfolio Manager is
registered with the SEC as an investment adviser.
The individual primarily in charge of portfolio management decisions for the
Global Account is Richard H. King. Mr. King has been a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("EMW") since 1989, before which time he was Chief
Investment Officer and a Director at Fiduciary Trust Company International.
Nicholas P.W. Horsley and Vincent McBride, both of whom are research analysts
and associate portfolio managers of another investment company advised by
Warburg, Pincus, also exercise significant portfolio management responsibility
with respect to the Global Account. Mr. Horsley has been with EMW since 1993,
before which time he was a director, portfolio manager and analyst at Barclays
deZoete Wedd in New York City. Mr. McBride has been with Warburg, Pincus since
1994, before which time he was an international equity analyst at Smith Barney
Shearson Inc. (1933-1994) and at General Electric Investment Corp. (1992-1993).
Prior to this, Mr. McBride was a portfolio manager/analyst at United Jersey Bank
(1989-1992) and a portfolio manager at First Fidelity Bank (1987-1989).
As of January 31, 1994, Warburg, Pincus managed approximately $7.0 billion of
assets and served as investment adviser to thirteen investment companies which
had total assets of approximately $2.0 billion. The Portfolio Manager is a
wholly-owned subsidiary of Warburg, Pincus Counsellors G.P., a New York general
partnership. EMW controls Warburg, Pincus through its ownership of a
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
class of voting preferred stock of Warburg, Pincus. Warburg, Pincus Counsellors
G.P. has no business other than being a holding company of Warburg, Pincus and
its subsidiaries.
From the commencement of operations of the Global Account through June 30, 1994,
Zulauf Asset Management AG served as portfolio manager for the Global Account.
Warburg, Pincus assumed management of the Global Account on July 1, 1994.
For operating expenses under the Portfolio Management Agreement see Part I,
Charges and Fees, Operating Expenses of Account D.
CUSTODIAN
The Custodian for the Global Account is Bankers Trust Company. DSI provides
portfolio accounting services for the Global Account.
SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes different types of securities and investment
techniques that may be used by the Global Account, as well as the risks
associated with such securities and techniques. For more detailed information on
these securities and investment techniques, and for information on other
securities and investment techniques that may be used by the Global Account,
including U.S. Government securities, debt securities, foreign securities,
repurchase agreements, short sales, futures contracts, options on securities and
foreign currency transactions, see the discussion in the Statement of Additional
Information on "Securities and Investment Techniques."
FOREIGN SECURITIES
The Global Account may invest in equity and debt securities of foreign
issuers, in American Depository Receipts ("ADRs"), in foreign government
securities that are denominated in either U.S. dollars or foreign currencies,
and in foreign branches of commercial banks and foreign banks.
Investments in foreign securities offer potential benefits not available
solely in securities of domestic issuers by offering the opportunity to invest
in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies or business cycles different from those of
the United States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a manner parallel to
U.S. markets. Investments in securities of foreign issuers involve certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls, restrictions on investment or the flow of capital, or other foreign
governmental laws or restrictions. Since the Global Account may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of
investments as denominated in U.S. dollars. While the Global Account may
employ certain investment techniques to hedge its foreign currency exposure,
such techniques also entail certain risks. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social
instability, or diplomatic developments that could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. The Global Account might have greater difficulty taking appropriate
legal action with respect to foreign investments in non-U.S. courts than with
respect to domestic issuers in U.S. courts. In addition, transactions in
foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions. Clearance and settlement
procedures in certain foreign countries have not developed at the same pace as
the related securities markets, making it difficult to execute desired
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Global Account are uninvested and no return is
earned thereon. The inability of the Global Account to make intended
investments due to settlement problems could cause it to miss attractive
investment opportunities. Inability to dispose of securities or other
investments due to settlement problems could result either in losses to the
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
Global Account due to subsequent declines in value of the investment, or
possible liability to a purchaser. Foreign investments also involve the risk
of possible losses through the holding of securities by custodians and
securities depositories in foreign countries.
Interest income and gains from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located.
SHORT SALES
The Global Account may make short sales of securities. A short sale is a
transaction in which the Global Account sells a security it does not own in
anticipation of a decline in market price. The Global Account may make short
sales to offset a potential decline in a long position or a group of long
positions, or if the Portfolio Manager believes that a decline in the price of
a particular security or group of securities is likely.
The Global Account's obligation to replace a security borrowed in connection
with the short sale will be secured by collateral deposited with the broker,
consisting of cash or U.S. Government securities or other securities
acceptable to the broker. In addition, with respect to any short sale, other
than short sales against the box, the Global Account will be required to
deposit collateral consisting of cash, cash items, or U.S. Government
securities in a segregated account with its custodian in an amount such that
the value of the sum of both collateral deposits (not including the proceeds
from the short sale) is at all times equal to at least 100% of the current
market value of the securities sold short. The deposits do not necessarily
limit the Global Account's potential loss on a short sale, which may exceed
the entire amount of the collateral.
If the price of the security sold short increases between the time of the
short sale and the time the Global Account replaces the borrowed security, the
Global Account will incur a loss, and if the price declines during this
period, the Global Account will realize a capital gain. Any realized gain will
be decreased, and any incurred loss increased, by the amount of transactional
costs and any premium, dividend, or interest which the Global Account may have
to pay in connection with such short sale. Account D may have to pay a premium
to borrow the securities sold short and must pay any dividends or interest
payable on the securities until they are replaced. Possible losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from
purchases of a security can equal only the total amount invested.
The Global Account may make a short sale only if, at the time the short sale
is made and after giving effect thereto, the market value of all securities
sold short is 25% or less of the value of its net assets. The Global Account
is not required to liquidate an existing short sale position solely because a
change in market values has caused this percentage limitation to be exceeded.
FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts.
The Global Account may engage in such futures transactions as an adjunct to
its securities activities. The Global Account's transactions in futures
transactions must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodity Futures Trading
Commission ("CFTC"), under which a fund engaging in futures transactions would
not be deemed a "commodity pool." Under these regulations, the Global Account
may enter into futures and options (1) for "bona fide hedging" purposes,
without regard to the percentage of assets committed to initial margin and
options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of the Global Account's portfolio, after taking
into account unrealized profits and unrealized gains on any such contracts
entered into. Transactions in futures contracts and options on futures
contracts may also be limited by the requirements of the Code for
qualification as a regulated investment company. Other requirements are
described in the Statement of Additional Information.
There are several risks associated with the use of futures and futures
options. While the Global Account's hedging transactions may protect the
Global Account against adverse movements in the general level of interest
rates, securities prices, currency exchange rates, or other economic
conditions, such transactions could also preclude the Global Account from the
opportunity to benefit from favorable movements in the level of interest
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
rates, securities prices, currency exchange rates, or other economic
conditions. There can be no guarantee that there will be correlation between
price movements in the hedging vehicle and in the portfolio securities or
currency being hedged. An incorrect correlation could result in a loss on both
the hedged securities in the Global Account and the hedging vehicle so that
the Global Account's return might have been better if hedging had not been
attempted. The loss that could be incurred by the Global Account in writing
options on futures is potentially unlimited.
There can be no assurance that a liquid market will exist at a time when the
Global Account seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Lack of a liquid market for any reason may prevent the
Global Account from liquidating an unfavorable position and the Global Account
would remain obligated to meet margin requirements and continue to incur
losses until the position is closed.
The Global Account will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system, or in
the case of futures options, for which an established over-the-counter market
exists.
The Global Account may engage in futures contracts and options on futures
contracts not only on U.S. domestic markets, but also on exchanges and other
markets outside of the United States. Foreign markets may offer advantages
such as trading in indices that are not currently traded in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading on foreign
commodity markets is not regulated by the CFTC and may be subject to greater
risk than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. Trading in
foreign futures or foreign options contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
futures exchanges. In addition, the Global Account could incur losses or lose
any profits that had been realized in trading by adverse changes in the
exchange rate of the currency in which the transaction is denominated.
Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and boards of trade and those that are not.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Global Account may purchase and write put and call options on securities
and on securities indices. The Global Account will purchase and write only
options that are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Global Account
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
The Global Account may write a call or put option only if the option is
"covered" by the Global Account holding a position in the underlying
securities or by other means that would permit immediate satisfaction of the
Global Account's obligation as writer of the option, typically the deposit
with the Global Account's custodian of cash, U.S. Government securities, or
other high grade liquid debt securities with a value at least equal to the
exercise price of the put option, or the price at which a security underlying
a call option can be acquired.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Global Account is not sold
when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Global Account will lose its entire investment in the option. Also,
where a put or call option on a particular security is purchased to hedge
against price movements in a related security, the price of the put or call
option may move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out an option position. Furthermore, if trading
restrictions or a suspension is imposed on the options markets, the Global
Account may be unable to close out a position. If the Global Account cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though
it might otherwise be advantageous to do so. The Global Account pays brokerage
commissions or spreads in connection with its options transactions. The
writing of options could significantly increase portfolio turnover rate.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward
currency contract is an obligation to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Global Account may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract. The
Global Account may engage in forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange rates, and
entering into a forward currency contract will expose the Global Account to
the risk of adverse changes in the exchange rate of the currency that is
subject to the contract. The Global Account may also enter into a forward
currency contract for non-hedging purposes. Forward currency contracts are
further described in the Statement of Additional Information.
If the Global Account engages in an offsetting transaction to terminate its
contractual obligation under a forward currency contract, the Global Account
will incur a gain or a loss to the extent that there has been movement in
forward contract prices. For more information on closing a forward currency
position, including information on associated risks, see the Statement of
Additional Information.
In hedging transactions, the precise matching of forward currency contracts
and the value of the securities involved will not generally be possible since
the future value of the securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
While forward foreign currency contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when the Global Account seeks
to enter into or close out a forward currency position, in which case the
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
Global Account might not be able to effect a closing purchase transaction at
any particular time. In addition, the Global Account entering a forward
foreign currency contract incurs the risk of default by the counter party to
the transaction. Forward currency contracts offer less protection against
defaults than is available when trading in currencies on an exchange. Because
a forward currency contract is not guaranteed by an exchange or clearinghouse,
a default on the contract would deprive the Global Account of unrealized
profits or force the Global Account to cover its commitments for purchase or
resale, if any, at the current market price.
Although the Global Account values its assets daily in terms of U.S. dollars,
it does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Global Account may do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Global Account at one rate, while offering a
lesser rate of exchange should the Global Account desire to resell that
currency to the dealer.
The Global Account will place cash or high grade liquid debt securities into a
segregated account in an amount equal to the value of the Global Account's
total assets committed to the consummation of forward currency contracts
requiring the Global Account to purchase foreign currencies or forward
contracts entered into for non-hedging purposes. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Global Account's commitments with
respect to such contracts. The segregated account will be marked-to-market on
a daily basis. Although the contracts are not presently regulated by the CFTC,
the CFTC may in the future assert authority to regulate these contracts. In
such event, the Global Account's ability to utilize forward currency contracts
may be restricted.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may purchase and write call and put options on foreign
currencies. Such options will expose the Global Account to the risk of adverse
changes in the exchange rate of the currency that is subject to the option.
The Global Account may employ options on foreign currencies to increase or
shift exposure to a currency and as a hedge against changes in the value of
the U.S. dollar (or another currency) in relation to a foreign currency in
which portfolio securities of the Global Account may be denominated. Hedging
against a change in the value of a foreign currency with an option on the
foreign currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar. The Global Account may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits that may limit the ability of the Global Account to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. There is no assurance that a liquid
secondary market will exist for any particular option, or at any particular
time. In the event no liquid secondary market exists, it might not be possible
to effect closing transactions in particular currency options. If the Global
Account cannot close out an option that it holds, it would have to exercise
its option in order to realize any profit and would incur transactional costs
on the sale of the underlying assets.
BORROWING
The Global Account may borrow up to 10% of the value of its net assets. For
temporary purposes, such as to facilitate redemptions, the Global Account may
increase its borrowings up to 25% of its net assets. Reverse repurchase
agreements, short sales of securities, and sales of securities against the box
will be included as borrowing subject to the borrowing limitations described
above, except that the Global Account is permitted to engage in short sales of
securities with respect to an additional 15% of the Global
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
Account's net assets in excess of the limits otherwise applicable to
borrowing. Securities purchased on a when-issued or delayed delivery basis
will not be subject to the Global Account's borrowing limitations to the
extent that the Global Account establishes and maintains liquid assets in a
segregated account with the Global Account's custodian equal to the Global
Account's obligations under the when-issued or delayed delivery arrangement.
INVESTMENT RESTRICTIONS
The Global Account is subject to investment restrictions that are described in
the Statement of Additional Information. Those investment restrictions so
designated and the investment objective are "fundamental policies" of the Global
Account, which means that they may not be changed without a majority vote of the
contract owners with accumulation value allocated to the Global Account. Except
for those restrictions specifically identified as fundamental and the Global
Account's investment objective, all other investment policies and practices
described in this prospectus and Statement of Additional Information are not
fundamental, meaning that the Board of Governors may change them without
contract owner approval.
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreement, the Portfolio Manager places
orders for the purchase and sale of portfolio investments for the Global Account
with brokers or dealers selected by the Portfolio Manager in its discretion. In
executing transactions, the Portfolio Manager will attempt to obtain the best
execution. In transactions on stock exchanges in the United States, payment of
brokerage commissions are negotiated. In effecting purchases and sales of
portfolio securities in transactions on U.S. stock exchanges, the Global Account
may pay higher commission rates than the lowest available when the Portfolio
Manager believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Portfolio Manager may be unable to
negotiate commission rates for these transactions. In the case of securities
traded on the over-the-counter markets, there is generally no stated commission,
but the price includes an undisclosed commission or markup.
Some securities considered for investment by the Global Account may also be
appropriate for other clients served by the Portfolio Manager and/or its
affiliates. If a purchase or sale of securities consistent with the investment
policies of the Global Account and one or more of these clients served by the
Portfolio Manager and/or its affiliates is considered at or about the same time,
transactions in such securities will be allocated among the Global Account and
clients in a manner deemed fair and reasonable by the Portfolio Manager and/or
its affiliates. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Portfolio Manager, and
the results of such allocations, are subject to periodic review by the Manager
and Account D's Board of Governors.
The Portfolio Manager may place orders for the purchase of portfolio securities
with an affiliated broker-dealer where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer, and is an affiliate of the Portfolio Manager.
PORTFOLIO TURNOVER
It is anticipated that the Global Account's annual rate of portfolio turnover
normally will not exceed 100%. Portfolio turnover for the Global Account will
vary from year to year, and depending on market conditions, the portfolio
turnover rate could be greater in periods of unusual market movement. A higher
turnover rate would result in heavier brokerage commissions or other
transactional expenses which must be borne, directly or indirectly, by the
Global Account and ultimately by the Global Account's contract owners. For
information on the calculation of the portfolio turnover rate, see the
Statement of Additional Information.
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STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
INTRODUCTION......................................................................................................... 1
PART I
Description of Golden American Life Insurance Company................................................................ 1
Safekeeping of Assets................................................................................................ 1
The Administrator.................................................................................................... 1
Independent Auditors................................................................................................. 1
Reinsurance.......................................................................................................... 1
Distribution of Contracts............................................................................................ 1
Performance Information.............................................................................................. 2
IRA Partial Withdrawal Option........................................................................................ 5
Other Information.................................................................................................... 6
PART II
Securities and Investment Techniques................................................................................. 7
U.S. Government Securities......................................................................................... 7
Debt Securities.................................................................................................... 7
Short Sales Against the Box........................................................................................ 8
Futures Contracts and Options on Futures Contracts................................................................. 8
Options on Securities.............................................................................................. 9
Options of Securities Indexes...................................................................................... 10
Foreign Currency Transactions...................................................................................... 10
Options on Foreign Currencies...................................................................................... 11
Repurchase Agreements.............................................................................................. 12
Banking Industry and Savings Industry Obligations.................................................................. 12
Commercial Paper................................................................................................... 13
When Issued or Delayed Delivery Securities......................................................................... 13
Investment Restrictions.............................................................................................. 14
Management of Separate Account D..................................................................................... 15
The Manager.......................................................................................................... 17
Portfolio Manager.................................................................................................... 17
Custodian and Portfolio Accounting Agent............................................................................. 17
Portfolio Transactions and Brokerage................................................................................. 17
Purchase and Pricing of the Global Account........................................................................... 19
Financial Statements of Separate Account B........................................................................... 20
Financial Statements of The Managed Global Account of Separate Account D............................................. 20
Financial Statements of Golden American Life Insurance Company....................................................... 20
Appendix -- Description of Bond Ratings
</TABLE>
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- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS (CONTRACT
FORMS WC-GAL-DVA-11/88 AND WC-GAL-GDA-9/88). ADDRESS THE FORM TO OUR CUSTOMER
SERVICE CENTER, P.O. BOX 8794, WILMINGTON, DE 19899-8794.
...............................................................................
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B AND THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.
PLEASE PRINT OR TYPE
-----------------------------------
NAME
-----------------------------------
SOCIAL SECURITY NUMBER
-----------------------------------
STREET ADDRESS
-----------------------------------
CITY, STATE, ZIP
(6.0%-5/95 DVA100)
...............................................................................
53
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APPENDIX
GOLDENSELECT SERVICE FORMS
- - Deferred Variable Annuity Application -- Use in all states except MN
- - Contact the Sales Desk for the Special Form to be used in MN
(GoldenSelect DVA is currently Not Available in ME and NY)
- - Absolute Assignment to Effect Section 1035(a) Exchange
- - Request to Effect IRA Or Other Qualified Account Transfer
- - Certificate of Deposit Transfer Form
Submit all forms (with all other necessary documents) to the Customer Service
Center
WITHHOLDING ELECTION INSTRUCTIONS (BEFORE THE WITHHOLDING ELECTION SECTION ON
THE APPLICATION IS COMPLETED, PLEASE HAVE THE OWNER READ THE FOLLOWING
CAREFULLY)
Your withdrawals under annuity contracts may be subject to Federal income tax
withholding unless you elect not to have withholding apply. You may elect not to
have withholding apply by checking the box by line A and signing in the
signature section. Check the box by line B to make an election to have
withholding apply. If you want additional withholding made, check the box by
line C.
Withholding will only apply to the portion of your withdrawal that is subject to
Federal income tax and it will be like wage withholding. Thus, there will be no
withholding on the portion of each payment representing a return of your
premium. You may change your withholding as often as you wish by sending in IRS
Form W-4P to Golden American. Your election will remain in effect until you
revoke it. You may revoke it at any time.
If you elect not to have withholding apply to your withdrawals, or if you do not
have enough Federal income tax withheld from your withdrawal payments, you may
be responsible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
By signing the application and completing the withholding election, you certify
that no bankruptcy proceeding, attachment or other lien or claims are pending
against you.
A1
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY APPLICATION
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
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1. OWNER(S) (FIRST, MIDDLE, LAST NAME)
Street, City, State, Zip Code Date of Birth (Mo. Day Yr.)
/ /
Social Security No./TIN
Phone Number(s): o Male o Female
2. ANNUITANT (IF OTHER THAN OWNER)
Street, City, State, Zip Code Date of Birth (Mo. Day Yr.)
/ /
Social Security No./TIN
Relation to Owner: o Male o Female
3. CONTINGENT ANNUITANT (OPTIONAL)
Street, City, State, Zip Code Date of Birth (Mo. Day Yr.)
/ /
Social Security No./TIN
Relation to Annuitant: o Male o Female
4. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Relation to Annuitant:
5. CONTINGENT BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Relation to Annuitant:
6. PLAN (CHECK ONE) o DVA o Other________________
7. ANNUITY OPTION AND COMMENCEMENT DATE
Annuity Option (CHECK ONE): o Variable Annuity Certain o Income for Life with 10 Years Certain o Other_____________
Annuity Commencement Date:
o Check here for maximum age (specified in the prospectus) or fill in date: / / (month, day, year)
8. (A) INITIAL PREMIUM AND ALLOCATION INFORMATION
Initial Premium Paid $________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE INSURANCE COMPANY
Fill in percentages for initial allocation in INITIAL column below.
(B) OPTIONAL DOLLAR COST AVERAGING ("DCA"): / / CHECK BOX TO ELECT.
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION CHECKED BELOW)
Amount of Monthly Transfer $_______________ (minimum $250)
Division Transferred From: o Limited Maturity Bond Division or
o Liquid Asset Division
Divisions Transferred To: Fill in percentages in DCA column below.
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL B) DCA
- ------------------------------------------------------------------------------------------------------------------------
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES, INC. % %
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
VALUE EQUITY EAGLE, ASSET MANAGEMENT, INC. % %
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
EMERGING MARKETS BANKERS TRUST COMPANY % %
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
LIQUID ASSET BANKERS TRUST COMPANY %
TOTAL 100% 100%
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P.O. Box 8794, Wilmington, DE 19899-8794
<PAGE>
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9. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
FREQUENCY: o Monthly or o Quarterly START DATE: / (month, day).
WITHDRAWAL: o________% of Accumulation Value or o $____________.
(THE MINIMUM WITHDRAWAL IS $100, NOT TO EXCEED 1.25% MONTHLY / 3.75% QUARTERLY OF THE ACCUMULATION VALUE.)
WITHHOLDING ELECTION INFORMATION (MUST BE COMPLETED IF SYSTEMATIC PARTIAL WITHDRAWALS ARE CHOSEN)
A. o I do not want to have Federal income tax withheld.
B. o I want to have Federal income tax withheld from each withdrawal using the number of allowances and marital status
indicated. (You may also designate an ADDITIONAL amount in Section "C".)
Allowances _______; o Single o Married o Married, but withhold at a higher single rate.
C. o I want the following ADDITIONAL amount withheld from each withdrawal $________. (You must also complete Section "B".)
SEE PAGE A1 OF THE PROSPECTUS FOR WITHHOLDING ELECTION INSTRUCTIONS.
10. TELEPHONE REALLOCATION AUTHORIZATION _____________ OWNER'S INITIALS
I authorize Golden American to act upon reallocation instructions given by telephone from _____________________________________
(name of your registered representative) upon furnishing his/her social security number. Neither Golden American nor any person
authorized by Golden American will be responsible for any claim, loss, liability or expense in connection with reallocation
instructions received by telephone from such person if Golden American or such other person acted on such telephone instructions
in good faith in reliance upon this authorization. Golden American will continue to act upon this authorization until such time as
the person indicated above is no longer affiliated with the broker/dealer under which my contract was purchased or until
such time that I notify Golden American otherwise in writing.
11. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY WHAT TYPE:
o IRA o IRA Rollover o SEP/IRA o Other____________________
12. REPLACEMENT Will the contract applied for replace any existing annuity or life insurance on the annuitant's life? o No
o Yes IF "YES", PLEASE OUTLINE IN THE REMARKS SECTION.
13.
REMARKS______________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________
14. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
- - BY SIGNING BELOW I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I UNDERSTAND THAT THIS CONTRACT'S CASH SURRENDER VALUE MAY
INCREASE OR DECREASE ON ANY DAY DEPENDING ON THE INVESTMENT RESULTS. NO MINIMUM CASH SURRENDER VALUE IS GUARANTEED. THIS
CONTRACT IS IN ACCORD WITH MY ANTICIPATED FINANCIAL NEEDS.
- -I AGREE THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND ANSWERS IN THE APPLICATION ARE COMPLETE AND TRUE
AND MAY BE RELIED UPON IN DETERMINING WHETHER TO ISSUE THE CONTRACT. MY ANSWERS WILL FORM A PART OF ANY CONTRACT TO BE
ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE AUTHORITY TO MODIFY THIS APPLICATION.
- -IF GOLDEN AMERICAN AMENDS THE APPLICATION AS INDICATED IN THE AMENDMENTS SECTION BELOW, I WILL APPROVE OF THE CHANGE BY
ACCEPTING THE CONTRACT WHERE PERMITTED BY STATE REGULATION. I UNDERSTAND THAT ANY CHANGE IN PLAN, ANNUITY OPTION, BENEFITS
APPLIED FOR, OR AGE AT ISSUE MUST BE AGREED TO IN WRITING.
__________________________________ ___________________________________________________________________________
Signature of Owner Signed at (City, State) Date
__________________________________ ___________________________________________________________________________
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
__________________________________ ___________________________________________________________________________
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (IF APPLICABLE)__________________________
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE ON THE
LIFE OF THE ANNUITANT? o YES o NO
___________________________________________________________________________
(In Florida Only) Florida License ID#
_______________________________________________________________________________________________________________________________
Agent Signature Print Name & No. of Agent Social Security No. Broker/Dealer/Branch
AMENDMENTS TO THE APPLICATION__________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER,
P.O. Box 8794, Wilmington, DE 19899-8794
GAL-DVA-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
REQUEST TO EFFECT IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
- --------------------------------------------------------------------------------
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TO: -------------------------------------
PRESENT SPONSOR
------------------------------------- ACCOUNT NO.-------------------------
ADDRESS
------------------------------------- ------------------------------------
ADDRESS PARTICIPANT'S NAME
RE: IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
</TABLE>
ATTN: QUALIFIED TRANSFER DEPARTMENT
Dear Sirs:
I wish to transfer the entire value of my present Qualified Account to the
"GoldenSelect IRA" sponsored by Golden American Life Insurance Company.
I adopted the "GoldenSelect IRA" on ____________________________________________
DATE OF APPLICATION
Please make the check payable to GoldenSelect/Golden American Life Insurance
Company. As indicated below, Golden American has already indicated its
willingness to accept from you all my Qualified Account assets.
Please send all such proceeds and details to:
Golden American Life Insurance Company
IRA and Pension Operations
P.O. Box 8794
Wilmington, DE 19899-8794
Your prompt attention to this matter is appreciated.
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Sincerely, (Signature Guarantee if Required)
X--------------------------------------- ----------------------------------------
PARTICIPANT'S SIGNATURE (NAME OF BANK/FIRM)
----------------------------------------
(SIGNATURE OF OFFICER/TITLE)
</TABLE>
- -
GOLDEN AMERICAN APPROVAL FOR QUALIFIED ACCOUNT TRANSFER
Golden American Life Insurance Company has established the "GoldenSelect IRA"
application number ___________________________ for the participant named above.
We are willing to accept the transfer. Please forward all proceeds accordingly.
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By: -------------------------------------- Date: ----------------------------------------------
Name: ----------------------------------- Title: ---------------------------------------------
</TABLE>
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-IRA-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
ABSOLUTE ASSIGNMENT TO EFFECT SECTION 1035(A) EXCHANGE
- --------------------------------------------------------------------------------
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OWNER:___________________________________________ ANNUITANT OR INSURED:______________________________
CURRENT CONTRACT NO.:_____________________________ EXISTING INSURANCE CO.:____________________________
</TABLE>
I hereby make a complete and absolute assignment and transfer all rights, titles
and interest of every nature and character in and to the above contract to
Golden American Life Insurance Company ("Golden American") in an exchange
intended to qualify under Section 1035 of the Internal Revenue Code.
Upon receipt, Golden American is directed to surrender the above contract and
apply the value to the GoldenSelect product for which I have submitted an
application.
I understand that, by executing this assignment, I irrevocably waive all rights,
claims and demands under the above contract.
I acknowledge that Golden American is furnishing this form and participating in
this transaction as an accommodation to me, and that Golden American assumes no
responsibility or liability for my tax treatment under Section 1035 of the
Internal Revenue Code or otherwise.
Signed this ______________ day of ________________, 19 __________ at ___________
X_______________________________________ X_____________________________________
WITNESS SIGNATURE OF OWNER
NOTIFICATION OF ASSIGNMENT AND SURRENDER
To (Existing Insurance Company): Re: Contract No.______________
_________________________________________
_________________________________________
This is to notify you that an absolute assignment of all rights, title and
interest in and to the above contract has been made to Golden American Life
Insurance Company, for the purpose of making an exchange under Section 1035 of
the Internal Revenue Code. Golden American, owner of the above contract, hereby
surrenders it and requests its full surrender value for the purpose of an
exchange under Section 1035 of the Internal Revenue Code. Upon surrender of this
contract, please issue a check for its cash value to Golden American Life
Insurance Company, and mail to Golden American Life Insurance Company, Customer
Service Center, P.O. Box 8794, Wilmington, DE, 19899-8794, Attn: New Business
Department. Please provide Golden American with the cost basis, issue date and
other payment information along with your check.
______________________________________________
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By:___________________________________________
DATE OFFICER OF ABOVE-NAMED INSURANCE COMPANY
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-1035-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
CERTIFICATE OF DEPOSIT TRANSFER FORM
- --------------------------------------------------------------------------------
APPOINTMENT OF ATTORNEY-IN-FACT TO SURRENDER CERTIFICATE OF DEPOSIT
(NON-QUALIFIED ONLY)
CERTIFICATE(S) OF DEPOSIT
Issued By: _____________________________________________________________________
INSTITUTION
Address: _______________________________________________________________________
Certificate Number(s): _________________________ Issued to: ____________________
Maturity Date(s): ______________________________________________________________
Estimated Amount(s): ___________________________________________________________
I/We do hereby name and appoint Golden American Life Insurance Company ("Golden
American") through its duly authorized officers as lawful agent and
attorney-in-fact for me/us, to surrender the above Certificate(s) of Deposit
upon the respective maturity date(s).
I/We request that upon maturity all funds available be transferred to Golden
American. Golden American will apply all such funds received to a variable
contract issued to me/us.
I/We understand that Golden American assumes no responsibility for the tax
treatment of this matter and that I/ we shall be responsible for the payment of
all federal, state and local taxes and any other fees and charges incurred with
respect to the Certificate(s).
I/We acknowledge that the investment earnings credited under the variable
contract will begin to accrued when Golden American receives the proceeds from
the Certificate(s). Golden American has the responsibility only to present the
Certificate(s) for payment upon maturity and shall not be responsible for the
solvency of the issuing Financial Institution.
Dated at ______________________________ on this ______ day of
____________________, 19________________________________________________________
X______________________________ X____________________________________________
Witness Signature of Certificate Owner
X______________________________ X____________________________________________
Witness Signature of Joint Certificate Owner
Special Handling Instructions: _________________________________________________
________________________________________________________________________________
ACKNOWLEDGMENT
Golden American will accept any and all funds which discharge the obligation
listed above and request that such funds be sent to: Golden American Life
Insurance Company, Customer Service Center, P.O. Box 8794, Wilmington, DE
19899-8794
By _____________________________________________________________________________
Name Title Date
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-CDTF-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3207 5/95
<PAGE>
SUBJECT TO COMPLETION--FILED APRIL 7, 1995
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
DEFERRED COMBINATION VARIABLE AND
FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA
- --------------------------------------------------------------------------------
This prospectus describes group and individual deferred variable annuity
contracts (the "Contract") offered by Golden American Life Insurance Company
("Golden American," "we," "our" or "us"). The owner ("you" or "your") purchases
the contract with an initial premium and is permitted to make additional premium
payments.
The contract is funded by three separate accounts, Separate Account B ("Account
B") and Separate Account D ("Account D") and the Fixed Account (collectively,
the "Accounts").
Eleven divisions of Account B are currently available under the contract. The
investments available through the divisions of Account B include mutual fund
portfolios (the "Series") of The GCG Trust (the "Trust"). Account D is an
open-end management investment company. The only division of Account D available
for investment is The Managed Global Account (the "Global Account") which
invests directly in securities. The investments available through the Fixed
Account include various Fixed Allocations which we credit with fixed rates of
interest for the Guarantee Periods you select. We currently offer Guarantee
Periods with durations of 1, 3, 6, 8 and 10 years. We reserve the right at any
time to increase or decrease the number of Guarantee Periods offered. We also
reserve the right to discontinue a Guarantee Period at any time.
Part I of this prospectus describes the contract and provides background
information regarding Account B, Account D and the Fixed Account. Part II of
this prospectus (beginning on page 47) provides information regarding the
investment activities of Account D and the Global Account, including its
investment policies. The prospectus for the Trust, which must accompany this
prospectus, provides information regarding investment activities and policies of
the Trust.
You may allocate your premiums among the twelve divisions and the Fixed
Allocations currently available under the contract in any way you choose,
subject to certain restrictions. You may change the allocation of your
accumulation value during a contract year free of charge. We reserve the right,
however, to assess a charge for each allocation change after the twelfth
allocation change in a contract year.
Your accumulation value in Account B and Account D will vary in accordance with
the investment performance of the divisions selected by you. Therefore, you bear
the entire investment risk for all amounts allocated to Account B and Account D.
You also bear the investment risk with respect to surrenders, partial
withdrawals, transfers and annuitization from a Fixed Allocation prior to the
end of the applicable Guarantee Period. A surrender, partial withdrawal,
transfer or annuitization made prior to the end of a Guarantee Period may be
subject to a Market Value Adjustment, which could have the effect of either
increasing or decreasing your accumulation value.
We will pay a death benefit to the beneficiary if the owner dies prior to the
annuity commencement date or the annuitant dies prior to the annuity
commencement date when the owner is other than an individual. See Part I,
Proceeds Payable to the Beneficiary.
This prospectus describes your principal rights and limitations and sets forth
the information concerning the Accounts that investors should know before
investing. A Statement of Additional Information dated May 1, 1995 relating to
Account B and Account D has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon request. To obtain a
copy of this document call or write our Customer Service Center. The Table of
Contents of the Statement of Additional Information may be found on the last
page of this prospectus. The Statement of Additional Information is incorporated
herein by reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTRACTS AND UNDERLYING SERIES SHARES WHICH FUND THE CONTRACTS ARE NOT INSURED
BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE GCG TRUST.
THE FIXED ACCOUNT IS NOT AVAILABLE IN ALL STATES. YOU MAY CONTACT OUR CUSTOMER
SERVICE CENTER TO FIND OUT ABOUT STATE AVAILABILITY.
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ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company New York, New York 10017 Mailing Address: P.O. Box 8794
Wilmington, Delaware 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATED: MAY 1, 1995
GOLDENSELECT DVA
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
DEFINITION OF TERMS..................................... 3
SUMMARY OF THE CONTRACT................................. 5
FEE TABLE............................................... 7
CONDENSED FINANCIAL INFORMATION......................... 9
Index of Investment Experience
Financial Statements
Performance Related Information
PART I
INTRODUCTION............................................ 11
FACTS ABOUT THE COMPANY AND THE ACCOUNTS................ 12
Golden American
Separate Accounts B and D
Account B Divisions
The Managed Global Account of Account D
Changes Within Account B and D
The Fixed Account
FACTS ABOUT THE CONTRACT................................ 18
The Owner
The Annuitant
The Beneficiary
Change of Owner or Beneficiary
Availability of the Contract
Types of Contracts
Your Right to Select or Change Contract Options
Premiums
Making Additional Premium Payments
Crediting Premium Payments
Restrictions on Allocation of Premium Payments
Your Right to Reallocate
Dollar Cost Averaging
What Happens if a Division is Not Available
Your Accumulation Value
Accumulation Value in Each Division
Measurement of Investment Experience
Cash Surrender Value
Surrendering to Receive the Cash Surrender Value
Partial Withdrawals
Proceeds Payable to the Beneficiary
Reports to Owners
When We Make Payments
CHARGES AND FEES........................................ 28
Charge Deduction Division
Charges Deducted from the Accumulation Value
Charges Deducted from the Divisions
Trust Expenses
Operating Expenses of Account D
CHOOSING AN INCOME PLAN................................. 30
The Income Plan
Annuity Commencement Date Selection
Frequency Selection
The Annuity Options
Payment When Named Person Dies
<CAPTION>
PAGE
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OTHER CONTRACT PROVISIONS............................... 32
In Case of Errors in Application Information
Your Right to Cancel or Exchange Your Contract
Other Contract Changes
Group or Sponsored Arrangements
Selling the Contract
REGULATORY INFORMATION.................................. 33
Voting Rights
State Regulation
Legal Proceedings
Legal Matters
Experts
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE
COMPANY................................................ 34
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Directors and Executive Officers
Compensation Tables and Other Information
FEDERAL TAX CONSIDERATIONS.............................. 41
Introduction
Golden American Tax Status
Taxation on Non-Qualified Annuities
Taxation of Individual Retirement Annuities
Distribution-at-Death Rules
Taxation of Death Benefit Proceeds
Transfer of Annuity Contracts
Section 1035 Exchanges
Assignments
Multiple Contracts Rule
PART II
INTRODUCTION............................................ 47
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D................. 48
The Global Account
Investment Objective and Policies of the Global
Account
Non-Diversified
Risk Factors
Board of Governors of Account D
The Manager
The Portfolio Manager
Securities and Investment Techniques
Investment Restrictions
Brokerage Services
AUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE
INSURANCE COMPANY...................................... 60
STATEMENT OF ADDITIONAL INFORMATION..................... 94
Table of Contents
APPENDIX A.............................................. A1
Market Value Adjustment Examples
APPENDIX B.............................................. B1
GoldenSelect Service Forms
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
DEFINITION OF TERMS
ACCOUNTS
Separate Account B, Separate Account D, and the Fixed Account.
ACCUMULATION VALUE
The total amount invested under the contract. Initially, this amount is equal to
the premium paid. Thereafter, the accumulation value will reflect the premiums
paid, investment experience of the divisions and interest credited to your Fixed
Allocations, charges deducted and any partial withdrawals.
ANNUITANT
The person designated by the owner to be the measuring life in determining
annuity payments.
ANNUITY COMMENCEMENT DATE
The date on which annuity payments begin.
ANNUITY OPTIONS
Options the owner selects that determine the form and amount of annuity
payments.
ANNUITY PAYMENT
The periodic payment an owner receives. It may be either a fixed or a variable
amount based on the annuity option chosen.
ATTAINED AGE
The issue age of the owner or annuitant plus the number of full years elapsed
since the contract date.
BENEFICIARY
The person designated to receive benefits in the case of the death of the owner
or the annuitant (when the owner is other than an individual).
BUSINESS DAY
Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of
Federal holidays, or any day on which the SEC requires that mutual funds, unit
investment trusts or other investment portfolios be valued.
CASH SURRENDER VALUE
The amount the owner receives upon surrender of the contract, including any
Market Value Adjustment.
CHARGE DEDUCTION DIVISION
The division from which all charges are deducted if so designated by you. The
Charge Deduction Division currently is the Liquid Asset Division.
CONTINGENT ANNUITANT
The person designated by the owner who, upon the annuitant's death prior to the
annuity commencement date, becomes the annuitant.
CONTRACT
The entire contract consisting of the basic contract and any riders or
endorsements.
CONTRACT ANNIVERSARY
The anniversary of the contract date.
CONTRACT DATE
The date on which we have received the initial premium and upon which we begin
determining the contract values. It may or may not be the same as the issue
date. This date is used to determine contract months, processing dates, years
and anniversaries.
CONTRACT PROCESSING DATES
The days when we deduct certain charges from the accumulation value. If the
contract processing date is not a valuation date, it will be on the next
succeeding valuation date. The contract processing dates will be once each year
on the contract anniversary.
CONTRACT PROCESSING PERIOD
The first contract processing period begins with the contract date and ends at
the close of business on the first contract processing date. All subsequent
contract processing periods begin at the close of business on the most recent
contract processing date and extend to the close of business on the next
contract processing date. There is one contract processing period each year.
CONTRACT YEAR
The period between contract anniversaries.
CUSTOMER SERVICE CENTER
Where service is provided to you. The mailing address and telephone number of
the Customer Service Center are shown on the cover.
DIVISIONS
The investment options available under Account B and Account D.
ENDORSEMENTS
An endorsement changes or adds provisions to the contract.
3
<PAGE>
DEFINITION OF TERMS (CONTINUED)
EXPERIENCE FACTOR
The factor which reflects the investment experience of the portfolio in which a
division invests and also reflects the charges assessed against the division for
a valuation period.
FIXED ACCOUNT
A non-unitized separate account which contains all of our assets that support
owner Fixed Allocations and any interest credited thereto.
FIXED ALLOCATION
An amount allocated to the Fixed Account that is credited with a Guaranteed
Interest Rate for a specified Guarantee Period.
FREE LOOK PERIOD
The period of time within which the owner may examine the contract and return it
for a refund.
GUARANTEED INTEREST RATE
The effective annual interest rate which we will credit for a specified
Guarantee Period. The Guaranteed Interest Rate will never be less than 3%.
GUARANTEE PERIOD
The period of time for which a rate of interest is guaranteed to be credited to
a Fixed Allocation. We currently offer Guarantee Periods with durations of 1, 3,
6, 8 and 10 years.
INDEX OF INVESTMENT EXPERIENCE
The index that measures the performance of a division.
INITIAL PREMIUM
The payment required to put a contract into effect.
ISSUE AGE
The owner's or annuitant's age on his or her last birthday on or before the
contract date.
ISSUE DATE
The date the contract is issued at our Customer Service Center.
MARKET VALUE ADJUSTMENT
A positive or negative adjustment made to a Fixed Allocation. It may apply to
certain withdrawals, transfers and annuitizations of all or part of a Fixed
Allocation prior to the end of a Guarantee Period.
MATURITY DATE
The date on which a Guarantee Period matures.
OWNER
The person who owns the contract and is entitled to exercise all rights under
the contract. This person's death also initiates payment of the death benefit.
RIDER
A rider amends the contract, in certain instances adding benefits.
SPECIALLY DESIGNATED DIVISION
The division to which distributions from a portfolio underlying a division (or
from a division of Separate Account D) in which reinvestment is not available
will be allocated unless you specify otherwise. The Specially Designated
Division currently is the Liquid Asset Division.
VALUATION DATE
The day at the end of a valuation period when each division is valued.
VALUATION PERIOD
Each business day together with any non-business days before it.
4
<PAGE>
SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information regarding the
contract and the Accounts which fund the contract. Information concerning the
divisions of Account B and the Fixed Account is set forth in Part I of the
prospectus. Part II of this prospectus, beginning on page 47, pertains to
Account D which invests directly in securities.
This summary is intended to provide only a very brief overview of the more
significant aspects of the contract. Further detail is provided in this
prospectus and in the contract. The contract, together with any riders or
endorsements, constitutes the entire agreement between you and us and should be
retained.
This prospectus has been designed to provide you with the necessary information
to make a decision on purchasing the contract offered by Golden American and
funded by the Accounts.
You have a choice of investments. We do not promise that your accumulation value
will increase. Depending on the investment experience of the divisions and
interest credited to the Fixed Allocations in which you are invested, your
accumulation value, cash surrender value and death benefit may increase or
decrease on any day. You bear the investment risk.
DESCRIPTION OF THE CONTRACT
The contract is designed to establish retirement benefits for two types of
purchasers. The first type of purchaser is one who is eligible to participate
in, and purchases a contract for use with, an individual retirement annuity
("IRA") meeting the requirements of section 408(b) of the Internal Revenue Code
of 1986 ("qualified plan"). For a contract funding a qualified plan,
distribution must commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70. The second type of
purchaser is one who purchases a contract outside of a qualified plan
("non-qualified plan").
The contract also offers a choice of annuity options to which you may apply the
accumulation value on the annuity commencement date or the cash surrender value
upon surrender of the contract. See Part I, Choosing an Income Plan.
AVAILABILITY
We can issue a contract if both the annuitant and the owner are not older than
age 85 and accept additional premium payments until either the annuitant or
owner reaches the attained age of 85 for non-qualified plans (age 70 for
qualified plans, except for rollover contributions). The minimum initial premium
is $10,000 for a non-qualified plan and $1,500 for a qualified plan. If your
initial premium will be $25,000 or more we also offer GoldenSelect DVA Series
100 through another prospectus, which is a contract with a different charging
structure. We may change the minimum initial or additional premium requirements
for certain group or sponsored arrangements. See Part I, Group or Sponsored
Arrangements.
The minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan. We will take under
consideration and may refuse to accept a premium payment if the sum of all
premium payments received under the contract totals more than $1,500,000.
THE DIVISIONS
Each of the twelve divisions offered under this prospectus has its own distinct
investment objectives and policies. There are eleven divisions of Account B.
Each division of Account B invests in a corresponding Series of the Trust,
managed by Directed Services, Inc. ("DSI" or the "Manager"). The Trust and DSI
have retained several portfolio managers to manage the assets of each Series.
The division of Account D is The Managed Global Account. DSI is the Manager and
Warburg, Pincus Counsellors, Inc. ("Warburg, Pincus") is the portfolio manager
(the "Portfolio Manager"). See Part I, Facts About the Company and the Accounts,
Account B Divisions, and The Managed Global Account of Account D.
HOW THE ACCUMULATION VALUE VARIES
The accumulation value in the divisions varies each day based on investment
results. You bear the risk of poor investment performance and you receive the
benefits from favorable investment performance. The accumulation value also
reflects premium payments, charges deducted and partial withdrawals. See Part I,
Accumulation Value in Each Division.
THE FIXED ACCOUNT
The investments available through the Fixed Account include various Fixed
Allocations which we credit with fixed rates of interest for the Guarantee
Periods you select. We reset the interest rates for new Guarantee Periods
periodically based on our sole discretion. We may offer Guarantee Periods from
one to ten years. We currently offer Guarantee Periods with durations of 1, 3,
6, 8 and 10 years.
You bear the investment risk with respect to surrenders, partial withdrawals,
transfers and annuitization from your Fixed Allocations. A surrender, partial
withdrawal, transfer or annuitization made prior to the end of a Guarantee
Period may be subject to a Market Value Adjustment, which could have the effect
of either increasing or decreasing your accumulation
5
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
value. We will not apply a Market Value Adjustment within 30 days of the
Maturity Date of the applicable Guarantee Period or certain transfers made in
connection with the dollar cost averaging program. Systematic withdrawals from a
Fixed Allocation also are not subject to a Market Value Adjustment.
MARKET VALUE ADJUSTMENT
We will apply the Market Value Adjustment, subject to certain exceptions, to a
surrender, partial withdrawal, transfer or annuitization from a Fixed Allocation
made prior to the end of a Guarantee Period. The Market Value Adjustment does
not apply to amounts invested in either Account B or Account D.
SURRENDERING YOUR CONTRACT
You may surrender the contract and receive its cash surrender value at any time
while both the annuitant and owner are living and before the annuity
commencement date. See Part I, Cash Surrender Value and Surrendering to Receive
the Cash Surrender Value.
TAKING PARTIAL WITHDRAWALS
After the free look period, prior to the annuity commencement date and while the
contract is in effect, you may take partial withdrawals from the accumulation
value of the contract. You may take conventional partial withdrawals once per
contract year without charge. Alternatively, you may elect in advance to take
systematic partial withdrawals on a monthly or quarterly basis. If you have an
IRA contract, you may elect IRA partial withdrawals on a monthly, quarterly or
annual basis.
Partial withdrawals are subject to certain restrictions as defined in this
prospectus and a Market Value Adjustment. Partial withdrawals above a specified
percentage of your accumulation value may be subject to a surrender charge. See
Part I, Partial Withdrawals.
DOLLAR COST AVERAGING
Under this program, you may choose to have a specified dollar amount transferred
from either the Limited Maturity Bond Division, Liquid Asset Division or a Fixed
Allocation with a one year Guarantee Period to the other divisions of Account B
and Account D on a monthly basis with the objective of shielding your investment
from short term price fluctuations. See Part I, dollar cost averaging. Transfers
under the dollar cost averaging program are not subject to a Market Value
Adjustment.
YOUR RIGHT TO CANCEL THE CONTRACT
You may cancel your contract within the free look period which is a ten day
period of time beginning when you receive the contract. For purposes of
administering our allocation and certain other administrative rules, we deem
this period to end 15 days after the contract is mailed from our Customer
Service Center. Some states may require that we provide a longer free look
period. In some states we restrict the initial premium allocation during the
free look period. See Part I, Your Right to Cancel or Exchange Your Contract.
YOUR RIGHT TO CHANGE THE CONTRACT
The contract may be changed to another annuity plan subject to our rules at the
time of the change. See Part I, Other Contract Changes.
DEATH BENEFIT PROCEEDS
The contract provides a death benefit to the beneficiary if the owner dies prior
to the annuity commencement date. We may offer a reduced death benefit under
certain group and sponsored arrangements. See Part I, Group or Sponsored
Arrangements.
DEDUCTIONS FOR CHARGES AND FEES
We invest the entire amount of the initial and any additional premium payments
in the divisions and the Fixed Allocations you select, subject to certain
restrictions we impose. See Part I, Restrictions on Allocation of Premium
Payments. We then periodically deduct certain amounts from your accumulation
value. See Part I, Charges and Fees. We may reduce certain charges under group
or sponsored arrangements. See Part I, Group or Sponsored Arrangements. Unless
you have elected the Charge Deduction Division, charges are deducted
proportionately from all Account B and Account D divisions in which you are
invested. If there is no accumulation value in these divisions, charges will be
deducted from your Fixed Allocations starting with Guarantee Periods nearest
their Maturity Dates until such charges have been deducted.
FEDERAL INCOME TAXES
The ultimate effect of Federal income taxes on the amounts held under an annuity
contract, on annuity payments and on the economic benefits to the owner,
annuitant or beneficiary depends on Golden American's tax status and upon the
tax status of the individuals concerned. In general, an owner is not taxed on
increases in value under an annuity contract until some form of distribution is
made under it. There may be tax penalties if you make a withdrawal or surrender
the contract before reaching age 59 1/2. See Part I, Federal Tax Considerations.
6
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES(1) (deducted from accumulation value)
DISTRIBUTION FEE (ANNUAL SALES LOAD) AS A PERCENTAGE OF THE INITIAL AND EACH ADDITIONAL PREMIUM, deducted at the
end of each contract processing period following receipt of each premium over a six year period from the date
we receive and accept each premium payment..................................................................... 1.00%(2)(3)
</TABLE>
<TABLE>
<CAPTION>
DURING YEAR
-------------
<S> <C>
SURRENDER CHARGE AS A PERCENTAGE OF THE INITIAL OR ADDITIONAL PREMIUM deducted upon surrender as measured
from the date the premium is accepted(4)................................................................ 1............6.00%
2............5.00
3............4.00
4............3.00
5............2.00
6............1.00
7+...........0.00
</TABLE>
<TABLE>
<S> <C>
EXCESS ALLOCATION CHARGE........................................................................................... $0(5)
PARTIAL WITHDRAWAL CHARGE (2.0% of the withdrawal for each conventional partial withdrawal after the first in a
contract year) not to exceed...................................................................................... $25
ANNUAL ADMINISTRATIVE CHARGE (deducted from accumulation value).................................................... $40
Waived if the accumulation value equals or exceeds $100,000 at the end of a contract year, or if the sum of
premiums paid equal or exceed $100,000
SEPARATE ACCOUNT ANNUAL EXPENSES (percentage of assets in each division)(6)
MORTALITY AND EXPENSE RISK CHARGE.................................................................................. 0.90%
ASSET BASED ADMINISTRATIVE CHARGE.................................................................................. 0.10%
Total Separate Account Annual Expenses............................................................................. 1.00%
TRUST ANNUAL EXPENSES(7) (based on combined assets of the indicated groups of Series)
</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
SERIES FEES EXPENSES(8) EXPENSES
- ------------------------------------------------------ ------------ --------------- -------------
<S> <C> <C> <C>
Multiple Allocation, Fully Managed, Capital
Appreciation, 1.00% 0.00% 1.00%
Rising Dividends, All-Growth, Real Estate, Natural
Resources and Value Equity Series:
Emerging Markets Series: 1.50% 0.02% 1.52%
Limited Maturity Bond: 0.60% 0.00% 0.60%
Liquid Asset Series: 0.60% 0.01% 0.61%
</TABLE>
THE MANAGED GLOBAL ACCOUNT ANNUAL EXPENSES AFTER REIMBURSEMENT (percentage of
average net assets)
<TABLE>
<CAPTION>
MANAGEMENT AND OTHER TOTAL ANNUAL
ASSETS ADVISORY FEES EXPENSES EXPENSES(9)
- --------------------------------------------------------------------- ---------------------- ------------- -----------------
<S> <C> <C> <C>
$0 to $500 million................................................... 1.00% 0.25% 1.25%
in excess of $500 million............................................ 0.80% 0.25% 1.05%
<FN>
- ------------------------------
(1) In addition to the Owner Transaction Expenses reflected in the Table, we may
apply a Market Value Adjustment to surrenders, partial withdrawals or
transfers from a Fixed Allocation made prior to the end of a Guarantee
Period, including any reallocation of your accumulation value on the annuity
commencement date subject to certain exceptions. The Market Value Adjustment
could have the effect of either increasing or decreasing your accumulation
value.
(2) Contracts with a contract date prior to May 3, 1993 and the prospectus
delivered in connection with such contracts described the sales load as a
deferred load, which is equivalent to the combination of the distribution
fee and surrender charge described above. Limited Edition contracts
purchased through Account D and the prospectus delivered in connection with
such contracts also described the sales load as a deferred load.
(3) If your initial premium will be $25,000 or more, we also offer DVA Series
100 through another prospectus, which is a contract with a different
charging structure.
(4) Some jurisdictions impose a premium tax at the time the initial or
additional premiums are paid, regardless of the annuity commencement date.
In those states we may initially defer collection of the amount of the
charge for premium taxes from your accumulation value and deduct it from
your accumulation value on surrender of the contract, excess partial
withdrawals or on the annuity commencement date.
(5) You may change the allocation of your accumulation value during a contract
year free of charge. We reserve the right, however, to assess a $25 charge
for each allocation change after the twelfth allocation change in a contract
year.
(6) At issue, for issue ages 0-75, we also offer Death Benefit Option 3. If
Death Benefit Option 3 is elected, we will reduce the mortality and expense
risk charge to 0.70%.
(7) Fees decline as combined assets increase (see Part I, Account B Divisions
and the Trust prospectus for details).
(8) Other expenses generally consist of independent trustees fees and expenses.
The Emerging Markets Series incurred transfer and repatriation taxes of
0.21% of average daily net assets which are not reflected as Other Expenses
in this Fee Table.
(9) Reflects an expense reimbursement or waiver through December 31, 1994. In
the absence of expense reimbursement or waiver, the total annual expenses
would have been 1.40% of the Global Account's average daily net assets for
1994. This figure includes non-recurring expenses of approximately .06% of
average daily net assets which were not reimbursed.
</TABLE>
7
<PAGE>
FEE TABLE (CONTINUED)
EXAMPLES:
If you surrender your contract at the end of the applicable time period, you
would pay the following expenses for each $1,000 of initial premium assuming a
5% annual return on assets:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation..................................................... $ 81.00 $ 124.17 $ 168.98 $ 290.06
Fully Managed........................................................... 81.00 124.17 168.98 290.06
Capital Appreciation.................................................... 81.00 124.17 168.98 290.06
Rising Dividends........................................................ 81.00 124.17 168.98 290.06
All-Growth.............................................................. 81.00 124.17 168.98 290.06
Real Estate............................................................. 81.00 124.17 168.98 290.06
Natural Resources....................................................... 81.00 124.17 168.98 290.06
Value Equity............................................................ 81.00 124.17 168.98 290.06
Emerging Markets........................................................ 86.21 139.71 194.68 340.60
Global Account.......................................................... 83.51 131.67 181.42 314.72
Limited Maturity Bond................................................... 76.97 112.06 148.74 249.21
Liquid Asset............................................................ 77.07 112.36 149.26 250.25
</TABLE>
- --------------------------------------------------------------------------------
If you do not surrender your contract or if you annuitize, you would pay the
following expenses for each $1,000 of initial premium assuming a 5% annual
return on assets:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation..................................................... $ 31.00 $ 94.17 $ 158.98 $ 290.06
Fully Managed........................................................... 31.00 94.17 158.98 290.06
Capital Appreciation.................................................... 31.00 94.17 158.98 290.06
Rising Dividends........................................................ 31.00 94.17 158.98 290.06
All-Growth.............................................................. 31.00 94.17 158.98 290.06
Real Estate............................................................. 31.00 94.17 158.98 290.06
Natural Resources....................................................... 31.00 94.17 158.98 290.06
Value Equity............................................................ 31.00 94.17 158.98 290.06
Emerging Markets........................................................ 36.21 109.71 184.68 340.60
Global Account.......................................................... 33.51 101.67 171.42 314.72
Limited Maturity Bond................................................... 26.97 82.06 138.74 249.21
Liquid Asset............................................................ 27.07 82.36 139.26 250.25
</TABLE>
- --------------------------------------------------------------------------------
For purposes of computing the annual per contract administrative charge, the
dollar amounts shown in the examples are based on an initial premium of $57,000.
In the examples, the numbers for the Global Account reflect expenses based on
assumed assets in the Global Account of $500 million or less. If the Global
Account's assets exceed $500 million, these expenses will decrease.
At issue, if Death Benefit Option 3 is elected, the actual expenses incurred
will be less than those represented in the Examples.
The purpose of the fee table is to assist you in understanding the various costs
and expenses that you may bear directly or indirectly. The fee table reflects
expenses of Account B and Account D as well as the Trust. Premium taxes may also
be applicable. See Part I, Charges and Fees, Premium Taxes. For a complete
description of contract costs and expenses and the charges and expenses for
Account D, see the section titled Charges and Fees in Part I of this prospectus.
For a more complete description of the Trust's costs and expenses, see the Trust
prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES UNDER THE CONTRACT.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
INDEX OF INVESTMENT EXPERIENCE
The upper table gives the index of investment experience for each division of
Account B and for the Global Account on their respective commencement of
operations and on December 31, 1989, 1990, 1991, 1992, 1993 and 1994, as
applicable. The index of investment experience is equal to the value of a unit
for each division of the Accounts. The total value of each division as of the
end of each period indicated is shown in the lower table.
<TABLE>
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE
----------------------------------------------------------------------------------------------------------
1/25/89 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
------------- ------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Allocation.... $ 10.00 $ 10.82 $ 11.19 $ 13.30 $ 13.41 $ 14.75 $ 14.43
Fully Managed.......... 10.00 10.38 9.87 12.59 13.24 14.11 12.95
Capital Appreciation... * * * * 11.01 11.81 11.50
Rising Dividends....... *** *** *** *** *** 10.29 10.25
All-Growth............. 10.00 10.71 9.74 13.16 12.69 13.39 11.83
Real Estate............ 10.00 9.90 7.68 10.19 11.48 13.33 14.04
Natural Resources...... 10.00 11.86 10.05 10.42 9.30 13.81 14.02
Value Equity........... **** **** **** **** **** **** ****
Emerging Markets....... *** *** *** *** *** 12.41 10.42
Global Account......... ** ** ** ** 10.01 10.52 9.09
Limited Maturity
Bond.................. 10.00 10.88 11.61 12.78 13.27 13.95 13.65
Liquid Asset........... 10.00 10.68 11.38 11.90 12.15 12.35 12.68
</TABLE>
<TABLE>
<CAPTION>
TOTAL ACCUMULATION VALUE
-------------------------------------------------------------------------------------------
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Allocation.... $ 15,556,366 $ 23,963,356 $ 57,739,245 $ 115,124,744 $ 273,158,122 $ 297,507,994
Fully Managed.......... 5,333,885 5,414,160 9,834,436 37,352,585 108,290,963 98,836,207
Capital Appreciation... * * * 18,366,222 86,798,642 88,344,684
Rising Dividends....... *** *** *** *** 14,387,382 50,384,765
All-Growth............. 3,077,542 4,528,380 11,159,814 23,418,811 56,055,565 70,623,784
Real Estate............ 650,003 309,556 696,180 3,600,461 28,772,896 36,936,728
Natural Resources...... 2,320,696 2,460,399 2,646,183 2,882,417 21,436,544 32,746,767
Value Equity........... **** **** **** **** **** **** ****
Emerging Markets....... *** *** *** *** 30,488,589 59,747,048
Global Account......... ** ** ** 38,699,402 88,477,493 86,208,555
Limited Maturity
Bond.................. 2,595,966 8,009,970 15,935,184 39,861,202 71,622,231 71,573,009
Liquid Asset........... 2,190,649 8,419,953 9,224,303 12,769,536 16,497,588 45,364,989
<FN>
- --------------------------
*The Capital Appreciation Division became available for investment on May 4,
1992 starting with an index of investment experience of $10.00.
**The Global Account Division of Account D became available for investment on
October 21, 1992 starting with an index of investment experience of $10.00.
***The Rising Dividends and Emerging Markets Divisions became available for
investment on October 4, 1993 starting with an index of investment
experience of $10.00.
****The Value Equity Division became available for investment on January 1, 1995
starting with an index of investment experience of $10.00.
</TABLE>
In order to provide for continuity in results, the above table is based on
charges for the contract described in this prospectus. Contracts issued prior to
May 1, 1991, were based on lower asset charges and, thus, would have higher
values for the indices of investment experience.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years ended
December 31, 1994 and 1993 (as well as the auditor's report thereon) and the
audited financial statements of The Managed Global Account of separate Account D
for the years ended December 31, 1994 and 1993 (as well as the auditor's report
thereon) appear in the Statement of Additional Information. The audited
financial statements of Golden American prepared in accordance with statutory
accounting practices for the years ended December 31, 1994 and 1993 (as well as
the auditor's report thereon) and the audited financial statements of Golden
American prepared in accordance with generally accepted accounting principles
for the years ended December 31, 1994 and 1993 and the period September 30, 1992
to December 31, 1992 (as well as the auditor's report thereon) are contained in
the Prospectus.
PERFORMANCE RELATED INFORMATION
Performance information for the divisions of Account B and Account D, including
the yield and effective yield of the Liquid Asset Division, the yield of the
remaining divisions, and the total return of all divisions may appear in reports
and promotional literature to current or prospective owners.
Current yield for the Liquid Asset Division will be based on income received by
a hypothetical investment over a given 7-day period (less expenses accrued
during the period), and then "annualized" (i.e., assuming that the 7-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). "Effective yield" for the Liquid Asset Division is
calculated in a manner similar to that used to calculate yield, but when
annualized, the income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of earnings.
For the remaining divisions, quotations of yield will be based on all investment
income per unit (accumulation value divided by the index of investment
experience -- see Part I, Measurement of Investment Experience, INDEX OF
INVESTMENT EXPERIENCE AND UNIT VALUE) earned during a given 30-day period, less
expenses accrued during the period ("net investment income"). Quotations of
average annual total return for any division will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
contract over a period of one, five, and ten years (or, if less, up to the life
of the division), and will reflect the deduction of the applicable distribution
fee and/or surrender charge, the administrative charge and the mortality and
expense risk charge. Quotations of total return may simultaneously be shown for
other periods that do not take into account certain contractual charges, such as
the distribution fee and surrender charge for example.
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices measuring performance of a pertinent
group of securities so that investors may compare a division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services, a widely
used independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, including VARDS, companies, publications, or persons
who rank separate accounts or other investment products on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the contract. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Performance information for any division reflects only the performance of a
hypothetical contract under which the accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the division invests or, the securities in which
Account D invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the divisions, see the Statement of Additional Information.
Reports and promotional literature may also contain other information including
the ranking of any division derived from rankings of variable annuity separate
accounts or other investment products tracked by Lipper Analytical Services or
by rating services, companies, publications, or other persons who rank separate
accounts or other investment products on overall performance or other criteria.
10
<PAGE>
PART I
INTRODUCTION THE FOLLOWING INFORMATION IN PART I DESCRIBES THE CONTRACT AND
THE SEPARATE ACCOUNTS WHICH FUND THE CONTRACT, ACCOUNT B AND ACCOUNT D AND THE
FIXED ACCOUNT. ACCOUNT B INVESTS IN MUTUAL FUND PORTFOLIOS OF THE TRUST. ACCOUNT
D INVESTS DIRECTLY IN SECURITIES. THE FIXED ACCOUNT CONTAINS ALL OF THE ASSETS
THAT SUPPORT OWNER FIXED ALLOCATIONS WHICH WE CREDIT WITH GUARANTEED INTEREST
RATES FOR THE GUARANTEE PERIODS YOU SELECT.
11
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden American
is a wholly owned indirect subsidiary of Bankers Trust Company. We are
authorized to do business in all jurisdictions except New York. We offer
variable annuities and variable life insurance. Administrative services for the
contract are provided at our Customer Service Center, the address is shown on
the cover. As of December 31, 1994 Golden American had stockholder's equity of
approximately $89.5 million and total assets of approximately $1.04 billion,
including approximately $950.3 million of separate account assets.
Bankers Trust Company is a New York banking corporation with executive offices
at 280 Park Avenue, New York, New York 10017. As of December 31, 1994, Bankers
Trust New York Corporation, parent of Bankers Trust Company, was the seventh
largest bank holding company in the United States with total assets of
approximately $98 billion. Bankers Trust Company conducts a variety of general
banking and trust activities and is a leading wholesale supplier of financial
services to the domestic and international markets.
In a transaction that closed on September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding capital stock
of Golden American and DSI, an affiliate of Golden American, and related assets.
The transaction involved settlement of pre-existing claims of Bankers Trust
Company against the former parent company of Golden American and DSI. Under
applicable banking law, stock so acquired is subject to various divestiture
requirements. While Bankers Trust Company has no immediate intent to divest its
ownership of the stock of Golden American and DSI, such a divestiture may occur
in the future. In addition, judicial or administrative decisions or
interpretations, as well as changes in either Federal or state banking statutes
or regulations, could prevent Bankers Trust Company from continuing to own the
stock of Golden American or DSI.
Effective October 3, 1994, First Colony Corporation ("First Colony") and BT
Variable, Inc. ("BT Variable") entered into an agreement providing for the
acquisition by First Colony of a minority interest in BT Variable. BT Variable,
an indirect subsidiary of Bankers Trust Company, is the corporate parent of
Golden American Life Insurance Company and Directed Services, Inc. The
acquisition is subject to the approval of the appropriate regulators.
First Colony is the corporate parent of two insurance companies, First Colony
Life Insurance Company and American Mayflower Life, which together provide life
insurance and annuity products throughout the United States.
For more information about Golden American, see Part I, More Information About
Golden American Life Insurance Company, page 34.
SEPARATE ACCOUNTS B AND D
All obligations under the contract are general obligations of Golden American.
Account B and Account D are separate investment accounts used to support our
variable annuity contracts and for other purposes as permitted by applicable
laws and regulations. The assets of Account B and Account D are kept separate
from our General Account and any other separate accounts we may have. We may
offer other variable annuity contracts investing in Account B and Account D
which are not discussed in this prospectus. Account B and Account D may also
invest in other series which are not available to the contract described in this
prospectus.
We own all the assets in Account B and Account D. Income and realized and
unrealized gains or losses from assets in each account is credited to or charged
against that account without regard to other income, gains or losses in our
other investment accounts. As required, the assets in Account B and Account D
are at least equal to the reserves and other liabilities of that account. These
assets may not be charged with liabilities from any other business we conduct.
They may, however, be subject to liabilities arising from divisions whose assets
are attributable to other variable annuity contracts supported by Account B and
Account D. If the assets exceed the required reserves and other liabilities, we
may transfer the excess to our General Account.
ACCOUNT B
Account B was established on July 14, 1988, and may invest in mutual funds,
unit investment trusts or other investment portfolios which we determine to be
suitable for the contract's purposes. Account B is treated as a unit
investment trust under Federal securities laws. It is registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act") as an investment
company. It is governed by the laws of Delaware, our state of domicile, and
may also be governed by the laws of other states in which we do business.
Registration with the SEC does not involve any supervision by the SEC of the
management or investment policies or practices of Account B.
12
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FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
ACCOUNT D
Account D was established on April 18, 1990 and invests directly in securities
in accordance with the investment objectives and policies of Account D.
Account D is registered with the SEC under the 1940 Act as an open-end
management investment company and meets the definition of a separate account
under the federal securities laws. It is governed by the laws of Delaware, our
state of domicile, and may also be governed by laws of other states in which
we do business. Registration with the SEC does not involve any supervision by
the SEC of the management or investment policies or practices of Account D.
ACCOUNT B DIVISIONS
Account B is divided into divisions. Currently, each division of Account B
offered under this prospectus invests in a portfolio of The GCG Trust. DSI
serves as the Manager to each Series of the Trust. See the Trust prospectus for
details. The Trust and DSI have retained several portfolio managers to manage
the assets of each Series as indicated below. There may be restrictions on the
amount of the allocation to certain divisions based on state laws and
regulations. The investment objectives of the various Series in the Trust are
described below. There is no guarantee that any portfolio or Series will meet
its investment objectives. Meeting objectives depends on various factors,
including, in certain cases, how well the portfolio managers anticipate changing
economic and market conditions. Account B may also have other divisions
investing in other series which are not available to the contract described in
this prospectus.
DSI provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series. DSI
is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series. DSI does not bear
the expense of brokerage fees and other transactional expenses for securities or
other assets (which are generally considered part of the cost for assets), taxes
(if any) paid by a Series, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the Trust prospectus for details.
The Trust pays DSI for its services a monthly fee based on the following
percentages of the average daily net assets of the Series. DSI (and not the
Trust) pays each portfolio manager a monthly fee for managing the assets of the
Series.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEES (based on combined assets of the indicated groups of
SERIES Series)
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising Dividends, 0.95% of next $1.250 billion;
All-Growth, Real Estate, Natural Resources and Value Equity 0.90% of next $1.5 billion; and
Series: 0.85% of amount in excess of $3.5 billion
Emerging Markets Series: 1.50% of average daily net assets
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
The following divisions invest in designated Series of the Trust.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current
income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS
Investment in equity and debt securities and the use of certain sophisticated
investment strategies and techniques.
PORTFOLIO MANAGER
Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE
High total investment return over the long term, consistent with the
preservation of capital and prudent investment risk.
INVESTMENTS
Pursues an active asset allocation strategy whereby investments are allocated,
based upon an evaluation of economic and market trends and the anticipated
relative total return available, among three asset classes -- debt securities,
equity securities and money market instruments.
PORTFOLIO MANAGER
Weiss, Peck & Greer Advisers, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE
Long-term capital growth.
INVESTMENTS
Invests in common stocks and preferred stock that will be allocated among
various categories of stocks referred to as "components" which consist of the
following: (i) The Growth Component -- Securities that the portfolio manager
believes have the following characteristics: stability and quality of earnings
and positive earnings momentum; dominant competitive positions; and
demonstrate above-average growth rates as compared to published S&P 500
earnings projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e., securities
selling at a discount to asset value and securities with a relatively low
price/earnings ratio. The securities eligible for this component may include
real estate stocks, such as securities of publicly-owned companies that, in
the portfolio manager's judgement, offer an optimum combination of current
dividend yield, expected dividend growth, and discount to current real estate
value.
PORTFOLIO MANAGER
Chancellor Trust Company
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment in equity securities of high quality companies that meet the
following four criteria: consistent dividend increases; substantial dividend
increases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, Inc.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long term growth prospects.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE
Capital appreciation, with current income as a secondary objective.
INVESTMENTS
Investment in publicly traded equity securities of companies in the real
estate industry listed on national exchanges or on the National Association of
Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
Chancellor Trust Company
NATURAL RESOURCES DIVISION
NATURAL RESOURCES SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the
exploration, development, production, and distribution of natural resources.
PORTFOLIO MANAGER
Van Eck Associates Corporation
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<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE
Capital appreciation with a secondary objective of dividend income.
INVESTMENTS
Investment primarily in equity securities of U.S. and foreign issuers which,
when purchased, meet quantitative standards believed by the Portfolio Manager
to indicate above average financial soundness and high intrinsic value
relative to price.
PORTFOLIO MANAGER
Eagle Asset Management, Inc.
EMERGING MARKETS DIVISION
EMERGING MARKETS SERIES
OBJECTIVE
Long term growth of capital.
INVESTMENTS
Investment primarily in equity securities of companies that are considered to
be in emerging market countries in the Pacific Basin and Latin America. Income
is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Bankers Trust Company
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE
Highest current income consistent with low risk to principal and liquidity.
Also seeks to enhance its total return through capital appreciation when
market factors indicate that capital appreciation may be available without
significant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt
securities. No individual security will at the time of purchase have a
remaining maturity longer than seven years and the dollar-weighted average
maturity of the Series will not exceed five years.
PORTFOLIO MANAGER
Bankers Trust Company
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
INVESTMENTS
Obligations of the U.S. Government and its agencies and instrumentalities;
bank obligations; commercial paper and short- term corporate debt securities.
TERM
All issues maturing in less than one year.
PORTFOLIO MANAGER
Bankers Trust Company
The Trust is an open-end management investment company, more commonly called a
mutual fund. The Trust's shares may also be available to certain separate
accounts funding variable life insurance policies offered by Golden American.
This is called "mixed funding."
The Trust may also sell its shares to separate accounts of other insurance
companies, both affiliated and not affiliated with Golden American. This is
called "shared funding." Although we do not anticipate any inherent difficulties
arising from either mixed or shared funding it is theoretically possible that,
due to differences in tax treatment or other considerations, the interest of
owners of various contracts participating in the Trust might at sometime be in
conflict. After the Trust receives the requisite order from the SEC, shares of
the Trust may also be sold to certain qualified pension and retirement plans.
The Board of Trustees of the Trust, the Trust's Manager, and we and any other
insurance companies participating in the Trust are required to monitor events to
identify any material conflicts that arise from the use of the Trust for mixed
and/or shared funding or between various policyowners and pension and retirement
plans. For more information about the risks of mixed and shared funding, please
refer to the Trust prospectus.
You will find complete information about the Trust, including the risks
associated with each Series, in the accompanying Trust prospectus. You should
read it carefully in conjunction with this prospectus before investing.
Additional copies of the Trust prospectus may be obtained by contacting our
Customer Service Center.
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
The Global Account is the only portfolio of Account D available under the
contract. The Global Account is a non-diversified investment company which
invests directly in securities. There can be no assurance that the Global
Account will meet its investment objective. Account D may also offer other
portfolios which are not available through the purchase of the contract offered
15
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
by this prospectus. DSI serves as Manager of Account D and Warburg, Pincus
serves as Portfolio Manager of the Global Account.
THE MANAGED GLOBAL ACCOUNT DIVISION
THE MANAGED GLOBAL ACCOUNT PORTFOLIO
OBJECTIVE
High total investment return, consistent with a prudent regard for capital
preservation.
INVESTMENTS
Investment in a wide range of equity and debt securities and money market
instruments of both domestic and foreign issuers.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
ADVISORY FEE
0.60% of the first $500 million of average daily net assets on an annual
basis; and 0.50% of the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
FOR COMPLETE INFORMATION ABOUT THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D,
INCLUDING THE RISKS ASSOCIATED WITH ITS INVESTMENTS, SEE PART II, INVESTMENT
OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT, PAGE 47.
CHANGES WITHIN ACCOUNT B AND ACCOUNT D
We may from time to time make additional divisions available. These divisions
will invest in investment portfolios we find suitable for the contract. We also
have the right to eliminate investment divisions from Account B and Account D,
to combine two or more divisions, or to substitute a new portfolio for the
portfolio in which a division invests. A substitution may become necessary if,
in our judgment, a portfolio no longer suits the purposes of the contract. This
may happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. In addition, we reserve the
right to transfer assets of Account B and Account D, which we determine to be
associated with the class of contracts to which your contract belongs, to
another account. If necessary, we will get prior approval from the insurance
department of our state of domicile before making such a substitution or
transfer. We will also get any required approval from the SEC and any other
required approvals before making such a substitution or transfer. We will notify
you as soon as practicable of any proposed changes.
When permitted by law, We reserve the right to:
(1) deregister an account under the 1940 Act;
(2) operate an account as a management company
under the 1940 Act if it is operating as a unit investment trust;
(3) operate an account as a unit investment trust
under the 1940 Act if it is operating as a managed separate account;
(4) restrict or eliminate any voting rights as to the
accounts; and
(5) combine an account with other accounts.
THE FIXED ACCOUNT
Premium payments may be allocated to the Fixed Account to the extent elected by
you at the time of the initial premium payment or as subsequently elected. In
addition, all or part of your accumulation value may be transferred to the Fixed
Account. Assets supporting amounts allocated to the Fixed Account are available
to fund the claims of all classes of our customers, owners and other creditors.
Interests under your Contract relating to the Fixed Account are registered under
the Securities Act of 1933 but the Fixed Account is not registered under the
1940 Act.
SELECTING THE GUARANTEE PERIOD
You may select one or more Fixed Allocations with specified Guarantee Periods
for investment. We currently offer Guarantee Periods with durations of 1, 3, 6,
8 and 10 years. We reserve the right at any time to decrease or increase the
number of Guarantee Periods offered, and to discontinue offering a Guarantee
Period. However, once you have selected a Guarantee Period, it cannot be
changed. Each Fixed Allocation will have a Maturity Date corresponding to the
last day of the calendar month of the applicable Guarantee Period. At least 30
calendar days prior to a Maturity Date, or earlier if required by state or
federal law, we will forward to you a notice describing the Guarantee Periods
available as of the date of such notice. The notice will list the Guaranteed
Interest Rates we then currently credit for those Guarantee Periods.
Your accumulation value in the Fixed Account equals the sum of your Fixed
Allocations plus the interest credited thereto, as adjusted for any partial
withdrawals, reallocations or other charges we may impose. Your Fixed Allocation
will be credited with the Guaranteed Interest Rate in effect on the date we
receive
16
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
and accept your premium or reallocation of accumulation value. The Guaranteed
Interest Rate will be credited daily to yield the quoted Guaranteed Interest
Rate.
TRANSFERS FROM A FIXED ALLOCATION
You may transfer your accumulation value from a Fixed Allocation to one or more
new Fixed Allocations with new Guarantee Periods of any length offered by us or
to the divisions of Account B or Account D. Unless you specify in writing the
Fixed Allocations from which such transfers will be made, we will transfer
amounts from the Fixed Allocations starting with the Guarantee Period nearest
its Maturity Date, until we have honored your transfer request.
Transfers made within 30 days of the Maturity Date of the applicable Guarantee
Period or pursuant to the dollar cost averaging program will not be subject to a
Market Value Adjustment. All other transfers from your Fixed Allocations will be
subject to a Market Value Adjustment. The minimum amount that can be transferred
to or from any Fixed Allocation is $250. If a transfer request would reduce the
accumulation value remaining in your Fixed Allocation to less than $250, we will
treat such transfer request as a request to transfer the entire accumulation
value in such Fixed Allocation.
At the end of a Fixed Allocation's Guarantee Period, you may transfer amounts in
that Fixed Allocation to the divisions and one or more new Fixed Allocations
with Guarantee Periods of any length then offered by us. You may not, however,
transfer amounts to any Fixed Allocation with a Guarantee Period that extends
beyond the annuity commencement date.
We will notify you of your right to transfer amounts at least 30 days prior to
the end of the Guarantee Period. Prior to the end of such Guarantee Period you
must notify us as to which division or new Guarantee Period you have selected.
If timely instructions are not received, we will transfer your accumulation
value to a Fixed Allocation with a Guarantee Period equal in length to the
expiring Guarantee Period. If such Guarantee Period is not available or extends
beyond the annuity commencement date, we will transfer your accumulation value
to the next shortest Guarantee Period which does not extend beyond the annuity
commencement date. If no such Guarantee Period is available, we will transfer
your accumulation value to the Specially Designated Division.
GUARANTEED INTEREST RATES
We do not have a specific formula for establishing the Guaranteed Interest Rates
for the different Guarantee Periods. The determination made will be influenced
by, but not necessarily correspond to, interest rates available on fixed income
investments which we may acquire with the amounts we receive as premium payments
or reallocations of accumulation value under the contracts. These amounts will
be invested primarily in investment-grade fixed income securities including:
securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the United
States Government; debt securities that have an investment grade rating, at the
time of purchase, within the four highest grades assigned by Moody's Investor
Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or
BBB) or any other nationally recognized rating service; mortgage-backed
securities collateralized by the Federal Home Loan Mortgage Association, the
Federal National Mortgage Association or the Government National Mortgage
Association, or that have an investment grade rating at the time of purchase
within the four highest grades described above; other debt investments;
commercial paper; and cash or cash equivalents. You will have no direct or
indirect interest in these investments. We will also consider other factors in
determining the Guaranteed Interest Rates, including regulatory and tax
requirements, sales commissions and administrative expenses borne by us, general
economic trends and competitive factors. We cannot predict or guarantee the
level of future interest rates. However, no Fixed Allocation will ever have a
Guaranteed Interest Rate of less than 3% per year.
While the foregoing generally describes our investment strategy with respect to
the Fixed Account, we are not obligated to invest according to any particular
strategy, except as may be required by Delaware and other state insurance laws.
PARTIAL WITHDRAWALS
Prior to the annuity commencement date and while the contract is in effect, you
may take partial withdrawals from the accumulation value in a Fixed Allocation
by sending satisfactory notice to our Customer Service Center. You may make
systematic withdrawals of interest earnings only from a Fixed Allocation under
our Systematic Partial Withdrawal Option. (See, Part I, "Systematic Partial
Withdrawal Option".) Withdrawals from a Fixed Allocation taken within 30 days of
the Maturity Date and systematic withdrawals are not subject to a Market Value
Adjustment. Systematic withdrawals from a Fixed Allocation
17
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
are not permitted if such Fixed Allocation participates in the dollar cost
averaging program. Withdrawals may have federal income tax consequences,
including a 10% penalty tax. (See "Federal Tax Considerations.")
You must specify the division of either Account B or Account D or the Fixed
Allocation from which your partial withdrawal will be made. If you do not
specify the investment option from which the partial withdrawal will be taken,
we will assess your partial withdrawal against the divisions of Account B and
Account D on a pro rata basis. If there is no accumulation value in those
divisions, partial withdrawals will be deducted from your Fixed Allocations
starting with the Guarantee Periods nearest their Maturity Dates until we have
honored your request.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment, determined by application of the
formula described below, in two circumstances: First, whenever you make a
withdrawal or transfer from a Fixed Allocation, other than withdrawals or
transfers made within 30 days of the Maturity Date of the Guarantee Period,
systematic partial withdrawals, or pursuant to the dollar cost averaging
program; and Second, on the annuity commencement date with respect to any Fixed
Allocation having a Guarantee Period that does not end on or within 30 days
after the annuity commencement date.
The Market Value Adjustment is determined by multiplying the amount withdrawn,
transferred or annuitized by the following factor:
( 1+I )
1+J+.0025 (N/365) -1
Where "I" is the Guaranteed Interest Rate credited to the Fixed Allocation; "J"
is the Guaranteed Interest Rate credited to new Fixed Allocations with Guarantee
Periods equal to the number of years (fractional years are rounded up to the
next full year) remaining in the Guarantee Period at the time of the withdrawal,
transfer or annuitization; and "N" is the remaining number of days in the
Guarantee Period at the time of the withdrawal, transfer or annuitization.
If a full surrender, transfer or annuitization has been requested, the balance
of the Market Value Adjustment will be added to the amount surrendered,
transferred or annuitized. If a partial withdrawal, transfer or annuitization
has been requested, the Market Value Adjustment will be calculated on the total
amount that must be withdrawn, transferred or annuitized in order to provide the
amount requested. If a negative Market Value Adjustment exceeds the accumulation
value in the Fixed Allocation, such transaction will be considered a full
surrender, transfer or annuitization. The Appendix contains several examples
which illustrate the application of the Market Value Adjustment. The Market
Value Adjustment may result in either an increase or decrease in the
accumulation value of your Fixed Allocation. Because of the Market Value
Adjustment provision of the contract, you bear the investment risk that the
Guaranteed Interest Rates offered by us at the time you make a withdrawal or
transfer from a Fixed Allocation or start receiving annuity payments may be
higher or lower than the Guaranteed Interest Rate of the Fixed Allocation to
which the Market Value Adjustment is applied, with the result that the
accumulation value of your Fixed Allocation may be substantially reduced or
increased. This will depend on the relationship of (1) the Guaranteed Interest
Rate credited to the Fixed Allocation from which the withdrawal, transfer or
annuitization is made, to (2) the current Guaranteed Interest Rate offered by us
for the Guarantee Period equal to the number of years remaining in the Guarantee
Period as of such date. If the Guaranteed Interest Rate of (1) is higher than
the then current Guaranteed Interest Rate of (2) plus .0025, application of the
Market Value Adjustment will result in an increase in your accumulation value.
If the Guaranteed Interest Rate of (1) is lower than the then current Guaranteed
Interest Rate of (2) plus .0025, application of the Market Value Adjustment will
result in a decrease in your accumulation value.
In determining "J", we use the Guaranteed Interest Rate then currently offered
by us for the Guarantee Period equal to the number of years remaining.
Otherwise, the interest rate is derived by linear interpolation between the
Guaranteed Interest Rates then currently offered for the Guarantee Periods
nearest the remaining period of time.
FACTS ABOUT THE CONTRACT
THE OWNER
You are the owner. You are also the annuitant unless another annuitant is named
in the application or enrollment form. You have the rights and options described
in the contract. One or more persons may own the contract. If there are multiple
owners named, the age of the oldest owner shall determine the applicable death
benefit.
Death of an owner activates the death benefit provision. In the case of a sole
owner who dies prior to the
18
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
annuity commencement date, we will pay the beneficiary the death benefit then
due. The sole owner's estate will be the beneficiary if no beneficiary
designation is in effect, or if the designated beneficiary has predeceased the
owner. In the case of a joint owner of the contract dying prior to the annuity
commencement date, we will designate the surviving owner(s) as the
beneficiary(ies). This supersedes any previous beneficiary designation.
In the case where the owner is a trust and a beneficial owner of the trust has
been designated, the beneficial owner will be treated as the owner of the
contract solely for the purpose of activating the death benefit provisions. If a
beneficial owner is changed or added after the contract date, this will be
treated as a change of owner for purposes of determining the death benefit. See
Change of Owner or Beneficiary. If no beneficial owner of the Trust has been
designated, the level of death benefit will be determined by the age of the
annuitant at issue.
THE ANNUITANT
The annuitant is the person designated by the owner to be the measuring life in
determining annuity payments. The owner will receive the annuity benefits of the
contract if the annuitant is living on the annuity commencement date. If the
annuitant dies before the annuity commencement date, and a contingent annuitant
has been named, the contingent annuitant becomes the annuitant (unless the owner
is not an individual, in which case the death benefit becomes payable). Once
named, the annuitant may not be changed at any time.
If there is no contingent annuitant when the annuitant dies prior to the annuity
commencement date, the owner will become the annuitant. The owner may designate
a new annuitant within 60 days of the death of the annuitant.
If there is no contingent annuitant when the annuitant dies prior to the annuity
commencement date and the owner is not an individual, we will pay the
beneficiary the death benefit then due. The beneficiary will be as provided in
the beneficiary designation then in effect. If no beneficiary designation is in
effect, or if there is no designated beneficiary living, the owner will be the
beneficiary. If the annuitant was the sole owner and there is no beneficiary
designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies and any
owner is not an individual, such death will trigger application of the
distribution rules imposed by federal tax law. See Federal Tax Considerations,
Distribution-at-Death Rules.
THE BENEFICIARY
The beneficiary is the person to whom we pay death benefit proceeds if the owner
dies prior to the annuity commencement date. We pay death benefit proceeds to
the primary beneficiary (unless there are joint owners, in which case death
proceeds are payable to the surviving owner(s)). See Proceeds Payable to the
Beneficiary.
If the beneficiary dies before the annuitant or owner, the death benefit
proceeds are paid to the contingent beneficiary, if any. If there is no
surviving beneficiary, we pay the death benefit proceeds to the owner's estate.
One or more persons who must be individuals may be named as 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 may specify other than equal shares.
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 must act
together to exercise the rights and options under the contract.
CHANGE OF OWNER OR BENEFICIARY
During the annuitant's lifetime and while the contract is in effect, you may
transfer ownership of the contract (if purchased in connection with a
non-qualified plan) subject to our published rules at the time of the change. A
change in ownership may affect the amount of the death benefit and the
guaranteed death benefit. You may also change the beneficiary. To make either of
these changes, you must send us written notice of the change in a form
satisfactory to us. The change will take effect as of the day the notice is
signed. The change will not affect any payment made or action taken by us before
recording the change at our Customer Service Center. See Federal Tax
Considerations, Transfer of Annuity Contracts, and Assignments.
AVAILABILITY OF THE CONTRACT
We can issue a contract if both the annuitant and the owner are not older than
age 85.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
TYPES OF CONTRACTS
QUALIFIED CONTRACTS
The contract may be issued as an Individual Retirement Annuity or in
connection with an individual retirement account. In the latter case, the
contract will be issued without an Individual Retirement Annuity endorsement,
and the rights of the participant under the contract will be affected by the
terms and conditions of the particular individual retirement trust or
custodial account, and by provisions of the Code and the regulations
thereunder. For example, the individual retirement trust or custodial account
will impose minimum distribution rules, which require distributions to
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. For both Individual Retirement Annuities
and individual retirement accounts, the minimum initial premium is $1,500.
IF THE CONTRACT IS PURCHASED TO FUND A QUALIFIED PLAN, DISTRIBUTION MUST
COMMENCE NOT LATER THAN APRIL 1ST OF THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH YOU ATTAIN AGE 70 1/2.
NON-QUALIFIED CONTRACTS
The contract may fund any non-qualified plan. Non-qualified contracts do not
qualify for any tax-favored treatment other than the benefits provided for by
annuities.
YOUR RIGHT TO SELECT OR CHANGE CONTRACT OPTIONS
Before the annuity commencement date, you may change the annuity commencement
date, frequency of annuity payments or the annuity option by sending a written
request to our Customer Service Center. The annuitant may not be changed at any
time.
PREMIUMS
You purchase the contract with an initial premium. After the end of the free
look period, you may make additional premium payments. See Making Additional
Premium Payments. The minimum initial premium is $10,000 for a non-qualified
contract and $1,500 for a qualified contract. If your initial premium will be
$25,000 or more, we also offer DVA Series 100 through another prospectus, which
is a contract with a different charging structure.
We may refuse a premium payment if an initial premium or the sum of all premium
payments is more than $1,500,000. We may change the minimum initial or
additional premium requirements for certain group or sponsored arrangements. See
Group or Sponsored Arrangements.
QUALIFIED PLANS
For IRA contracts, the annual premium on behalf of any individual contract may
not exceed $2,000. Provided your spouse does not make a contribution to an
IRA, you may set up a spousal IRA even if your spouse has earned some
compensation during the year. The maximum deductible amount for a spousal IRA
program is the lesser of $2,250 or 100% of your compensation reduced by the
contribution (if any) made by you for the taxable year to your own IRA.
However, no more than $2,000 can go to either your or your spouse's IRA in any
one year. For example, $1,750 may go to your IRA and $500 to your spouse's
IRA. These maximums are not applicable if the premium is the result of a
rollover from another qualified plan.
WHERE TO MAKE PAYMENTS
Remit premium payments to our Customer Service Center. The address is shown on
the cover. We will send you a confirmation notice.
MAKING ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments after the end of the free look period.
We can accept additional premium payments until either the annuitant or owner
reaches the attained age of 85 under non-qualified plans. For qualified plans,
no contributions may be made to an IRA contract for the taxable year in which
you attain age 70 1/2 and thereafter (except for rollover contributions). The
minimum additional premium payment we will accept is $500 for a non-qualified
plan and $250 for a qualified plan.
CREDITING PREMIUM PAYMENTS
The initial premium will be accepted or rejected within two business days of
receipt by us if accompanied by information sufficient to permit us to determine
if we are able to issue a contract. We may retain an initial premium for up to
five business days while attempting to obtain information sufficient to enable
us to issue the contract. If we are unable to do so within five business days,
the applicant or enrollee will be informed of the reasons for the delay and the
initial premium will be returned immediately unless the applicant or enrollee
consents to our retaining the initial premium until we have received the
information we require. Thereafter, all additional premiums will be accepted on
the day received.
In certain states we will also accept, by agreement with broker-dealers,
transmittal of initial and additional
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FACTS ABOUT THE CONTRACT (CONTINUED)
premium payments by wire order from the broker-dealer to the Customer Service
Center. Such transmittals must be accompanied by a simultaneous telephone
facsimile or other electronic data transmission containing the essential
information we require to open an account and allocate the premium payment.
Contact the Customer Service Center to find out about state availability and
broker-dealer requirements.
Upon acceptance of premium payments received via wire order and accompanied by
sufficient electronically transmitted data, we will open an account, allocate
the premium payment according to the client's instructions, and invest the
payment at the value next determined following receipt. Wire orders not
accompanied by sufficient data to enable us to accept the premium payment may be
retained for up to five business days while we attempt to obtain the required
information. If we are unable to do so, the Customer Service Center will inform
the broker-dealer, on behalf of the applicant/enrollee, of the reasons for the
delay and return the premium payment immediately to the broker-dealer for return
to the applicant/enrollee, unless the applicant/enrollee specifically consents
to allow us to retain the premium payment until the required information is
received by the Customer Service Center.
On the date we receive and accept your initial or additional premium payment:
(1) We allocate the initial premium among the divisions according to your
instructions, subject to any restrictions. See Restrictions on Allocation
of Premium Payments. For additional premium payments, the accumulation value
will increase by the amount of the premium. If we do not receive
instructions from you, the increase in the accumulation value will be
allocated among the divisions in proportion to the amount of accumulation
value in each division as of the date we receive and accept the additional
premium payment.
(2) For an initial premium, we calculate the distribution fee and any charge for
premium taxes, if applicable. When an additional premium payment is made,
we increase any distribution fee and any charge for premium taxes, if
applicable. HOWEVER, WE MAY DEFER THE COLLECTION OF THE CHARGE FOR PREMIUM
TAXES. (See Charges and Fees, Premium Taxes.)
(3) For an initial premium, we calculate the guaranteed death benefit. When an
additional premium payment is made, we increase the guaranteed death
benefit.
Following receipt and acceptance of the wire order and accompanying data, and
investment of the premium payment, we will follow one of the two procedures set
forth below. The one we follow is determined by state availability and the
procedures of the broker-dealer which submitted the wire order.
(1) We will issue the contract; however, until we have
received and accepted at the Customer Service Center a properly completed
application or enrollment form, we reserve the right to rescind the
contract. If the form is not received within fifteen days of receipt of the
premium payment, the amount of the initial premium, together with any gain,
will be returned to the broker-dealer for return to the applicant/enrollee.
In no event will an amount less than the full amount of the initial premium
be returned to the broker-dealer.
(2) Based on the information provided, we will issue
the contract. We will mail the contract to the Owner, together with an
Application Acknowledgement Statement. The Owner must execute the
Application Acknowledgement Statement and return it to us at the Customer
Service Center. Until we receive the executed Application Acknowledgement
Statement, neither the Owner nor the broker-dealer may execute any financial
transactions with respect to the contract unless such transactions are
requested in writing by the Owner and signature guaranteed.
RESTRICTIONS ON ALLOCATION OF PREMIUM PAYMENTS
We may require that an initial premium designated for a division of either
Account B or Account D be allocated to the Specially Designated Division during
the free look period for initial premiums received from some states. After the
free look period, if your initial premium was allocated to the Specially
Designated Division, we will transfer the accumulation value to the divisions
you previously selected based on the index of investment experience next
computed for each division. See Part I, Measurement of Investment Experience,
Index of Investment Experience and Unit Value. Initial premiums designated for
the Fixed Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen.
YOUR RIGHT TO REALLOCATE
You may reallocate your accumulation value among the divisions and Fixed
Allocations at the end of the free look period. We currently do not assess a
charge for allocation changes made during a contract year. We reserve the right,
however, to assess a $25 charge for each allocation change after the twelfth
allocation change in a contract year. We require that each reallocation of your
accumulation value equal at least $250 or, if less, your entire accumulation
value within a
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FACTS ABOUT THE CONTRACT (CONTINUED)
division or Fixed Allocation. We reserve the right to limit, upon notice, the
maximum number of reallocations you may make within a contract year. In
addition, we reserve the right to defer the reallocation privilege at any time
we are unable to purchase or redeem shares of The GCG Trust or Account D. We
also reserve the right to modify or terminate your right to reallocate your
accumulation value at any time in accordance with applicable law. When a
reallocation is made, we redeem shares of the Series underlying the divisions
you are transferring from at their net asset value. Reallocations from the Fixed
Account are subject to the Market Value Adjustment unless taken as part of the
dollar cost averaging program or within 30 days of the Maturity Date of the
applicable Guarantee Period. To make a reallocation change, you must provide us
with satisfactory notice at our Customer Service Center.
We reserve the right to limit the number of reallocations of your accumulation
value among the divisions and Fixed Allocations or refuse any reallocation
request if we believe that: (a) excessive trading by you or a specific
reallocation request may have a detrimental effect on unit values or the share
prices of the underlying Series; or (b) we are informed by The GCG Trust or
Account D that the purchase or redemption of shares is to be restricted because
of excessive trading or a specific reallocation or group of reallocations is
deemed to have a detrimental effect on share prices of The GCG Trust or Account
D.
Where permitted by law, we may accept your authorization of third party
reallocation on your behalf, subject to our rules. We may suspend or cancel such
acceptance at any time. We will notify you of any such suspension or
cancellation. We may restrict the divisions and Fixed Allocations that will be
available to you for reallocations of premiums during any period in which you
authorize such third party to act on your behalf. We will give you prior
notification of any such restrictions. However, we will not enforce such
restrictions if we are provided evidence satisfactory to us that: (a) such third
party has been appointed by a court of competent jurisdiction to act on your
behalf; or (b) such third party has been appointed by you to act on your behalf
for all your financial affairs.
RESTRICTIONS ON REALLOCATIONS
Some restrictions may apply based on the free look provisions of the state
where the contract is issued. See Your Right to Cancel or Exchange Your
Contract.
DOLLAR COST AVERAGING
If you have at least $10,000 of accumulation value in the Limited Maturity Bond
Division, the Liquid Asset Division or a Fixed Allocation with a one year
Guarantee Period, you may choose to have a specified dollar amount transferred
from those divisions or such Fixed Allocation on a monthly basis.
The main objective of dollar cost averaging is to attempt to shield your
investment from short term price fluctuations. Since the same dollar amount is
transferred to other divisions each month, more units are purchased in a
division if the value per unit is low and less units are purchased if the value
per unit is high.
Therefore, a lower than average value per unit may be achieved over the long
term. This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in declining
markets. See Measurement of Investment Experience, INDEX OF INVESTMENT
EXPERIENCE AND UNIT VALUE.
Dollar cost averaging may be elected at issue or at a later date. The minimum
amount that may be transferred each month is $250. The maximum amount which may
be transferred is equal to the accumulation value in the Limited Maturity Bond
Division, the Liquid Asset Division or a Fixed Allocation with a one year
Guarantee Period when elected, divided by 12.
Systematic Reallocations is another form of dollar cost averaging that we offer.
Under this program interest earnings during the prior month or quarter,
depending on whether you have chosen a monthly or quarterly frequency, can be
systematically transferred from a Fixed Allocation to the divisions. The minimum
amount that may be transferred each month is $250.
The transfer date will be the same calendar day each month as the contract date.
The dollar amount will be allocated to the divisions in which you are invested
in proportion to your accumulation value in each division unless you specify
otherwise. If, on any transfer date, the accumulation value is equal to or less
than the amount you have elected to have transferred, the entire amount will be
transferred and the program will end. You may change the transfer amount once
each contract year, or cancel this program by sending us satisfactory notice to
our Customer Service Center at least seven days before the next transfer date.
Any allocation under this program will not be included in determining if the
excess allocation charge will apply. We currently do not permit transfers under
the dollar cost averaging program, other than Systematic Reallocations, from
Fixed Allocations with other than one year Guarantee Periods. Transfers from a
Fixed Allocation under the dollar cost averaging program will not be subject to
a Market Value Adjustment. (See
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FACTS ABOUT THE CONTRACT (CONTINUED)
"Market Value Adjustment" on page 18). A Fixed Allocation may not participate
simultaneously in both the dollar cost averaging program and the Systematic
Partial Withdrawal Option.
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a division
of Account B or The Managed Global Account Division of Account D in which
reinvestment is not available, we will allocate the distribution, unless you
specify otherwise, to the Specially Designated Division.
Such a distribution can occur when (a) an investment portfolio matures, or (b) a
distribution from a portfolio or division cannot be reinvested in the portfolio
or division due to the unavailability of securities for acquisition. When an
investment portfolio matures, we will notify you in writing 30 days in advance
of that date. To elect an allocation to other than the Specially Designated
Division, you must provide satisfactory notice to us at least seven days prior
to the date the portfolio matures. Such allocations are not counted for purposes
of the number of free allocation changes permitted. When a distribution from a
portfolio or division cannot be reinvested in the portfolio due to the
unavailability of securities for acquisition, we will notify you promptly after
the allocation has occurred. If within 30 days you allocate the accumulation
value from the Specially Designated Division to other divisions or Fixed
Allocations of your choice, such allocations will not be included in determining
if the excess allocation charge will apply.
YOUR ACCUMULATION VALUE
Your accumulation value is the sum of the amounts in each of the divisions and
the Fixed Allocations in which you are invested, and is the amount available for
investment at any time. You select the divisions and Fixed Allocations to which
to allocate the accumulation value. We adjust your accumulation value on each
Valuation Date to reflect the divisions' investment performance and interest
credited to your Fixed Allocations, any additional premium payments or partial
withdrawals since the previous Valuation Date, and on each contract processing
date to reflect the deduction of any charges and fees. The accumulation value is
applied to your choice of an annuity option on the annuity commencement date
subject to our published rules at such time. See Choosing an Income Plan.
ACCUMULATION VALUE IN EACH DIVISION
ON THE CONTRACT DATE
On the contract date, the accumulation value is allocated to each division as
you have specified, unless the contract is issued in a state that requires the
return of premium payments during the free look period, in which case, the
portion of your initial premium not allocated to a Fixed Allocation will be
allocated to the Specially Designated Division during the free look period.
See Your Right to Cancel or Exchange Your Contract.
ON EACH VALUATION DATE
At the end of each subsequent valuation period, the amount of accumulation
value in each division will be calculated as follows:
(1) We take the accumulation value in the division at the end of the
preceding valuation period.
(2) We multiply (1) by the division's net rate of return for the current
valuation period.
(3) We add (1) and (2).
(4) We add to (3) any additional premium payments allocated to the division
during the current valuation period.
(5) We add or subtract allocations to or from that division during the
current valuation period.
(6) We subtract from (5) any partial withdrawals and any associated charges
allocated to that division during the current valuation period.
(7) We subtract from (6) the amounts allocated to that division for:
(a) any contract fees; and
(b) any distribution fee and any charge for premium taxes.
All amounts in (7) are allocated to each division in the proportion that (6)
bears to the accumulation value in Account B and Account D, unless the Charge
Deduction Division has been specified. See Charges Deducted from the
Accumulation Value.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE
AND UNIT VALUE
The investment experience of a division is determined on each valuation date.
We use an index to measure changes in each division's experience during a
valuation period. We set the index at $10 when the first investments in a
division are made. The
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FACTS ABOUT THE CONTRACT (CONTINUED)
index for a current valuation period equals the index for the preceding
valuation period multiplied by the experience factor for the current valuation
period.
We may express the value of amounts allocated to the divisions in terms of
units. We determine the number of units for a given amount on a valuation date
by dividing the dollar value of that amount by the index of investment
experience for that date. The index of investment experience is equal to the
value of a unit.
HOW WE DETERMINE THE
EXPERIENCE FACTOR
For divisions of Account B the experience factor reflects the investment
experience of the Series in which a division invests as well as the charges
assessed against the division for a valuation period. The factor is calculated
as follows:
(1) We take the net asset value of the portfolio in which the division
invests at the end of the current valuation period.
(2) We add to (1) the amount of any dividend or capital gains distribution
declared for the investment portfolio and reinvested in such portfolio
during the current valuation period. We subtract from that amount a
charge for our taxes, if any.
(3) We divide (2) by the net asset value of the portfolio at the end of the
preceding valuation period.
(4) We subtract the daily mortality and expense risk charge from each
division for each day in the valuation period.
(5) We subtract the daily asset based administrative charge from each
division for each day in the valuation period.
Calculations for divisions investing in a Series are made on a per share
basis.
For the Global Account the experience factor reflects the investment
experience of the Global Account as well as the charges assessed against the
Global Account for a valuation period. The factor is calculated as follows:
(1) We take the value of the assets in the Global Account at the end of the
preceding valuation period.
(2) We add to (1) any investment income and capital gains, realized or
unrealized, credited to the assets during the current valuation period.
(3) We subtract from (2) any capital losses, realized or unrealized, charged
against the assets during the current valuation period.
(4) We subtract from (3) any amount charged against the Global Account for
any taxes.
(5) We divide (4) by the value of the assets in the Global Account at the
end of the preceding valuation period.
(6) We subtract from (5) the daily charge for management and investment
advice for each day in the valuation period.
(7) We subtract from (6) a daily charge for estimated operating expenses for
each day in the valuation period.
(8) We subtract from (7) the daily charge for mortality and expense risks
for each day in the valuation period.
(9) We subtract from (8) the daily asset based administrative charge for each
day in the valuation period.
NET RATE OF RETURN FOR A DIVISION
The net rate of return for a division during a valuation period is the
experience factor for that valuation period minus one.
CASH SURRENDER VALUE
Your contract's cash surrender value fluctuates daily with the investment
results of the divisions, interest credited to Fixed Allocations and any Market
Value Adjustment. We do not guarantee any minimum. On any date before the
annuity commencement date while the contract is in effect, the cash surrender
value is calculated as follows:
(1) We take the contract's accumulation value;
(2) We deduct any surrender charge and any charge for premium taxes;
(3) We deduct any charges incurred but not yet deducted; and
(4) We adjust for any Market Value Adjustment.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
The contract may be surrendered by the owner at any time while the annuitant is
living and before the annuity commencement date.
A surrender will be effective on the date your written request and the contract
are received by us at our Customer Service Center and the cash surrender
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FACTS ABOUT THE CONTRACT (CONTINUED)
value is determined accordingly as of that date. All benefits under the contract
will then be terminated as of that date. You may receive the cash surrender
value in a single sum payment or apply it under one or more annuity options. See
The Annuity Options. We will usually pay the cash surrender value within seven
days but we may delay payment as described in the When We Make Payments
provision.
PARTIAL WITHDRAWALS
Prior to the annuity commencement date, while the annuitant is living and the
contract is in effect, you may take partial withdrawals from the accumulation
value by sending satisfactory notice to our Customer Service Center. Unless you
specify otherwise, the amount of the withdrawal will be taken in proportion to
the amount of accumulation value in each division in which you are invested. If
there is no accumulation value in those divisions, partial withdrawals will be
deducted from your Fixed Allocations starting with the Guarantee Periods nearest
their Maturity Dates until we have honored your request.
There are three options available for selecting partial withdrawals, the
Conventional Partial Withdrawal Option, the Systematic Partial Withdrawal Option
and the IRA Partial Withdrawal Option. All three options are described below.
The maximum amount you may withdraw each contract year without incurring a
surrender charge is 15% of your accumulation value. See Surrender Charges for
Excess Partial Withdrawals. Partial withdrawals may not be repaid, and in no
event may a withdrawal amount be greater than 90% of the cash surrender value.
CONVENTIONAL PARTIAL WITHDRAWAL OPTION
After the free look period, you may take conventional partial withdrawals. If
you take more than one conventional partial withdrawal in a contract year, we
impose a charge of the lesser of $25 and 2.0% of the amount withdrawn. The
minimum amount you may withdraw under this option is $1,000. A conventional
partial withdrawal from a Fixed Allocation may be subject to a Market Value
Adjustment.
SYSTEMATIC PARTIAL WITHDRAWAL OPTION
This option may be elected at the time you apply for a Contract, or at a later
date. This option may be elected to commence in a contract year where a
conventional partial withdrawal has been taken. However, it may not be elected
while the IRA Partial Withdrawal Option is in effect.
You may choose to receive systematic partial withdrawals on a monthly or
quarterly basis from the accumulation value in the divisions or the Fixed
Allocations. The commencement of payments under this option may not be elected
to start sooner than 28 days after the contract issue date. You select the
date of the quarter or month when the withdrawals will be made but no later
than the 28th day of the month. If no date is selected, the withdrawals will
be made on the same calendar day of each month as the contract date.
You may select a dollar amount or a percentage of the accumulation value from
the divisions in which you are invested as the amount of your withdrawal
subject to the following maximums, but in no event can a payment be less than
$100:
<TABLE>
<CAPTION>
FREQUENCY MAXIMUM PERCENTAGE
- ------------ -----------------------
<S> <C>
Monthly 1.25%
Quarterly 3.75%
</TABLE>
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage of the accumulation value on
the withdrawal date, the amount withdrawn will be reduced so that it equals
such percentage. For example, if a $500 monthly withdrawal was elected and on
the withdrawal date 1.25% of the accumulation value equaled $300, the
withdrawal amount would be reduced to $300. If a percentage is selected and
the amount to be systematically withdrawn based on that percentage would be
less than the minimum of $100, we would increase the amount to $100 provided
it does not exceed the maximum percentage. If it is below the maximum
percentage we will send the minimum. If it is above the maximum percentage we
will send the amount and then cancel the option. For example, if you selected
1.0% to be systematically withdrawn on a monthly basis and that amount equaled
$90, and since $100 is less than 1.25% of the accumulation value, we would
send $100. If 1.0% equaled $75, since $100 is more than 1.25% of the
accumulation value we would send $75 and then cancel the option. In such a
case, in order to receive systematic partial withdrawals in the future, you
would be required to submit a new notice to our Customer Service Center.
Systematic Partial Withdrawals from Fixed Allocations are limited to interest
earnings during the prior month or quarter, depending on whether you have
chosen a monthly or quarterly frequency, respectively. Systematic withdrawals
are not subject to a Market Value Adjustment. A Fixed Allocation, however, may
not participate simultaneously in both the dollar cost averaging program and
the Systematic Partial Withdrawal Option.
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FACTS ABOUT THE CONTRACT (CONTINUED)
You may change the amount or percentage of your withdrawal once each contract
year or cancel this option at any time by sending satisfactory notice to us at
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date. However, you may not change the amount or percentage of your
withdrawals in any contract year during which you have previously taken a
conventional partial withdrawal.
IRA PARTIAL WITHDRAWAL OPTION
If you have an IRA contract and will attain age 70 1/2 in the current calendar
year, distributions will be made to you to satisfy requirements imposed by
Federal tax law. IRA partial withdrawals provide payout of amounts required to
be distributed by the Internal Revenue Service rules governing mandatory
distributions under qualified plans. See Federal Tax Considerations, Taxation
of Individual Retirement Annuities. We will send you a notice before your
distributions must commence, and you may elect this option at that time, or at
a later date. You may not elect IRA partial withdrawals while the Systematic
Partial Withdrawal Option is in effect. If you do not elect the IRA Partial
Withdrawal Option, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax law
will be made. Thus, if the Systematic Partial Withdrawal Option is in effect,
distribution under that option must be adequate to satisfy the mandatory
distribution rules imposed by Federal tax law.
You may choose to receive IRA partial withdrawals on a monthly, quarterly or
annual frequency. You select the day of the month when the withdrawals will be
made, but it cannot be later than the 28th day of the month. If no date is
selected, the withdrawals will be made on the same calendar day of the month
as the contract date.
We will determine the amount that is required to be withdrawn from your
contract each year based on the information you give us and various choices
you make. For information regarding the calculation and choices you have to
make, see the Statement of Additional Information. The minimum dollar amount
you can withdraw is $100. At the time we determine the required partial
withdrawal amount for a taxable year based on the frequency you select, if
that amount is less than $100, we will pay $100. At any time where the partial
withdrawal amount is greater than the accumulation value, we will cancel the
contract and send you the amount of the cash surrender value.
You may change the payment frequency of your withdrawals once each contract
year or cancel this option at any time by sending us satisfactory notice to
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date.
An IRA partial withdrawal in excess of the amount allowed under the Systematic
Partial Withdrawal Option may be subject to a Market Value Adjustment.
SURRENDER CHARGES FOR EXCESS PARTIAL WITHDRAWALS
An excess partial withdrawal is the amount by which annualized partial
withdrawals for a contract year exceed 15% of the accumulation value on the
date of the withdrawal. Any partial withdrawal and any combination of partial
withdrawals either taken during a contract year or expected to be received in
a contract year will be taken into account in determining the amount of the
excess partial withdrawal. An excess partial withdrawal will be considered a
partial surrender of the contract and we will impose a surrender charge
applicable to the accumulation value and a charge for any premium taxes. Such
amount will be deducted from the accumulation value in proportion to the
accumulation value in each division or Fixed Allocation from which the excess
partial withdrawal was taken.
An excess partial withdrawal will result in the imposition of a surrender
charge and a corresponding reduction in the remaining surrender charge that
subsequently can be imposed under the contract. For example the following
assumes a conventional partial withdrawal of $17,200 is taken at the beginning
of the fourth contract year. A contract with a current surrender charge of
$3,000 (an initial surrender charge of $6,000 reducing at the rate of $1,000
per contract year for six years), has an accumulation value of $100,000.
In this example, $15,000 (15% of accumulation value) may be withdrawn during
the contract year without the imposition of a surrender charge. The excess
partial withdrawal is the amount by which the withdrawal is in excess of the
maximum ($17,200 - $15,000 = $2,200). The excess is calculated as a percentage
of the accumulation value ($2,200/$100,000 = .022). Applying this percentage
to the current amount of the surrender charge ($3,000 x .022 = $66) determines
the amount to be deducted from the accumulation value as of the date of the
withdrawal.
If the contract were surrendered following the partial withdrawal, the
surrender charge would be $2,934 ($3,000 - $66). If instead, the contract were
surrendered at the beginning of the fifth year assuming no further partial
withdrawals, the surrender
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FACTS ABOUT THE CONTRACT (CONTINUED)
charge would be $1,934 ($2,000 - $66). This example does not take into account
any Market Value Adjustment or deduction for any premium taxes.
PARTIAL WITHDRAWALS IN GENERAL
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
PARTIAL WITHDRAWALS. A partial withdrawal made before the taxpayer reaches age
59 1/2 may result in imposition of a tax penalty of 10% of the taxable portion
withdrawn. See Federal Tax Considerations for more details.
PROCEEDS PAYABLE TO THE BENEFICIARY
If the owner or the annuitant (when the owner is other than an individual) dies
prior to the annuity commencement date, we will pay the beneficiary the death
benefit proceeds under the contract. Such amount may be received in a single sum
or applied to any of the annuity options. See The Annuity Options. If we do not
receive a request to apply the death benefit proceeds to an annuity option, a
single sum distribution will be made. Any distributions from non-qualified
contracts must comply with applicable Federal tax law requirements. See Federal
Tax Considerations.
If the owner or the annuitant (when the owner is other than an individual) is
age 75 or younger at issue, the death benefit is the greatest of the
accumulation value, the guaranteed death benefit and the cash surrender value.
If the owner or the annuitant (when the owner is other than an individual) is
age 76 or older at issue, the death benefit is the greater of the cash surrender
value and the sum of the premiums paid, less any partial withdrawals.
We may offer a reduced death benefit under certain group and sponsored
arrangements. See Part I, Group or Sponsored Arrangements.
GUARANTEED DEATH BENEFIT
On the contract date the guaranteed death benefit is equal to the initial
premium. On subsequent valuation dates, the guaranteed death benefit will be
based on the guaranteed death benefit option you have chosen. Unless you elect
otherwise, the guaranteed death benefit will be calculated in accordance with
Death Benefit Option 1. You may only elect a death benefit option at issue.
The Guaranteed Death Benefit is calculated for each death benefit option as
follows.
DEATH BENEFIT OPTION 1
(1) We take the guaranteed death benefit from the
prior valuation date.
(2) We calculate interest on (1) for the current
valuation period at THE GUARANTEED DEATH BENEFIT INTEREST RATE, which rate
is an annual rate of 7%, except that with respect to amounts in the Liquid
Asset Division, the interest rate applied to such amounts will be the net
rate of return for the Liquid Asset Division during the current valuation
period, if it is less than 7%,
and except with respect to amounts in a Fixed Allocation, the interest rate
applied to such amounts will be the interest credited to the Fixed
Allocation during the current valuation period, if it is less than 7%.
Each accumulated initial or additional premium payment reduced by any
partial withdrawals, will continue to grow at the guaranteed death benefit
interest rate until reaching its maximum guaranteed death benefit. The
maximum guaranteed death benefit is equal to two times each initial or
additional premium paid minus the sum of partial withdrawals taken.
(3) We add (1) and (2).
(4) We add to (3) any additional premiums paid
during the current valuation period.
(5) We subtract from (4) any partial withdrawals
made during the current valuation period.
DEATH BENEFIT OPTION 2
(1) We take the guaranteed death benefit from the
prior Valuation Date.
(2) We add to (1) any additional premiums paid since
the prior Valuation Date and subtract from (1) any partial withdrawals taken
since the prior Valuation Date.
(3) On a Valuation Date that occurs on or prior to the
owner's attained age 80 which is also a contract anniversary, we set the
guaranteed death benefit equal to the greater of (2) or the accumulation
value as of such date.
On all other Valuation Dates, the guaranteed death benefit is equal to (2).
DEATH BENEFIT OPTION 3
(1) We take the guaranteed death benefit from the
prior valuation date.
(2) We add any premiums paid and subtract any
partial withdrawals taken during the current valuation period.
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
HOW TO CLAIM PAYMENTS TO BENEFICIARY
We must receive due proof of the death of the owner or the annuitant (if the
owner is other than an individual) (such as an official death certificate) at
our Customer Service Center before we will make any payments to the
beneficiary. We will calculate the death benefit as of the date we receive due
proof of death. The beneficiary should contact our Customer Service Center for
instructions.
REPORTS TO OWNERS
We will send you a report once each calendar quarter within 31 days after the
end of each calendar quarter. The report will show the accumulation value, the
cash surrender value, and the death benefit as of the end of the calendar
quarter.
The report will also show the allocation of the accumulation value as of such
date and the amounts deducted from or added to the accumulation value since the
last report. The report will also include any other information that may be
currently required by the insurance supervisory official of the jurisdiction in
which the contract is delivered. We will also send you copies of any shareholder
reports of the portfolios or securities in which the Accounts invest, as well as
any other reports, notices or documents required by law to be furnished to
owners.
WHEN WE MAKE PAYMENTS
We will generally pay death benefit proceeds and the cash surrender value within
seven days after our Customer Service Center receives all the information needed
to process the payment.
However, we may delay payment of amounts derived from the divisions if it is not
practical for us to value or dispose of shares of Account B or Account D
because:
(1) The NYSE is closed for trading;
(2) The SEC determines that a state of emergency
exists;
(3) An order or pronouncement of the SEC permits a
delay for the protection of owners; or,
(4) The check used to pay the premium has not
cleared through the banking system. This may take up to 15 days.
During such times, as to amounts allocated to the divisions, we may delay:
(1) Determination and payment of any cash
surrender value;
(2) Determination and payment of any death benefit
if death occurs before the annuity commencement date;
(3) Allocation changes of the accumulation value; or,
(4) Application under an annuity option of the
accumulation value.
We reserve the right to delay payment of amounts derived from the Fixed Account
for up to six months.
CHARGES AND FEES
CHARGE DEDUCTION DIVISION
You may specify at issue if you wish to use the Charge Deduction Division
Option. If you so specify, all charges against the accumulation value will be
deducted from the Liquid Asset Division. If you do not elect this option, or if
the amount of the charges is greater than the amount in the division, the
charges will be deducted as discussed below. You may also choose to elect or
cancel this option while the contract is in force by sending satisfactory notice
to our Customer Service Center.
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE
We invest the entire amount of the initial and any additional premium payments
in the divisions and the Fixed Allocations you select, subject to certain
restrictions. See Restrictions on Allocation of Premium Payments. We then
periodically deduct certain amounts from your accumulation value. We may reduce
certain fees and charges, including any distribution fees, surrender,
administration, and mortality and expense risk charges, under group or sponsored
arrangements. See Group or Sponsored Arrangements. Unless you have elected the
Charge Deduction Division, charges are deducted proportionately from all
divisions in which you are invested. If there is no accumulation value in those
divisions, we will deduct charges from your Fixed Allocations starting with the
Guarantee Periods nearest their Maturity Dates until such charges have been
paid. The charges we deduct are:
DISTRIBUTION FEE
We deduct a sales load in an annual amount of 1.00% of each premium at the end
of each contract processing period for a period of six years from the date we
receive and accept each premium payment. Subject to our published rules, we
will waive the distribution fee associated with that portion of the premium
allocated to the Fixed Account while such premium remains allocated to the
Fixed Account. If a premium allocated to the Fixed Account is transferred to
one of the Divisions, we will no longer waive the distribution fee associated
with that portion and the appropriate sales load will be deducted.
28
<PAGE>
CHARGES AND FEES (CONTINUED)
SURRENDER CHARGE
A surrender charge is imposed as a percentage of premium if the contract is
surrendered or an excess partial withdrawal is taken during the six year
period from the date we receive and accept each premium payment. The
percentage imposed at the time of surrender or excess partial withdrawal
depends on the distribution fee collected to the time the contract is
surrendered or the excess partial withdrawal is taken. The surrender charge in
the first contract year following receipt and acceptance of each premium
payment is 6.00% and reduces by 1.00% each year during the six year period
from the date we receive and accept each premium payment.
Subject to our published rules and as described in the Contract, the surrender
charge arising from a surrender or excess partial withdrawal will be waived in
the following events:
(1) you begin receiving qualified extended medical
care on or after the first Certificate Anniversary for at least 45 days
during any continuous sixty-day period, and your request for the surrender
or withdrawal, together with proof of such qualified extended medical
care, must be received at our Customer Service Center during the term of
such care or within ninety days after the last day upon which you received
such care.
(2) you are diagnosed by a qualifying medical
professional, on or after the first Certificate Anniversary, as having a
Qualifying Terminal Illness. Written proof of terminal illness,
satisfactory to us, must be received at our Customer Service Center. We
reserve the right to require an examination by a physician of our choice.
The waiver of surrender charge may not be available in all states.
PREMIUM TAXES
We make a charge for state and local premium taxes in certain states which can
range from 0% to 3.5% of premium. The charge depends on the owner's state of
residence. We reserve the right to change this amount to conform with changes
in the law or if the annuitant or owner changes state of residence, as
applicable.
Premium taxes are generally incurred on the annuity commencement date and a
charge for such premium taxes is then deducted from your accumulation value on
such date. However, some jurisdictions impose a premium tax at the time that
initial and additional premiums are paid, regardless of the annuity
commencement date. In those states we may initially defer collection of the
amount of the charge for premium taxes from your accumulation value and deduct
it against accumulation value on surrender of the contract, excess partial
withdrawals or on the annuity commencement date.
In those cases when we defer collection of the charge for premium taxes from
the accumulation value, a positive net rate of return will give a higher cash
surrender value and a negative net rate of return will give a lower cash
surrender value than would be the case had the charge for premium taxes been
deducted from your premium payment.
ADMINISTRATIVE CHARGE
The administrative charge is incurred at the beginning of the contract
processing period and deducted at the end of each contract processing period.
We deduct this charge when determining the cash surrender value payable if you
surrender the contract prior to the end of a contract processing period. If
the accumulation value at the end of the contract processing period equals or
exceeds $100,000 or the sum of the premiums paid equals or exceeds $100,000,
the charge is zero. Otherwise, the amount deducted is $40 per contract year.
This charge is to cover a portion of our administrative expenses. See ASSET
BASED ADMINISTRATIVE CHARGE, below.
EXCESS ALLOCATION CHARGE
We currently do not assess a charge for allocation changes made during a
contract year. We reserve the right, however, to assess a $25 charge for each
allocation change after the twelfth allocation change in a contract year. This
amount represents the maximum we will charge. The charge would be deducted
from the divisions and the Fixed Allocations from which each such reallocation
is made in proportion to the amount being transferred from each such division
and Fixed Allocation unless you have chosen to use the Charge Deduction
Division. The excess allocation charge is set at a level that is not designed
to produce profit for Golden American or any affiliate. Any allocations or
transfers due to the election of dollar cost averaging and reallocation under
the provision WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE will not be included
in determining if the excess allocation charge should apply.
PARTIAL WITHDRAWAL CHARGE
If you take more than one conventional partial withdrawal during a contract
year, we impose a charge of the lesser of $25 and 2.0% of the amount withdrawn
for each additional conventional partial withdrawal. The charge is deducted
from the divisions and the Fixed Allocations from which each such partial
withdrawal is made in proportion to the amount
29
<PAGE>
CHARGES AND FEES (CONTINUED)
being withdrawn from each division and Fixed Allocation unless you have chosen
to use the Charge Deduction Division. See Partial Withdrawals, CONVENTIONAL
PARTIAL WITHDRAWAL OPTION.
CHARGES DEDUCTED FROM THE DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE
The daily charge is at the rate of 0.002477% (equivalent to an annual rate of
0.90%) on the assets in each division. Approximately 0.575% is allocated to
the mortality risk and 0.325% is allocated to the expense risk. (If Death
Benefit Option 3 is elected, we will reduce the Mortality and Expense Risk
Charge to an annual rate of 0.70%.)
This charge will compensate us for mortality and expense risks we assume under
the contract. We will realize a gain from this charge to the extent it is not
needed to provide for benefits and expenses under the contract. We will use
any gain for any lawful purpose including any shortfalls on paying
distribution expenses.
The mortality risk assumed is the risk that annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. Golden American also assumes a
risk under the contract for paying a guaranteed death benefit.
The expense risk assumed is the risk that it will cost us more to issue and
administer the contract than we expect.
ASSET BASED ADMINISTRATIVE CHARGE
We will deduct a daily charge from the assets in each division, to compensate
us for a portion of the administrative expenses under the contract. The daily
charge is at a rate of 0.000276% (equivalent to an annual rate of 0.10%) on
the assets in each division.
This asset based administrative charge plus the administrative charge above
will not exceed the cost of the services to be provided over the life of the
contract.
TRUST EXPENSES
There are fees and charges deducted from each Series. Please read the Trust
prospectus for details.
OPERATING EXPENSES OF ACCOUNT D
There are additional fees and charges to the Global Account in Account D for
management and advisory services as well as other operational expenses of the
Global Account. DSI as the Manager of Account D receives a monthly fee equal to
an annual rate based upon the following percentages of the Global Account's
average daily net assets: 0.40% of the first $500 million and 0.30% of the
amount over $500 million. Warburg, Pincus as the Portfolio Manager receives a
monthly fee equal to an annual rate based upon the following percentages of the
Global Account's average daily net assets: 0.60% of the first $500 million and
0.50% of the amount over $500 million. The total fees for management and
advisory services exceed the fees for similar services paid by some other
registered investment companies with similar objectives.
The Global Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, and legal and auditing services.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
The Global Account and DSI have agreed to limit the total expenses of the Global
Account. See Part I, The Managed Global Account of Account D.
CHOOSING AN INCOME PLAN
THE INCOME PLAN
If the annuitant and owner are living on the annuity commencement date, we will
begin making payments to the owner under an income plan. We will make these
payments under the annuity option chosen. You may change an annuity option by
making a written request to us at least 30 days prior to the annuity
commencement date of the contract. The amount of the payments will be determined
by applying the accumulation value on the annuity commencement date in
accordance with The Annuity Options section below, subject to our published
rules at such time. See When We Make Payments.
You may also elect an annuity option on surrender of the contract for its cash
surrender value or, you may choose one or more annuity options for the payment
of death benefit proceeds while it is in effect and before the annuity
commencement date. If, at the time of the owner's death or the annuitant's death
(if the owner is not an individual), no option has been chosen for paying death
benefit proceeds, the beneficiary may choose
30
<PAGE>
CHOOSING AN INCOME PLAN (CONTINUED)
an option within 60 days. In all events, payments of death benefit proceeds must
comply with the distribution requirements of applicable Federal tax law. See
Federal Tax Considerations.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the accumulation value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each option we will issue a separate written agreement putting the option
into effect. Before we pay any annuity benefits, we require the return of the
contract. If your contract has been lost, we will require that you complete and
return the applicable lost contract form. Various factors will affect the level
of annuity benefits including the annuity option chosen, the assumed interest
rate used and the investment results of the divisions and interest credited to
the Fixed Allocations in which the accumulation value has been invested.
Fixed annuity payments are regular payments, the amount of which is fixed and
guaranteed by us. The amount of the payments will depend only on the form and
duration of payments chosen, the age of the annuitant or beneficiary (and sex,
where appropriate), the total accumulation value applied to purchase the fixed
option, and the applicable payment rate.
Our approval is needed for any option where:
(1) The person named to receive payment is other
than the owner or beneficiary;
(2) The person named is not a natural person, such as
a corporation; or
(3) Any income payment would be less than the
minimum annuity income payment allowed.
ANNUITY COMMENCEMENT DATE SELECTION
You select the annuity commencement date. You may select any date following the
third contract anniversary but before the contract processing date in the month
following the annuitant's 90th birthday. If you do not select a date, the
annuity commencement date will be in the month following the annuitant's 90th
birthday. However, in the state of Pennsylvania the annuity commencement date
may not be later than in the month following the annuitant's 85th birthday for
annuitants with an issue age of 80 and under. If the annuity commencement date
occurs when the annuitant is at an advanced age, such as over age 85, it is
possible that the contract will not be considered an annuity for Federal tax
purposes. See Federal Tax Considerations. For a contract purchased in connection
with a qualified plan, distribution must commence not later than April 1st of
the calendar year following the calendar year in which you attain age 70.
Consult your tax advisor.
FREQUENCY SELECTION
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, the payments will be made monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITY OPTIONS
There are four options to choose from as shown below. Options 1 through 3 are
fixed and option 4 may be fixed or variable. For a fixed option, the
accumulation value in the divisions is transferred to the general account.
OPTION 1. INCOME FOR A FIXED PERIOD
Payment is made in equal installments for a fixed number of years based on the
accumulation value as of the annuity commencement date. We guarantee that each
monthly payment will be at least the amount set forth in the contract.
Guaranteed amounts for annual, semi-annual and quarterly payments are
available upon request. Illustrations are available upon request. If the cash
surrender value or accumulation value is applied under this option, a 10%
penalty tax may apply to the taxable portion of each income payment until the
owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE
Payment is made in equal monthly installments and guaranteed for at least a
period certain. The period certain can be 10 or 20 years. Other periods
certain are available on request. A refund certain may be chosen instead.
Under this arrangement, income is guaranteed until payments equal the amount
applied. If the person named lives beyond the guaranteed period, payments
continue until his or her death. We guarantee that each payment will be at
least the amount set forth in the contract corresponding to the person's age
on his or her last birthday before the option's effective date. Amounts for
ages not shown in the contract are available upon request.
OPTION 3. JOINT LIFE INCOME
This option is available if there are two persons named to receive payments.
At least one of the persons named must be either the owner or beneficiary of
the contract. Monthly payments are guaranteed and are made as long as at least
one of the named
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CHOOSING AN INCOME PLAN (CONTINUED)
persons is living. There is no minimum number of payments. Monthly payment
amounts are available upon request.
OPTION 4. ANNUITY PLAN
An amount can be used to buy any single premium annuity we offer on the
option's effective date.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided by the option agreement. The amounts still due are determined as
follows:
(1) For option 1, or any remaining guaranteed payments under option 2, payments
will be continued. Under options 1 and 2, the discounted values of the
remaining guaranteed payments may be paid in a single sum. This means we
deduct the amount of the interest each remaining guaranteed payment would
have earned had it not been paid out early. The discount interest rate is
never less than 3% for option 1 and 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 agreement will state the
amount due, if any.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN APPLICATION INFORMATION
If an age or sex given in the application or enrollment form is misstated, the
amounts payable or benefits provided by the contract shall be those that the
premium payment would have bought at the correct age or sex.
SENDING NOTICE TO US
Any written notices, inquiries or requests should be sent to our Customer
Service Center. Please include your name, your contract number and, if you are
not the annuitant, the name of the annuitant.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified contract as collateral security for a loan or
other obligation. This does not change the ownership. However, your rights and
any beneficiary's rights are subject to the terms of the assignment. See
Transfer of Annuity Contracts, and Assignments. An assignment may have Federal
tax consequences. See Federal Tax Considerations.
You must give us satisfactory written notice at our Customer Service Center in
order to make or release an assignment. We are not responsible for the
validity of any assignment.
NON-PARTICIPATING
The contract does not participate in the divisible surplus of Golden American.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by our president or a vice president
and by our secretary or an assistant secretary. No other person, including an
insurance agent or broker, can change any of the contract's terms, make any
agreements binding on us or extend the time for premium payments.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We reserve the right to make changes in the contract to the extent we deem it
necessary to continue to qualify the contract as an annuity. Any such changes
will apply uniformly to all contracts that are affected. You will be given
advance written notice of such changes.
YOUR RIGHT TO CANCEL OR EXCHANGE YOUR CONTRACT
CANCELLING YOUR CONTRACT
You may cancel your contract within your free look period, which is ten days
after you receive your contract. For purposes of administering our allocation
and administrative rules, we deem this period to expire 15 days after the
contract is mailed to you. Some states may require a longer free look period.
If you decide to cancel, you may mail or deliver the contract to us at our
Customer Service Center. We will refund the accumulation value plus any
charges we deducted, and the contract will be voided as of the date we receive
the contract and your request. Some states require that we return the premium
paid. In these states, we require your premiums designated for investment in
the divisions of Account B and Account D be allocated to the Specially
Designated Division during the free look period. Premiums designated for the
Fixed Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen. If you do not choose to exercise your right to cancel
during the free look period, then at the end of the free look period your
money will be invested in the divisions chosen by you, based on the index of
investment experience next computed for each division. See Measurement of
Investment Experience, INDEX OF EXPERIENCE AND UNIT VALUE.
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OTHER CONTRACT PROVISIONS (CONTINUED)
EXCHANGING YOUR CONTRACT
For information regarding Section 1035 exchanges, see Federal Tax
Considerations.
OTHER CONTRACT CHANGES
You may change the contract to another annuity plan subject to our rules at the
time of the change.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any distribution fee,
surrender, administration, and mortality and expense risk charges. We may also
change the minimum initial and additional premium requirements, or offer a
reduced death benefit. Group arrangements include those in which a trustee or an
employer, for example, purchases contracts covering a group of individuals on a
group basis. Sponsored arrangements include those in which an employer allows us
to sell contracts to its employees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy contracts or that have been in existence less
than six months will not qualify for reduced charges.
We will make these and any similar reductions according to our rules in effect
when an application or enrollment form for a contract is approved. We may change
these rules from time to time. Any variation in the distribution fee or
administrative charge will reflect differences in costs or services and will not
be unfairly discriminatory.
SELLING THE CONTRACT
DSI is also principal underwriter and distributor of the contract as well as for
other contracts issued through Account B and Account D and other separate
accounts of Golden American. We pay DSI for acting as principal underwriter
under a distribution agreement. The offering of the contract will be continuous.
DSI has entered into and will continue to enter into sales agreements with
broker-dealers to solicit for the sale of the contract through registered
representatives who are licensed to sell securities and variable insurance
products including variable annuities. These agreements provide that
applications for contracts may be solicited by registered representatives of the
broker-dealers appointed by Golden American to sell its variable life insurance
and variable annuities. These broker-dealers are registered with the SEC and are
members of the National Association of Securities Dealers, Inc. ("NASD"). The
registered representatives are authorized under applicable state regulations to
sell variable life insurance and variable annuities. The writing agent will
receive commissions of up to 6.0% of any initial or additional premium payments
made.
REGULATORY INFORMATION
VOTING RIGHTS
ACCOUNT B
We will vote the shares of the 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 the
Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a division by dividing the
contract's accumulation value in that division by the net asset value of one
share of the portfolio in which a division invests. Fractional votes will be
counted. We will determine the number of shares you can instruct us to vote
180 days or less before the Trust's meeting. We will ask you for voting
instructions by mail at least 10 days before the meeting.
If we do not get your instructions in time, we will vote the shares in the
same proportion as the instructions received from all contracts in that
division. We will also vote shares we hold in Account B which are not
attributable to owners in the same proportion.
ACCOUNT D
Owners with accumulation value in the Global Account have certain voting
rights. Each such owner will be given one vote for every $1.00 of accumulation
value in the Global Account with fractional interests counted, unless a
different allocation of voting rights is required under applicable law for an
investment medium for variable annuity contracts. Account D's rules do not
require Account D to hold annual meetings of owners of interests in Account D,
although special meetings may be called for Account D for purposes such as
electing or removing members of the Board of Governors, changing fundamental
policies, or approving a contract for investment advisory services. When
required,
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<PAGE>
REGULATORY INFORMATION (CONTINUED)
"the vote of a majority of the outstanding voting securities" of the Global
Account of Account D means the lesser of:
(1) The holders of more than 50% of all votes
entitled to be cast in respect to Account D; or,
(2) The holders of at least 67% of the votes which
are present at a meeting of such persons are the holders of more than 50%
of all votes entitled to be cast in respect to Account D are present or
represented by proxy.
We will determine the number of votes you can instruct us to vote 90 days or
less before Account D's meeting. We will ask you for voting instructions by mail
at least 14 days before the meeting.
STATE REGULATION
We are regulated and supervised by the Insurance Department of the State of
Delaware, which periodically examines our financial condition and operations. We
are also subject to the insurance laws and regulations of all jurisdictions
where we do business. The variable contract offered by this prospectus has been
approved by the Insurance Department of the State of Delaware and by the
Insurance Departments of other jurisdictions. We are required to submit annual
statements of our operations, including financial statements, to the Insurance
Departments of the various jurisdictions in which we do business to determine
solvency and compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
Golden American, as an insurance company, is ordinarily involved in litigation.
We do not believe that any current litigation is material and we do not expect
to incur significant losses from such actions.
LEGAL MATTERS
The legal validity of the contract described in this prospectus has been passed
on by Bernard R. Beckerlegge, General Counsel and Secretary of Golden American.
Sutherland, Asbill & Brennan 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,
Separate Account B and The Managed Global Account of Separate Account D,
appearing in this Prospectus or in the Statement of Additional Information and
in the 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 in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
---------------------------------------
FOR THE FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------
(IN THOUSANDS) 1994 1993 1992(A)
- ------------------------------------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Variable Life and Annuity Product Fees and Policy Changes............................ $ 17,519 $ 10,192 $ 694
Net Income before Federal Income Tax................................................. $ 2,222 $ (1,793) $ (508)
Net Income (Loss).................................................................... $ 2,222 $ (1,793) $ (508)
Total Assets......................................................................... $ 1,044,760 $ 886,155 $ 320,539
Total Liabilities.................................................................... $ 955,254 $ 857,558 $ 306,197
Total Stockholder's Equity........................................................... $ 89,506 $ 28,597 $ 14,342
</TABLE>
(a) Results for 1992 are for the period September 30, 1992 (date of
acquisition) to December 31, 1992.
The following selected financial data was prepared on the basis of statutory
accounting practices ("SAP"), which have been prescribed or permitted by the
Department of Insurance of the State of Delaware and the National
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
Association of Insurance Commissioners. These practices differ in certain
respects from GAAP. The selected financial data should be read in conjunction
with the financial statements and notes thereto included in this Prospectus,
which describe the differences between SAP and GAAP.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
-------------------------------------------------------------
FOR THE FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992 1991 1990
- -------------------------------------------------------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Premiums & Annuity Considerations............................. $ 294,550 $ 505,465 $ 191,039 $ 41,615 $ 29,739
Net Income before Federal Income Tax.......................... $ (11,260) $ (9,417) $ (4,225) $ (2,086) $ (1,566)
Net Income (Loss)............................................. $ (11,260) $ (9,401) $ (3,986) $ (1,752) $ (1,566)
Total Assets.................................................. $ 988,180 $ 834,123 $ 302,200 $ 119,652 $ 74,271
Total Liabilities............................................. $ 921,888 $ 815,301 $ 289,995 $ 106,199 $ 58,573
Total Capital & Surplus....................................... $ 66,292 $ 18,822 $ 12,205 $ 13,453 $ 15,698
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
BUSINESS ENVIRONMENT
The current business and regulatory environment remains challenging for the
insurance industry. On the whole, more Americans have started to take a
proactive view toward their own retirement planning. Additionally, with the
fear that people will outlive their savings, many Americans have shifted their
resources from purchasing death benefit type products such as life insurance
to living benefit products such as annuities. As a result of this trend,
annuities have sustained a long growth phase. In recent years, variable
products provided contractholders with the opportunity to achieve diversified
investing in mutual fund type investments. The following factors provided a
positive impact on variable annuity premiums over the past three years: low
interest rates, strong stock market performance and demand for investment
alternatives. However, during 1994, the Federal Reserve Board began raising
interest rates pre-emptively to slow the growth of the economy to a more
sustainable rate and avoid a late-cycle outbreak of inflation. In part and as
a result of an increase in interest rates, fixed annuities and market value
adjusted annuity products gained popularity in many distribution networks as
variable annuities lost market share.
SUMMARY
During 1994, the rise in interest rates and stock market volatility
contributed to the slow-down in Golden American's premium growth as the
company was marketing exclusively variable annuity and life products tied to
mutual fund investing. Consequently, during 1995, the Company intends to
expand its strategic marketing emphasis by offering fixed rate investment
options in life and annuity products.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Golden American realized net income (loss) of $2.22 million and $(1.79)
million for 1994 and 1993, respectively. The increase in net earnings for
1994 is attributable to the increase in average Separate Account assets in
1994, as compared to 1993.
Variable life and annuity product fees and policy charges were $17.52
million for 1994 as compared to $10.19 million for 1993. The increase is
primarily attributable to increased fees from the increasing block of
business under management in the Separate Accounts. Separate Account assets
have increased from $295 million at December 31, 1992 to $810 million at
December 31, 1993 to $950 million at December 31, 1994.
1993 COMPARED TO 1992
Golden American realized a net loss of $1.79 million for the year ending
December 31, 1993, as compared to a net loss of $0.52 million for the three
month period ending December 31, 1992. Results for 1992 are for the period
September 30, 1992 (date of acquisition) to December 31, 1992.
Variable life and annuity product fees and policy charges increased from
$0.69 million for the three month period ending December 31, 1992 to $10.19
million for the year ending December 31, 1993. The increase is attributable
to 1994 results including twelve months versus three months for 1993 and the
increasing block of business under management in the Separate Accounts.
Separate Account assets increased from $295 million at December 31, 1992 to
$810 million at December 31, 1993.
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Total benefits and expenses in 1993 and 1992, respectively, were $12.24
million and $1.27 million. This increase is attributable to 1992 results
including twelve months versus three months for 1993 and an increase in
expenses associated with new sales and the increase in benefits costs and
the expenses associated with a growing block of business.
Golden American's earnings are principally derived from the charges imposed on
variable annuity products and, to a lesser extent, variable life products. The
primary revenues from these products consist of charges for mortality and
expense risk, the cost of insurance and contract administration charges that
have been assessed against account balances during the period. In addition, a
sales load ranging from 3% to 7.5% is assessed to each premium payment and
collected over a number of years for the variable annuity and life products.
These sales loads are earned over the life of the insurance contract in
relation to estimated future gross profits using methods and assumptions
similar to those for cost assigned to insurance in-force. Sales loads that
have been deducted but not yet earned are not recognized in current income and
are reported as unearned revenue. The costs associated with acquiring new
business are deferred at issue and amortized over the lives of the policies in
relation to the present value of estimated future gross profits. Golden
American also incurs expenses associated with the maintenance of in-force
contracts.
Cash required to fund the acquisition costs associated with deferred sales
load products written in 1992, 1993 and 1994 was provided by short-term
borrowings with an unaffiliated bank. Accordingly, the cost of these borrowed
funds increased in line with the general increase in the Federal Funds rates.
In 1994, the insurance industry saw a slow-down in the recent trend of
individuals moving away from traditional fixed products and into variable
products. Golden American experienced a similar slow-down as sales for 1994
were down 39% compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
Golden American's liquidity requirements include the payment of sales
commissions, and other acquisition and underwriting expenses on the annuity
and life business that it writes. Overall, the Company had negative cash flow
from operations in 1994 because it sold variable products exclusively; total
premiums received were invested immediately in the Company's Separate Accounts
which purchased shares of portfolios of The GCG Trust, an open-end, management
investment company, or directly purchased portfolio securities. Because 100%
of the premium was invested as described above, the payment of commissions and
other acquisition costs resulted in negative cash flow from operations during
the Company's early growth years.
Positive cash flow elements from operations are produced primarily from two
sources. Fees are collected from the in-force book of business. In addition,
during 1995, Golden American began to distribute a fixed account option with
its variable annuity product. Premium amounts directed to the fixed account
option produce positive cash flow from operations as amounts are retained
within the general account of the Company and are used to fund an investment
portfolio that finances future benefit payments. Investments are made in
fixed-rate investments such as bonds, and short-term investments in order to
provide a sufficient return as well as to match the duration of the obligation
for future benefit payments. Golden American products also contain surrender
charge features which reward persistency and penalize the early withdrawal of
funds.
Golden American has developed and utilizes a projection system which forecasts
cash flow. Cash flow from operations will vary depending on the amount of
premium written and the product mix. The Company also periodically performs
asset/liability matching in the management of its asset and liability
portfolios. Those matching practices involve the monitoring of asset and
liability durations for various product lines, cash flow testing under various
interest rate scenarios, and the continuous rebalancing of assets and
liabilities with respect to yield, risk, and cash flow characteristics.
Golden American has funded those past expenses described above for its
variable annuity and life business currently in-force at the beginning of 1995
by the issuance of $50 million redeemable preferred stock with its immediate
parent, BT Variable, Inc. on December 30, 1994. The short-term debt discussed
previously in the Results of Operations was retired by Golden American and
assumed by BT Variable, Inc. as of December 30, 1994. Dividends on this
preferred stock issue are payable on the last business day of each quarter,
beginning March 31, 1995. To the extent that Golden American has funds
available, Golden American may redeem at its option the Preferred Stock in
cash. Any redemption requires the prior approval of the California Department
of Insurance and may require approval of the
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Delaware Department of Insurance. Funds will become available for redemptions
from future statutory earnings as well as the collection of deferred sales
loads. The outstanding amount of deferred sales load to be collected as of
December 31, 1994 was $48.9 million.
The NAIC has developed and implemented the Risk Based Capital "RBC" adequacy
monitoring system. The RBC calculates the amount of adjusted capital which a
life insurance company should have based upon that company's risk profile. The
NAIC has established four different levels of regulatory action with respect
to the RBC adequacy monitoring system. Each of these levels may be triggered
if an insurer's total adjusted capital is less than a corresponding level of
RBC. As of December 31, 1994, based on the RBC formula, Golden American's
total adjusted capital level exceeded the minimum amount of capital required
to avoid regulatory action. Under currently effective funding agreements,
expected RBC levels will remain well in excess of levels required to avoid
regulatory actions. There is no assurance, however, that Golden American will
continue to maintain its current RBC level.
During 1994, BT Variable, Inc. made capital contributions to Golden American
of $8.75 million. Golden American believes that it will be able to fund the
capital and surplus required for projected new business from existing
statutory capital and surplus, statutory earnings on the existing book of
business as well as future surplus contributions from its parent. Golden
American also believes that it will be able to fund the above liquidity
requirements of sales commissions and acquisition costs of projected new
business from affiliated borrowings and/or borrowings with non-affiliated
banks. Golden American expects to continue to receive capital contributions
from BT Variable if necessary. Golden American's future marketing efforts
could be hampered should its parent and/or affiliates be unable to provide
additional funding.
Pursuant to the terms of an escrow agreement entered into in connection with
the purchase of Golden American from Mutual Benefit by Bankers Trust Company,
Golden American is obligated to fund up to $5.0 million into an escrow account
pending final resolution of a dispute concerning the final terms of the
agreements consummating the purchase of Golden American, which dispute is
before the Chancery Court of New Jersey. Any amounts assessed against Golden
American upon final adjudication of such dispute would be paid from the escrow
account. Management believes that the likelihood of any judgment against
Golden American with respect to the escrow account is unlikely and would not
have a material impact on Golden American. As of December 31, 1994, $2,675,000
has been deposited into the escrow account. Golden American's obligation is
secured by a pledge of its right to receive certain deferred sales loads.
Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993, and has been so
accrued in the accompanying financial statements.
SEGMENT INFORMATION
During the period since the acquisition by Bankers Trust, September 30, 1992
to date of this Prospectus, Golden American's operations consisted of one
business segment, the sale of variable annuity and variable life insurance
products. Golden American and its affiliate Directed Services, Inc., are party
to 127 sales agreements with broker-dealers. Two of those broker-dealers sell
a substantial portion of its business.
REINSURANCE
Golden American reinsures its mortality risk associated with the contract's
guaranteed death benefit with Security Life of Denver Insurance Company
("Security Life Reinsurance"). 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.
INVESTMENTS
Golden American's assets are invested in accordance with applicable state
laws. These laws govern the nature and the quality of investments that may be
made by life insurance companies and the percentage of their assets that may
be committed to any particular type of investment. In general, these
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laws permit investments, within specified limits subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred or common stocks, real estate mortgages, real estate and certain other
investments. All of Golden American's assets, except for assets held in escrow
and variable separate account assets supporting variable products, are available
to meet its obligations under the Contracts.
Golden American makes investments in accordance with investment guidelines that
take into account investment quality, liquidity and diversification, and invests
assets supporting the Contract guarantees primarily in fixed income assets such
as mortgage backed securities, collateralized mortgage obligations and corporate
debentures. At December 31, 1994, Golden American had invested assets of $17.2
million consisting of $13.9 million of short-term securities and $3.3 million of
bonds and other long-term investments.
At December 31, 1994, 100% of Golden American's invested assets and cash
equivalents supporting Contract guarantees consisted of liquid and readily
marketable securities.
At December 31, 1994, 100% of the total invested assets were invested in
investment grade bonds and 0% were invested in non-investment grade securities.
Golden American defines non-investment grade as unsecured corporate debt
obligations which do not have a rating equivalent to Standard and Poor's (or
similar rating agency) BBB or higher and are not guaranteed by an agency of the
federal government.
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.
CERTAIN AGREEMENTS
During 1994, 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) has 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 are reimbursed by Golden American on an allocated
cost basis. Charges billed to Golden American by Bankers Trust (Delaware)
pursuant to the service agreement were $816,264 for 1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and adminstration of its products. For the
year 1993 and the period from September 30, 1992 to December 31, 1992, fees
earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its personnel
to perform management, administrative and clerical services and the use of
certain of its facilities. BT Variable charged Golden American for such
expenses and all other general and administrative costs, first on the basis of
direct charges when identifiable, and second allocated based on the estimated
amount of time spent by BT Variable's employees on behalf of Golden American.
For the year 1993 and the period from September 30, 1992 to December 31, 1992,
BT Variable allocated to Golden American $1,503,000 and $450,000,
respectively. The agreement was terminated on January 1, 1994. During 1994,
such expenses were allocated directly by BT New York Corporation to Golden
American and totaled $1,395,966 for the year.
DISTRIBUTION AGREEMENT
Prior to 1994, Golden American had entered into agreements with DSI to perform
services related to the management of its investments and the distribution of
its products. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1993 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years ended
1994 and 1993 and the period from September 30, 1992 to December 31, 1992,
commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged DSI for such expenses and all other
general and adminstrative costs, first on the basis of direct charges when
identifiable, and the
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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. For the years ended December 31, 1994
and 1993, expenses allocated to DSI were $1,983,000 and $2,013,000,
respectively.
EMPLOYEES
Golden American, as a result of its Service Agreements with each of Bankers
Trust (Delaware) and BT Variable, has very few direct employees. Instead,
various management services are provided by Bankers Trust (Delaware), BT
Variable and Bankers Trust New York Corporation, as described above under
"Certain Agreements." The cost of these services is allocated to Golden
American.
Certain officers of Golden American are also officers of BT Variable and DSI,
and their salaries are allocated among the three companies. One officer of
Golden American is also an officer of Bankers Trust New York Corporation, and
his salary is allocated solely to Bankers Trust New York Corporation. See
"Directors and Executive Officers."
PROPERTIES
Golden American's principal office is located at 1001 Jefferson Street, Suite
400, Wilmington, Delaware 19801, where all of Golden American's records are
maintained. This office space is sub-leased from Bankers Trust (Delaware)
under the service agreement described above. In addition, certain legal,
sales, product development and corporate communications personnel operate in a
Bankers Trust New York managed facility at 280 Park Avenue, 14 West, New York,
New York 10017. An allocable share of this property's cost is paid by Golden
American based on square feet.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME (AGE) POSITIONS(S) WITH THE COMPANY
- ---------------------------- -----------------------------
<S> <C>
Terry L. Kendall (48) Chairman, President and Chief
Executive Officer
John Herron, Jr. (43) Director
Richard A. Marin (41) Director
Barnett Chernow (44) Executive Vice President
Mitchell R. Katcher (41) Executive Vice President
Robert B. Langel (57) Executive Vice President
Bernard R. Beckerlegge (48) General Counsel and Secretary
David L. Jacobson (45) Senior Vice President and
Assistant Secretary
Stephen J. Preston (37) Senior Vice President, Chief
Actuary and Controller
Myles R. Tashman (52) Senior Vice President
Mary B. Wilkinson (38) Senior Vice President and
Treasurer
</TABLE>
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 the Company's ultimate parent,
Banker's Trust, New York.
The principal positions of the Company's directors and executive officers for
the past five years are listed below:
MR. KENDALL joined Bankers Trust Company in September 1993 as Managing Director.
He is Chairman of the Board, President and Chief Executive Officer of the
Company. From 1982 through June 1993, he was President and Chief Executive
Officer of United Pacific Life Insurance Company.
MR. MARIN joined Bankers Trust Company in 1978 and is a Managing Director. He
has been a director of the Company since 1992.
MR. HERRON joined Banker Trust Company in 1978 and is a Managing Director. He
has been a director of the Company since 1993.
MR. CHERNOW joined the Company in October 1993 as Executive Vice President. From
1977 through 1993 he held various positions with Reliance Insurance Companies
and was Senior Vice President and Chief Financial Officer of United Pacific Life
Insurance Company from 1984 through 1993.
MR. KATCHER joined the Company in August 1993 as Executive Vice President. From
1991 through 1993 he was a Consulting Actuary for Tillinghast. Prior to 1991 he
was Senior Vice President and Chief Actuary with Monarch Financial Services,
Inc.
MR. LANGEL joined the Company in April 1991 as Executive Vice President. Prior
to joining the Company, he was with J.K. Schofield and Company as Executive Vice
President.
MR. BECKERLEGGE joined the Company as General Counsel and Secretary in March
1988.
MR. TASHMAN joined the Company in August 1994 as Senior Vice President. From
1986 through 1993 he was Senior Vice President and General Counsel of United
Pacific Life Insurance Company.
MR. JACOBSON joined the Company in November 1993 as Senior Vice President and
Assistant Secretary. From April 1974 through November 1993 he held various
positions with United Pacific Life Insurance Company and was Vice President upon
leaving.
MS. WILKINSON joined the Company in November 1993 as Senior Vice President. From
August 1993 through October 1993 she was an Assistant Vice President
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with CIGNA Insurance Companies. From January 1987 through July 1993 she held
various positions with United Pacific Life Insurance Company and was Vice
President and Controller upon leaving.
MR. PRESTON joined the Company in December 1993 as Senior Vice President, Chief
Actuary and Controller. From September 1993 through November 1993 he was Senior
Vice President and Actuary for Mutual of America Insurance Company. From July
1987 through August 1993 he held various positions with United Pacific Life
Insurance Company and was Vice President and Actuary upon leaving.
COMPENSATION TABLES AND OTHER INFORMATION
The following tables set forth information with respect to the former Chief
Executive Officer of Golden American as well as the annual salary and bonus for
the next four most highly compensated executive officers for the fiscal year
ended December 31, 1994. Certain executive officers of Golden American are also
officers of Directed Services, Inc. ("DSI"). The salaries of such individuals
are allocated between Golden American and DSI. With the exception of Mr.
Kendall, executive officers of Golden American are also officers of BT Variable
and DSI. The salaries of such individuals are allocated between Golden American,
BT Variable and DSI pursuant to an arrangement among these companies. Mr.
Kendall also serves as a Managing Director at Bankers Trust New York
Corporation. Compensation amounts for Mr. Kendall which are reflected throughout
these tables are not charged to Golden American, but are instead absorbed by
Bankers Trust New York Corporation.
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the former Chief
Executive Officer of GALIC as well as the annual salary and bonus for the next
four most highly compensated executive officers for the fiscal year ended
December 31, 1994.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
RESTRICTED SECURITIES
NAME AND ---------------------- STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)(3) OPTIONS COMPENSATION
- ---------------------------------------------- ----- --------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Terry Lee Kendall, ........................... 1994 250,000 276,030 11,000
Chairman, President and Chief Executive 1995 400,000
Officer (6) (September 1993 to Present)
Barnett Chernow, ............................. 1994 185,000 1,800 500 98,212(4)
Executive Vice President 1995 165,000
Mitchell Katcher, ............................ 1994 175,000
Executive Vice President 1995 150,000
Robert Benjamin Langel, ...................... 1994 150,000 178,000 18,750(5)
Executive Vice President 1995 35,000
Fred H. Davidson, ............................ 1994 164,766 25,125(5)
Former Executive Vice President 1995
Stephen Preston, ............................. 1994 131,667 4,721(4)
Senior Vice President and Chief Actuary and 1995 50,000
Controller
<FN>
- ------------------------------
(1) Bonuses paid in January 1995 relate to performance for the previous year.
The amount shown does not include bonuses paid in January 1994 for
performance in 1993.
(2) Amounts shown are for awards granted and exercisable in 1994. This table
does not reflect shares granted in 1993 exercisable in 1996. All awards have
been valued for this table using closing prices of the common stock of
Bankers Trust New York Corporation as of December 31, 1994 using a Bloomberg
system. Shares of restricted stock have a three year vesting period. The
number and value of Restricted Shares and Restricted Units held by executive
officers as of December 31, 1994 is Mr. Kendall 3,000 shares and 3,000 units
-- $166,125 and Mr. Chernow: 500 shares and 500 units -- $27,688.
(3) Dividends are paid on unvested Restricted Shares and dividend equivalents
are paid on unvested Restricted units. Such dividends and dividend
equivalents are equal in amount to the dividends paid on shares on Bankers
Trust New York Corporation Common Stock.
(4) Amounts shown for 1994 represent relocation expenses paid on behalf of the
employee.
</TABLE>
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<TABLE>
<S> <C>
(5) Contributions are made by the Company on behalf of the employee to
PartnerShare, the deferred compensation plan sponsored by Bankers Trust New
York Corporation and its affiliates for the benefit of all Bankers Trust
employees, in February of the current year to employees on record as of
December 31 of the previous year, after the employee completes one year of
service with the company. This contribution may be in the form of deferred
compensation and/or a cash payment. In 1994, Mr. Langel received $16,495 of
deferred compensation and $2,250 of cash payment from the plan. Mr. Davidson
received $19,044 of deferred compensation and $6,081 of cash payment from
the plan. All other executives listed above were not eligible for
contributions to the PartnerShare Plan in 1994.
(6) Mr. Kendall has served as Chairman, President and Chief Executive Officer of
Golden American since September of 1993. Mr. Kendall's salary and bonuses
are paid directly by Bankers Trust New York Corporation.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXPIRATION
UNDERLYING EMPLOYEES IN EXERCISE PRICE DATE
FISCAL YEAR OPTIONS GRANTED FISCAL YEAR ($ PER SHARE) ($ PER SHARE)
----------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Terry Lee Kendall........................ 1994 8,000 .0003268 68.625 6-21-2004
<CAPTION>
GRANT DATE
PRESENT
VALUE(3)
-----------
<S> <C>
Terry Lee Kendall........................ $ 161,680
<FN>
(1) Options grants in 1994 relate to performance in 1994. This table does not
include option grants in 1993 related to performance in 1993.
(2) All options on Bankers Trust New York Corporation common stock are
exercisable on June 21, 1995.
(3) Valued using a Black-Scholes style valuation. The assumptions used for the
variables in the model were: 27% volatility (which is the volatility of the
Common Stock for the 36 months preceding grant); an 8.29% rate of return
(which is the rate as of February 10, 1995 adjusted by 41 basis points to
represent the LIBOR rate as of the grant date for zero coupon bond expiring
June 2004); a 5.25% dividend yield; and a 10-year option term (which is the
term of the option granted). The actual gain Mr. Kendall will realize on the
options will depend on the future price of the Common Stock and cannot be
accurately forecast by application of an option valuation.
</TABLE>
Directors of Golden American receive no additional compensation for serving as a
director.
OTHER COMPENSATION
On November 29, 1993, Mr. Jerome Golden resigned as President of Golden
American. He had served as President from July 1987 through November 29, 1993.
In accordance with the terms of a Separation Agreement between Mr. Golden and
the Company, Mr. Golden was paid $425,000 in 1994 and again in 1995. The
amounts represent a full settlement with no future payments required.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The contract is designed for use by individuals or groups in retirement plans
which are qualified under Section 408 or non-qualified under the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect
of Federal income taxes on the amounts paid for the contract, on the investment
return on assets held under the contract, on annuity payments and on the
economic benefits to the owner, annuitant or beneficiary depends upon the terms
of the contract, upon Golden American's tax status and upon the tax status of
the individuals concerned.
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax advisor. No attempt is made
to consider any applicable state or other tax laws. Moreover, the discussion is
based upon Golden American's understanding of the Federal income tax laws as
they are currently interpreted. No representation is made regarding the
likelihood of continuation of the Federal income tax laws, the Treasury
Regulations, or the current interpretations by the Internal Revenue Service (the
"IRS"). For a discussion of Federal income taxes as they relate to the Trust,
please see the accompanying prospectus for the Trust.
GOLDEN AMERICAN TAX STATUS
Golden American is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the Accounts are not separate entities from Golden American
and their operations form a part of Golden American, they will not be taxed
separately as "regulated investment companies" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of Account B and
Account D are reinvested and taken into account in determining the accumulation
value in the divisions. Under existing Federal income tax law, Golden American
does not incur tax on the Accounts' investment income, including realized net
capital gains. Golden American reserves the right to make a deduction for taxes
should they be imposed with respect to such items in the future.
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
TAXATION OF NON-QUALIFIED ANNUITIES
1. IN GENERAL
Code Section 72 generally governs the taxation of non-qualified annuities.
Under this provision, except as described below, any increase in the
contract's value is generally not taxable to the owner until a distribution
is made from the contract, either in the form of annuity payments as
contemplated by the contract, or in some other form of distribution. (For
purposes of this rule, the amount of any indebtedness that is secured by a
pledge or assignment of the contract is treated as a payment received on
account of a partial withdrawal from the contract.) However, this rule
applies only if (1) the investments of Account B and Account D are
"adequately diversified" in accordance with Treasury Department regulations,
(2) Golden American, rather than the owner, is considered the owner of the
assets of the Accounts for Federal income tax purposes, and (3) the owner is
an individual. In addition to the foregoing, if the contract's annuity
commencement date occurs at a time when the annuitant is at an advanced age,
such as over age 85, it is possible that the owner will be taxable currently
on the annual increase in the accumulation value.
DIVERSIFICATION REQUIREMENTS. Treasury Department regulations ("Regulations")
issued under Code Section 817(h) prescribe the manner in which the investments
of a segregated asset account, such as Account B and Account D, are to be
"adequately diversified." The Regulations generally require that on the last
day of each quarter of a calendar year (i) no more than 55% of the value of
each segregated asset account is represented by any one investment; (ii) no
more than 70% is represented by any two investments; (iii) no more than 80% is
represented by any three investments; and (iv) no more than 90% is represented
by any four investments. For purposes of complying with these requirements,
all securities of the same issuer are treated as a single investment, and each
U.S. government agency or instrumentality will be treated as a separate
issuer. In addition, where a segregated asset account invests in other
regulated investment companies or certain other entities (E.G., the divisions
of Account B do), a "look-through" rule applies and, as a result, each
division of an Account must be tested for compliance with the percentage
limitations by looking through to the assets of that division.
If a division of Account B or Account D failed to comply with these
diversification standards, a contract allocating values to that division would
not be treated as an annuity contract for Federal income tax purposes and the
owner would generally be taxable currently on the income on the contract (as
defined in the tax law) beginning with the first period of
non-diversification. Golden American expects that Account B and Account D,
including each of the divisions, will comply with the diversification
requirements prescribed by the Regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for Federal income tax purposes, of the
assets of the segregated asset account, such as Account B and Account D, used
to support their contracts. In those circumstances, income and gains from the
segregated asset account would be includible in the contract owners' gross
income. The IRS has stated in published rulings that a variable contract owner
will be considered the owner of the assets of the segregated asset account if
the owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. In addition, the
Treasury Department announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub- accounts [of a segregated asset account]
without being treated as owners of the underlying assets." As of the date of
this prospectus, no such guidance has been issued.
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the owner of this contract has the choice of more
investment options to which to allocate premium payments and accumulation
values, and may be able to transfer among investment options more frequently,
than in such rulings. In addition, the owner of this contract has the choice
of certain investment options which may be more similar to each other in their
investment objectives than in such rulings. These differences could result in
the owner being treated as the owner of a portion of the assets of Account B
and Account D. In addition, Golden American does not know what standards will
be set
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
forth in the regulations or rulings which the Treasury Department has stated
it expects to issue. Golden American therefore reserves the right to modify
the contract as necessary to attempt to prevent contract owners from being
considered the owners of the assets of Account B and Account D.
Frequently, if the IRS or the Treasury Department sets forth a new position
which is adverse to taxpayers, the position is applied on a prospective basis
only. Thus, if the IRS or the Treasury Department were to issue regulations or
a ruling which treated an owner of this contract as the owner of Account B and
Account D, that treatment might apply on a prospective basis. However, if the
ruling or regulations were not considered to set forth a new position, an
owner might retroactively be determined to be the owner of the assets of
Account B and Account D.
NON-NATURAL OWNER. As a general rule, contracts held by "non-natural persons"
such as a corporation, trust or other similar entity, as opposed to a natural
person, are not treated as annuity contracts for Federal tax purposes. The
income on such contracts (as defined in the tax law) is taxed as ordinary
income that is received or accrued by the owner of the contract during the
taxable year. There are several exceptions to this general rule for non-
natural owners. First, contracts will generally be treated as held by a
natural person if the nominal owner is a trust or other entity which holds the
contract as an agent for a natural person. However, this special exception
will not apply in the case of any employer who is the nominal owner of a
contract under a non-qualified deferred compensation arrangement for its
employees.
In addition, exceptions to the general rule for non-natural owners will apply
with respect to (1) contracts acquired by an estate of a decedent by reason of
the death of the decedent, (2) contracts issued in connection with certain
qualified plans, (3) contracts purchased by employers upon the termination of
certain qualified plans, (4) certain contracts used in connection with
structured settlement agreements, and (5) contracts purchased with a single
purchase payment when the annuity starting date is no later than a year from
purchase of the contract and substantially equal periodic payments are made,
not less frequently than annually, during the annuity period.
The remainder of this discussion assumes that the contract will be treated as
an annuity contract for Federal income tax purposes.
2. WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE
Code Section 72 provides that the proceeds of a total surrender of a contract
prior to the annuity commencement date will be taxed to the extent that the
amount distributed exceeds the "investment in the contract" and that any
partial withdrawal from a contract prior to the annuity commencement date will
be treated as taxable income to the extent the amount held under the contract
immediately before the withdrawal occurs exceeds the "investment in the
contract." The "investment in the contract" is defined in the Code as that
portion, if any, of premium payments by or on behalf of an individual under a
contract which was not excluded from the individual's gross income at the time
of such payment less any amounts previously received under the contract which
were excluded from the individual's gross income at the time of their receipt.
The taxable portion of any distribution received prior to the annuity
commencement date will be subject to tax at ordinary income tax rates. For
purposes of this rule, a pledge or assignment of a contract is treated as a
payment received on account of a partial withdrawal of a contract.
In the case of systematic partial withdrawals, the amount of each withdrawal
should be considered as a distribution and taxed in the same manner as a
partial withdrawal prior to the annuity commencement date, as described above.
However, there is some uncertainty regarding the tax treatment of systematic
partial withdrawals, and it is possible that additional amounts may be
includible in income.
In addition, the contract provides a death benefit that in certain
circumstances may exceed the greater of the premium payments and the
accumulation value. As described elsewhere in this prospectus, Golden American
imposes certain charges with respect to, among other things, the death
benefit. It is possible that some portion of those charges could be treated
for Federal tax purposes as a partial withdrawal from the contract.
In certain circumstances, surrender charges may be waived because of the
owner's need of extended medical care or because of the owner's terminal
illness. Distributions in respect of which surrender charges are waived are
treated as partial withdrawals.
3. ANNUITY PAYMENTS AND WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE
Proceeds of a total surrender of the contract after the annuity commencement
date are taxable to the
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
extent the proceeds exceed the investment in the contract at that time. In
addition, proceeds of a partial withdrawal after the annuity commencement date
are fully taxable. Also, a portion of each annuity payment under the contract
is taxable if the value of the contract exceeds the investment in the
contract. The taxable portion of an annuity payment will be subject to tax at
ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment is determined
by using a formula known as the "exclusion ratio," which establishes the ratio
that the investment in the contract (allocated to the fixed annuity option)
bears to the total expected amount of fixed annuity payments for the term of
the contract. That ratio is then applied to each payment to determine the
non-taxable portion of the payment. The remaining portion of each payment is
taxed at ordinary income rates.
For variable annuity payments, in general, the taxable portion is determined
by a formula which establishes a specific dollar amount of each payment that
is not taxed. The dollar amount is determined by dividing the investment in
the contract (allocated to the variable annuity option) by the total number of
expected periodic payments. The remaining portion of each payment is taxed at
ordinary income rates.
Once the excludable portion of annuity payments to date equals the investment
in the contract, the balance of the annuity payments will be fully taxable.
If amounts have become payable under the contract (such as where the owner
elects to surrender an amount) and if the distribution-at-death rules do not
apply to such amount, the amount will be treated as a partial or full
surrender for Federal income tax purposes if applied under an annuity option
later than 60 days after the time when the amount became payable. Thus, if
such an amount is applied under an annuity option after the 60 day period, it
will be treated as a partial or full surrender, even if the full amount has
not been distributed from the contract.
4. WITHHOLDING AND REPORTING REQUIREMENTS
Golden American will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a contract unless the taxpayer
notifies Golden American at or before the time of the distribution that he or
she elects not to have any amounts withheld. The withholding rates applicable
to the taxable portion of periodic annuity payments typically are the same as
the withholding rates generally applicable to payments of wages. In addition,
the withholding rate applicable to the taxable portion of non-periodic
payments (including surrenders prior to the annuity commencement date) is 10%.
Golden American also has tax reporting obligations with respect to
distributions from the contract.
5. PENALTY TAX ON CERTAIN WITHDRAWALS
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the owner, or where the owner
is not an individual, the death of the "primary annuitant" (i.e., the
individual the events in whose life are of primary importance in affecting the
timing or amount of the payout under the contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code
Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments made at least annually for the life (or life expectancy) of
the taxpayer, or the joint lives (or joint life expectancies) of the taxpayer
and his beneficiary; (iv) from certain qualified retirement plans; (v)
allocable to investment in the contract before August 14, 1982; (vi) under a
qualified funding asset (as defined in Code Section 130(d)); (vii) under an
immediate annuity contract, or (viii) which are purchased by an employer on
termination of certain types of qualified retirement plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments is subsequently
modified (other than by reason of death or disability), the tax for the year
when the modification occurs will be increased by an amount (as determined by
regulations) equal to the tax that would have been imposed but for item (iii)
above, plus interest for the deferral period, if the modification takes place
(a) before the close of the period which is within five years of the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
In the case of systematic withdrawals, it is unclear whether such withdrawals
will qualify for exception (iii) above.
TAXATION OF INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408 permits individuals or their employers to contribute to an
individual retirement program known as an Individual Retirement Annuity. If the
contract is used for this purpose, the owner must be
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
the annuitant. In addition, distributions from certain other types of qualified
retirement plans may be placed into an Individual Retirement Annuity on a tax
deferred basis.
Individual Retirement Annuities are subject to limitations on the amount which
may be contributed and the time when distributions may commence. Tax penalties,
including disqualification in certain instances, may apply to contributions in
excess of specified limits, loans or assignments, distributions in excess of a
specified amount annually or that do not meet specified requirements, and in
certain other circumstances.
Under the Internal Revenue Code, distributions from qualified retirement plans,
including Individual Retirement Annuities, Simplified Employee Pensions, and Tax
Sheltered Annuities, generally must begin not later than April 1st of the
calendar year following the calendar year in which an owner attains age 70 1/2.
If the required minimum distribution is not withdrawn, there may be a penalty
tax in an amount equal to 50% of the difference between the amount required to
be withdrawn and the amount actually withdrawn. See the Statement of Additional
Information for a discussion of the various special rules concerning the minimum
distribution requirements.
If all premium payments made to an Individual Retirement Annuity were
deductible, all amounts distributed from the contract are included in the
recipient's income when distributed. However, if nondeductible premium payments
were made to the Individual Retirement Annuity (within the limits allowed by the
tax law), a portion of each distribution from the contract typically is included
in income when it is distributed. In such a case, any amount distributed as an
annuity payment or in a lump sum upon death or a full surrender is taxed as
described above in connection with such a distribution from a non-qualified
contract, treating the investment in the contract as the sum of the
non-deductible premium payments at the end of the taxable year in which the
distribution commences or is made (less any amounts previously distributed that
were excluded from income). Also in such a case, any amount distributed upon a
partial surrender is partially includible in income. The includible amount is
the excess of the distribution over the exclusion amount, which in turn equals
the distribution multiplied by the ratio of the investment in the contract to
the amount held under the contract. The amount includible in income may be
subject to a 10% penalty tax if the recipient is under age 59 1/2.
Individual Retirement Annuities generally may not provide life insurance
coverage, but they may provide a death benefit that equals the greater of the
premiums paid and the contract value. The contract provides a death benefit that
in certain circumstances may exceed the greater of the premium payments and the
accumulation value. Golden American has plans to request a determination letter
from the IRS that would approve use of the contract, as to form, as an
Individual Retirement Annuity.
Subject to certain direct rollover and mandatory withholding requirements
(discussed below), amounts generally may be "rolled over" from a qualified
retirement plan to an Individual Retirement Annuity (or from an Individual
Retirement Annuity or individual retirement account to an Individual Retirement
Annuity) without incurring tax if certain conditions are met. Only certain types
of distributions from qualified retirement plans or Individual Retirement
Annuities may be rolled over.
In the case of annuity contracts used in connection with a pension,
profit-sharing, or annuity plan qualified under Code Section 401(a) or
Section 403(a), or in the case of a Code Section 403(b) "Tax Sheltered Annuity,"
any "eligible rollover distribution" from the contract will be subject to direct
rollover and mandatory withholding requirements. An eligible rollover
distribution generally is any taxable distribution from a qualified pension plan
under Code Section 401(a), qualified annuity plan under Code Section 403(a), or
Code Section 403(b) Tax Sheltered Annuity or custodial account, excluding
certain amounts (such as minimum distributions required under Code Section 401
(a) (9) and distributions which are part of a "series of substantially equal
periodic payments" made for life or a specified period of 10 years or more.
Under these requirements, withholding at a rate of 20 percent will be imposed
on any eligible rollover distribution. In addition, the participant in these
qualified retirement plans cannot elect out of withholding with respect to an
eligible rollover distribution. However, this 20 percent withholding will not
apply if, instead of receiving the eligible rollover distribution, the
participant elects to have amounts directly transferred to certain qualified
retirement plans (such as to this contract when issued as an Individual
Retirement Annuity).
It is important that you consult your tax advisor before purchasing an
Individual Retirement Annuity.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract for Federal tax purposes, a
non-qualified contract must provide the following two distribution rules: (a) if
any holder dies on or after the annuity commencement date, and before the entire
interest in the contract has been distributed, the remainder of his or her
interest
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
will be distributed at least as quickly as under the method of distribution in
effect on the holder's death; and (b) if any holder dies before the annuity
commencement date, the entire interest in the contract must generally be
distributed within five years after the date of death, or to the extent such
interest is payable to a designated beneficiary, such interest must be
distributed over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, so long as the
distributions begin within one year after the date of death. If the beneficiary
is the surviving spouse of the holder, the contract (together with the deferral
of tax on the accrued and future income thereunder) may be continued in the name
of the spouse. The holder of the contract will generally be the owner.
Where any holder is not an individual, solely for the purpose of the
distribution at death rules, the primary annuitant is also considered a holder
and the death of or change of the primary annuitant is treated as the death of a
holder. The primary annuitant is the individual the events in the life of whom
are of primary importance in affecting the timing or amount of payment under a
contract. Finally, in the case of joint holders, the distribution will be
required at the death of the first of the holders to die. In some instances,
these Distribution-at-Death rules will force distributions from a contract even
though no death benefit is payable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a non-qualified contract because of the death of
an owner or annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (a) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the contract, as described above, or (b)
if distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
TRANSFER OF ANNUITY CONTRACTS
Transfers of non-qualified annuity contracts for less than the full and adequate
consideration will trigger tax on the gain in the contract, at the time of such
transfer, with the transferee getting a step-up in basis for the amount included
in the owner's income. This provision does not apply to transfers between
spouses or incident to a divorce.
SECTION 1035 EXCHANGES
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of an annuity contract for another. If the exchanged contract was
issued prior to August 14, 1982, the tax rules which formerly provided that the
surrender was taxable only to the extent the amount received exceeds the owner's
investment in the contract will continue to apply to the new contract. In
contrast, contracts issued on or after January 19, 1985, in a Code Section 1035
exchange are treated as new contracts for purposes of the penalty tax and
distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective owners wishing to take advantage of Code
Section 1035 should consult their tax advisors.
ASSIGNMENTS
A transfer of ownership or a collateral assignment may result in tax
consequences to the owner that are not discussed herein. An owner contemplating
such a transfer or assignment of a contract should contact a competent tax
advisor with respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includible in gross
income, all non-qualified deferred annuity contracts issued by the same (or
affiliate) insurer to the same owner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's annuity starting date (as defined in the tax
law), such as a partial surrender, dividend, or loan, will be taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined income in
all such contracts. The Treasury Department has specific authority to issue
regulations that prevent the avoidance of 72(e) through the serial purchase of
annuity contracts or otherwise. In addition, there may be other situations in
which the Treasury Department may conclude that it would be appropriate to
aggregate two or more contracts purchased by the same owner. Accordingly, an
owner should consult a competent tax advisor before purchasing more than one
annuity contract.
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PART II
THE MANAGED GLOBAL
ACCOUNT OF ACCOUNT D
INTRODUCTION PART II GIVES FURTHER BACKGROUND INFORMATION ON ACCOUNT D AND
THE GLOBAL ACCOUNT, INCLUDING ITS INVESTMENT POLICIES AND ACTIVITIES.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
THE GLOBAL ACCOUNT
The Global Account is a non-diversified investment company which invests
directly in securities. There can be no assurance that the Global Account will
meet its investment objective. Account D may also offer other securities which
are not available through the purchase of the contract offered by this
prospectus. DSI serves as the Manager of Account D and Warburg, Pincus serves as
the Portfolio Manager of the Global Account.
INVESTMENT OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT
The Global Account's investment objective is to seek high total investment
return consistent with a prudent regard for capital preservation. In seeking
this objective, the Global Account employs an asset allocation strategy
involving shifts among a wide range of investments and market sectors throughout
the world. The Global Account may invest in the following classes of securities:
equity securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities, and warrants; debt securities of
domestic and foreign issuers, including bonds, debentures, asset-backed
securities, and notes; and money market instruments of domestic and foreign
issuers. The Global Account may also use various investment strategies and
techniques in seeking its investment objective including entering into forward
currency contracts; purchasing and writing put and call options on securities,
securities indexes, and currencies; purchasing and selling futures contracts
including interest rate futures contracts, stock index futures contracts,
futures contracts based upon securities, which may be domestic or foreign and
corporate or governmental, foreign exchange futures contracts, and other
financial futures contracts; purchasing and writing put and call options on
financial futures contracts; engaging in short sales of securities; and entering
into repurchase agreements and reverse repurchase agreements.
The total investment return that the Global Account seeks may consist (i) of
capital appreciation from several possible sources, including appreciation in
the value of securities held by the Global Account, the sale of securities whose
market value has changed, the use of futures and options, and the use of forward
currency contracts; (ii) of interest from underlying securities; and (iii) of
income received from the writing of options. Changes in the value of securities
denominated in foreign currencies may be attributable in whole or in part to
changes in the value of the underlying currency relative to the U.S. dollar.
In seeking the Global Account's investment objective, the Portfolio Manager will
use an opportunistic approach to allocating the Global Account's assets through
varying economic and financial conditions. The Portfolio Manager believes that a
successful investment approach in the current global environment must be based
upon careful analysis of the global economic and geopolitical environment with a
view to capitalizing upon sector and market opportunities and to quickly
adapting to changing circumstances. Thus, the Portfolio Manager will allocate
the Global Account's assets among securities and currencies based upon the
Portfolio Manager's assessment of the most favorable markets, currencies, and
issuers. In this regard, the percentage of the Global Account's assets invested
in a particular country or denominated in a particular currency will vary in
accordance with the Portfolio Manager's assessment of the appreciation potential
of such assets and the relationship of the country's currency to the U.S.
dollar.
The Portfolio Manager may allocate the Global Account's assets among the various
types of securities and other assets and among issuers located in various
countries and regions as the Portfolio Manager deems appropriate, except that
the Global Account's assets normally will be invested in securities of issuers
domiciled or primarily traded in at least three different countries, which may
include the United States. (Certain additional foreign diversification
requirements apply as described below.) The Portfolio Manager is free to
allocate the Global Account's assets such that, at any time, the Global Account
may be primarily invested in equity securities or, alternatively, the Global
Account may have little or no assets in equity securities. Similarly, at any
time, the Global Account may be primarily invested in securities of issuers
domiciled or primarily traded in one region, such as the United States, Europe,
or the Pacific Basin, or the Global Account may have little or no assets
committed to that region.
In considering equity securities, the Portfolio Manager will emphasize large,
well-capitalized companies with strong balance sheets. The Portfolio Manager may
also consider other factors in selecting equity securities, including
price-earnings ratios, cash flows, and the relationship of an issuer's book
value to its market value.
In selecting debt instruments for the Global Account, the Portfolio Manager
emphasizes credit quality. The Global Account will invest only in the following:
(1) fixed-income instruments issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities ("U.S. Government Securities"); (2) obligations
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities, or by supranational
entities ("foreign government securities"), which, at the time of investment,
are rated A or better by Standard & Poor's Corporation ("S&P") or A or better by
Moody's Investors Services, Inc. ("Moody's") or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; and (3) debt
securities of domestic or foreign issuers which, at the time of investment, are
rated A or better by S&P or A or better by Moody's or, if not rated by S&P or
Moody's, determined by the Portfolio Manager to be of equivalent quality. In the
event that a debt security held by the Global Account is downgraded to a rating
that would render the security ineligible for purchase by the Global Account,
the Global Account may nonetheless retain the security.
Debt securities purchased by the Global Account may be of any maturity. It is
anticipated that the weighted average maturity of the debt securities in the
portfolio (excluding money market instruments) generally will be between 5 and
15 years, but may be shorter or longer at the discretion of the Portfolio
Manager.
The Global Account invests only in high-quality money market instruments. These
include the following: (1) short-term U.S. Government securities; (2) short-term
foreign government securities which, at the time of investment, are rated AA or
better by S&P or Aa or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; (3)
certificates of deposit, time deposits, bankers' acceptances, and short-term
obligations of banks and other depository institutions, both U.S. and foreign,
that have total assets of at least $10 billion (U.S.) and are determined by the
Portfolio Manager to be of high quality; and (4) commercial paper and other
short-term corporate obligations which, at the time of investment, are rated A-2
or better by S&P or P-2 or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality.
The Global Account may employ various investment strategies involving
currencies, including entering into forward currency contracts, foreign exchange
futures contracts, and options on currencies. (See "Securities and Investment
Techniques," below.) These strategies may be employed for purposes of exposing
the Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another. These strategies may
also be employed as hedging techniques to help protect against declines in the
U.S. dollar (or other currency) value of the Global Account's assets that might
result from adverse changes in currency exchange rates. The Global Account may
engage in forward currency transactions in anticipation of or to protect
itself against fluctuations in currency exchange ates. The Global Account may
purchase put and call options on foreign currencies as a hedge against
changes in the value of the U.S. dollar (or another currency) in relation to a
foreign currency in which securities of the Global Account may be denominated.
Hedging against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Furthermore,
such hedging transactions may reduce or preclude the opportunity for gain
if the value of the hedged currency should change relative to the U.S. dollar.
NON-DIVERSIFIED
The Global Account is classified as a "non-diversified" investment company under
the 1940 Act, as amended, which means that the Global Account is not limited by
the 1940 Act in the amount of its assets that it may invest in the securities of
a single issuer. However, the Global Account will meet the diversification
requirements of Code Section 817 (h) and the Treasury Department Regulations
issued thereunder. Under applicable state law requirements, the Global Account
may not acquire the securities of any issuer if, as a result of such investment,
more than 10% of the Global Account's total assets would be invested in the
securities of any one issuer, except that this restriction shall not apply to
U.S. Government securities or foreign government securities, and the Global
Account will not invest in a security if, as a result of such investment, it
would hold more than 10% of the outstanding voting securities of any one issuer.
Nonetheless, because the Global Account, as a non-diversified investment company
under the 1940 Act, may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Global Account may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified company. This risk may include greater exposure to the risk of
poor earnings or default of one issuer than would be the case for a more
diversified fund.
The Global Account is also subject to the following guidelines for
diversification of foreign security investments. If the Global Account has less
then 20% of its assets in foreign issuers, then all of such investment may be in
issuers domiciled or primarily traded in one country. If the Global Account has
at least 20% but less than 40% of its assets in foreign issuers, then
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such investment must be allocated to issuers domiciled or primarily traded in at
least two different countries. Similarly, if the Global Account has at least 40%
but less than 60% of its assets in foreign issuers, such investment must be
allocated in at least three different countries. Foreign investments must be
allocated to at least four different countries if at least 60% of the Global
Account's assets is in foreign issuers, and to at least five different countries
if at least 80% of its assets is in foreign issuers.
The Global Account may have no more than 20% of its net assets invested in
securities of issuers domiciled or primarily traded in any one country, except
that the Global Account may have an additional 15% of its net assets invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Germany, Japan and The United Kingdom. The
Global Account's investments in U.S. issuers are not subject to these foreign
country diversification guidelines.
RISK FACTORS
The Global Account's investment policies and certain of the investment
techniques in which the Global Account may engage involve certain risks. For
instance, the Global Account will invest in non-U.S. dollar-denominated
securities of foreign issuers. Investing in such securities involves different
risk considerations than investing in securities of U.S. issuers, including the
risks of investment in foreign countries, foreign exchange rate fluctuations,
exchange controls, and others. The Global Account may also engage in
transactions in financial futures contracts, both domestic and foreign, and in
various put and call options. The Global Account may also engage in foreign
currency transactions and options on foreign currencies. Risks associated with
these techniques are described more fully under "Securities and Investment
Techniques."
In general, because investment in foreign issuers will usually involve
currencies of foreign countries, and because the Global Account may be exposed
to currency risk independent of its securities positions, the value of the
assets of the Global Account as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. To the extent that the Global
Account's assets consist of investments denominated in a particular currency,
the Global Account's exposure to adverse developments affecting the value of
that currency will increase. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investment in different countries, actual or perceived changes in
interest rates, and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention by U.S. or foreign governments or central banks in the availability
of money or interest rates, by the failure to intervene, by currency controls,
or by political and economic developments in the U.S. or abroad. The market in
forward foreign currency exchange contracts and other privately negotiated
currency instruments offers less protection against defaults by the other party
to such instruments than is available for currency instruments traded on an
exchange. To the extent that a substantial portion of the Global Account's total
assets, adjusted to reflect the Global Account's net position after giving
effect to currency transactions, is denominated in the currencies of foreign
countries, the Global Account will be more susceptible to the risk of adverse
economic and political developments within those countries.
In addition, because of the Global Account's flexible investment policy,
portfolio turnover may be greater than for a portfolio that does not allocate
assets among various types of securities and among various countries and
regions. A higher rate of portfolio turnover involves correspondingly greater
brokerage expenses which must be borne by the Global Account (and indirectly by
investors allocating accumulation value to the Global Account), and may under
certain circumstances make it more difficult for the Global Account to qualify
as a regulated investment company under the Code.
There can be no assurance that the Global Account will achieve its investment
objective. Investors should be aware that the value of the Global Account's
assets will fluctuate and a contract owner's accumulation value will increase
and decrease in value as the market value of the securities and other assets in
which the Global Account invests fluctuates.
The Global Account is intended for long-term investors who can accept the risks
involved in investments in foreign securities. The Global Account does not
purport to offer a complete investment program to which a prudent investor would
commit all of his or her investment capital, nor is it intended for investors
whose principal objective is income.
BOARD OF GOVERNORS OF ACCOUNT D
The business and affairs of Account D are managed under the direction of a Board
of Governors, which
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currently consists of four members. The Board of Governors has responsibility
for the investment management-related operations of Account D and matters
arising under the 1940 Act. The Board of Governors does not have responsibility
for the payment of obligations under the contract and administration of the
contract. These matters are Golden American's responsibility. The business and
affairs of Account D are governed under a set of rules adopted by the Board of
Governors called "Rules and Regulations of Separate Account D."
THE MANAGER
DSI serves as Manager to Account D pursuant to a Management Agreement with
Account D. The Manager is a corporation organized under the laws of the State of
New York. Its address is 280 Park Avenue, New York, New York 10017. DSI is a
wholly owned subsidiary of BT Variable, Inc., which is an indirect subsidiary of
Bankers Trust Company. DSI's business activities include those of a distributor
and underwriter of variable insurance products, broker-dealer and investment
manager. DSI is registered with the SEC as a broker-dealer and investment
adviser and is a member of the NASD. It is also registered as a broker-dealer
and/or investment adviser in various states.
U.S. banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System (the
"Board"), prohibit a bank holding company registered under the Bank Holding
Company Act of 1956, or any affiliate thereof, from sponsoring, organizing,
controlling, or distributing the shares of a registered open-end investment
company, which may for these purposes include the Global Account, continuously
engaged in the issuance of its securities and, except as otherwise provided by
order of the Board, prohibit banks generally from issuing, underwriting,
selling, or distributing securities. The same laws and regulations generally
permit a bank or bank affiliate to act as investment adviser, transfer, dividend
disbursing, and shareholder servicing agent and custodian to an investment
company and to purchase such shares as agent for and upon the order of a
customer.
Golden American and DSI perform the activities described above in this
prospectus and in Part I, under the caption "Selling the Contracts." As
discussed in Part I, under the caption "Golden American," while Bankers Trust
has no immediate intent to divest its ownership of the stock of Golden American
and DSI, such a divestiture may occur in the future. In addition, judicial or
administrative decisions or interpretations, as well as changes in either U.S.
Federal or state banking statutes or regulations, could prevent Golden American
from performing activities with respect to Account D, prevent DSI from
performing the activities described in this prospectus, or prevent Bankers Trust
Company from continuing to own the stock of Golden American or DSI. If any such
event were to occur, changes in the operation of Account D and the Global
Account might occur. It is not expected, however, that Account D or the Global
Account would suffer adverse financial consequences as a result of such
occurrence.
As discussed in Part I, DSI also currently provides management and
administrative services to the Trust. DSI's officers have extensive experience
in the development and distribution of investment products, specifically,
variable life insurance policies, variable annuity contracts, and management
investment companies that serve as investment media for such policies and
contracts.
Under the Management Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Governors, for administering all operations of the
Global Account and for monitoring and evaluating the management of the assets of
the Global Account by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objective and
policies of the Global Account. The Management Agreement may be terminated
without penalty by the vote of the Board of Governors or the contract owners of
the Global Account, or by the Manager, on 60 days' written notice by the Board
or the Manager and will terminate automatically if assigned as that term is
described in the 1940 Act.
As Manager, DSI provides the overall business management and administrative
services necessary for the Global Account's operation. The Manager furnishes or
procures on behalf of the Global Account the services and information necessary
to the proper conduct of the Global Account's business. The Manager also acts as
liaison among the various service providers to the Global Account, including the
custodian, portfolio accounting personnel, Portfolio Manager, counsel, and
auditors. The Manager is also responsible for ensuring that the Global Account
operates in compliance with applicable legal requirements and for monitoring the
Portfolio Manager for compliance with requirements under applicable law and with
the investment policies and restrictions of the Global Account.
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Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of the Global Account's assets and the purchase and sale of securities for the
Global Account in the event that at any time a portfolio manager is not engaged
to manage the assets of the Global Account. In such event, the Management
Agreement provides that the Manager will be entitled to, in addition to its
usual compensation for services as Manager, as described below, a fee that would
otherwise be paid to the Portfolio Manager. For more information on the
Management Agreement, see the Statement of Additional Information.
For operating expenses under the Management Agreement see Part I, Charges and
Fees, Operating Expenses of Account D.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the period
through December 31, 1994 so that such expenses do not exceed on an annual
basis: 1.25% of the first $500 million of average daily net assets and 1.05% of
the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
THE PORTFOLIO MANAGER
Warburg, Pincus serves as the Portfolio Manager of the Global Account and in
that capacity provides investment advisory services for the Global Account,
including asset allocation and security selection. The Portfolio Manager's
address is 466 Lexington Avenue, New York, New York 10017. The Global Account,
the Manager, and the Portfolio Manager have entered into a Portfolio Management
Agreement under which the Portfolio Manager has full investment discretion and
makes all determinations with respect to the investment of the Global Account's
assets and the purchase and sale of securities and other investments. The
Portfolio Management Agreement may be terminated without penalty by the vote of
the Board of Governors or the contract owners of the Global Account, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any party to
the Portfolio Management Agreement and will terminate automatically if assigned
as that term is described in the 1940 Act.
Warburg, Pincus was incorporated in Delaware on December 15, 1970. Warburg,
Pincus is a professional investment counselling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. The Portfolio Manager is
registered with the SEC as an investment adviser.
The individual primarily in charge of portfolio management decisions for the
Global Account is Richard H. King. Mr. King has been a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("EMW") since 1989, before which time he was senior
vice president of Fiduciary Trust Company International. Harold E. Sharon and
Nicholas P.W. Horsley, both of whom are research analysts and associate
portfolio managers of another investment company advised by Warburg, Pincus,
also exercise significant portfolio management responsibility with respect to
the Global Account. Mr. Sharon has been with EMW since 1990, before which time
he was an investment officer with Credit Suisse Asset Management. Mr. Horsley
has been with EMW since 1993, before which time he was a director, portfolio
manager and analyst at Barclays deZoete Wedd in New York City.
As of January 31, 1994, Warburg, Pincus managed approximately $7.0 billion of
assets and served as investment adviser to thirteen investment companies which
had total assets of approximately $2.0 billion. The Portfolio Manager is a
wholly-owned subsidiary of Warburg, Pincus Counsellors G.P., a New York general
partnership. EMW controls Warburg, Pincus through its ownership of a class of
voting preferred stock of Warburg, Pincus. Warburg, Pincus Counsellors G.P. has
no business other than being a holding company of Warburg, Pincus and its
subsidiaries.
From the commencement of operations of the Global Account through June 30, 1994,
Zulauf Asset Management AG served as portfolio manager for the Global Account.
Warburg, Pincus assumed management of the Global Account on July 1, 1994.
For operating expenses under the Portfolio Management Agreement see Part I,
Charges and Fees, Operating Expenses of Account D.
CUSTODIAN
The Custodian for the Global Account is Bankers Trust Company. DSI provides
portfolio accounting services for the Global Account.
SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes different types of securities and investment
techniques that may be
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used by the Global Account, as well as the risks associated with such securities
and techniques. For more detailed information on these securities and investment
techniques, and for information on other securities and investment techniques
that may be used by the Global Account, including U.S. Government securities,
debt securities, foreign securities, repurchase agreements, short sales, futures
contracts, options on securities and foreign currency transactions, see the
discussion in the Statement of Additional Information on "Securities and
Investment Techniques."
FOREIGN SECURITIES
The Global Account may invest in equity and debt securities of foreign
issuers, in American Depository Receipts ("ADRs"), in foreign government
securities that are denominated in either U.S. dollars or foreign currencies,
and in foreign branches of commercial banks and foreign banks.
Investments in foreign securities offer potential benefits not available
solely in securities of domestic issuers by offering the opportunity to invest
in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies or business cycles different from those of
the United States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a manner parallel to
U.S. markets. Investments in securities of foreign issuers involve certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls, restrictions on investment or the flow of capital, or other foreign
governmental laws or restrictions. Since the Global Account may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of
investments as denominated in U.S. dollars. While the Global Account may
employ certain investment techniques to hedge its foreign currency exposure,
such techniques also entail certain risks. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social
instability, or diplomatic developments that could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. The Global Account might have greater difficulty taking appropriate
legal action with respect to foreign investments in non-U.S. courts than with
respect to domestic issuers in U.S. courts. In addition, transactions in
foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions. Clearance and settlement
procedures in certain foreign countries have not developed at the same pace as
the related securities markets, making it difficult to execute desired
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Global Account are uninvested and no return is
earned thereon. The inability of the Global Account to make intended
investments due to settlement problems could cause it to miss attractive
investment opportunities. Inability to dispose of securities or other
investments due to settlement problems could result either in losses to the
Global Account due to subsequent declines in value of the investment, or
possible liability to a purchaser. Foreign investments also involve the risk
of possible losses through the holding of securities by custodians and
securities depositories in foreign countries.
Interest income and gains from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located.
SHORT SALES
The Global Account may make short sales of securities. A short sale is a
transaction in which the Global Account sells a security it does not own in
anticipation of a decline in market price. The Global Account may make short
sales to offset a potential decline in a long position or a group of long
positions, or if the Portfolio Manager believes that a decline in the price of
a particular security or group of securities is likely.
The Global Account's obligation to replace a security borrowed in connection
with the short sale will
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be secured by collateral deposited with the broker, consisting of cash or U.S.
Government securities or other securities acceptable to the broker. In
addition, with respect to any short sale, other than short sales against the
box, the Global Account will be required to deposit collateral consisting of
cash, cash items, or U.S. Government securities in a segregated account with
its custodian in an amount such that the value of the sum of both collateral
deposits (not including the proceeds from the short sale) is at all times
equal to at least 100% of the current market value of the securities sold
short. The deposits do not necessarily limit the Global Account's potential
loss on a short sale, which may exceed the entire amount of the collateral.
If the price of the security sold short increases between the time of the
short sale and the time the Global Account replaces the borrowed security, the
Global Account will incur a loss, and if the price declines during this
period, the Global Account will realize a capital gain. Any realized gain will
be decreased, and any incurred loss increased, by the amount of transactional
costs and any premium, dividend, or interest which the Global Account may have
to pay in connection with such short sale. Account D may have to pay a premium
to borrow the securities sold short and must pay any dividends or interest
payable on the securities until they are replaced. Possible losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from
purchases of a security can equal only the total amount invested.
The Global Account may make a short sale only if, at the time the short sale
is made and after giving effect thereto, the market value of all securities
sold short is 25% or less of the value of its net assets. The Global Account
is not required to liquidate an existing short sale position solely because a
change in market values has caused this percentage limitation to be exceeded.
FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts.
The Global Account may engage in such futures transactions as an adjunct to
its securities activities. The Global Account's transactions in futures
transactions must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodity Futures Trading
Commission ("CFTC"), under which a fund engaging in futures transactions would
not be deemed a "commodity pool." Under these regulations, the Global Account
may enter into futures and options (1) for "bona fide hedging" purposes,
without regard to the percentage of assets committed to initial margin and
options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of the Global Account's portfolio, after taking
into account unrealized profits and unrealized gains on any such contracts
entered into. Transactions in futures contracts and options on futures
contracts may also be limited by the requirements of the Code for
qualification as a regulated investment company. Other requirements are
described in the Statement of Additional Information.
There are several risks associated with the use of futures and futures
options. While the Global Account's hedging transactions may protect the
Global Account against adverse movements in the general level of interest
rates, securities prices, currency exchange rates, or other economic
conditions, such transactions could also preclude the Global Account from the
opportunity to benefit from favorable movements in the level of interest
rates, securities prices, currency exchange rates, or other economic
conditions. There can be no guarantee that there will be correlation between
price movements in the hedging vehicle and in the portfolio securities or
currency being hedged. An incorrect correlation could result in a loss on both
the hedged securities in the Global Account and the hedging vehicle so that
the Global Account's return might have been better if hedging had not been
attempted. The loss that could be incurred by the Global Account in writing
options on futures is potentially unlimited.
There can be no assurance that a liquid market will exist at a time when the
Global Account seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist.
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The daily limit governs only price movements during a particular trading day
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
positions and subjecting some holders of futures contracts to substantial
losses. Lack of a liquid market for any reason may prevent the Global Account
from liquidating an unfavorable position and the Global Account would remain
obligated to meet margin requirements and continue to incur losses until the
position is closed.
The Global Account will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system, or in
the case of futures options, for which an established over-the-counter market
exists.
The Global Account may engage in futures contracts and options on futures
contracts not only on U.S. domestic markets, but also on exchanges and other
markets outside of the United States. Foreign markets may offer advantages
such as trading in indices that are not currently traded in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading on foreign
commodity markets is not regulated by the CFTC and may be subject to greater
risk than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. Trading in
foreign futures or foreign options contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
futures exchanges. In addition, the Global Account could incur losses or lose
any profits that had been realized in trading by adverse changes in the
exchange rate of the currency in which the transaction is denominated.
Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and boards of trade and those that are not.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Global Account may purchase and write put and call options on securities
and on securities indices. The Global Account will purchase and write only
options that are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Global Account
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.
The Global Account may write a call or put option only if the option is
"covered" by the Global Account holding a position in the underlying
securities or by other means that would permit immediate satisfaction of the
Global Account's obligation as writer of the option, typically deposit with
the Global Account's custodian of cash, U.S. Government securities, or other
high grade liquid debt securities with a value at least equal to the exercise
price of the put option, or the price at which a security underlying a call
option can be acquired.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Global Account is not sold
when it has remaining value, and if the market price of the
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underlying security, in the case of a put, remains equal to or greater than
the exercise price or, in the case of a call, remains less than or equal to
the exercise price, the Global Account will lose its entire investment in the
option. Also, where a put or call option on a particular security is purchased
to hedge against price movements in a related security, the price of the put
or call option may move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out an option position. Furthermore, if trading
restrictions or a suspension is imposed on the options markets, the Global
Account may be unable to close out a position. If the Global Account cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though
it might otherwise be advantageous to do so. The Global Account pays brokerage
commissions or spreads in connection with its options transactions. The
writing of options could significantly increase portfolio turnover rate.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward
currency contract is an obligation to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Global Account may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract. The
Global Account may engage in forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange rates, and
entering into a forward currency contract will expose the Global Account to
the risk of adverse changes in the exchange rate of the currency that is
subject to the contract. The Global Account may also enter into a forward
currency contract for non-hedging purposes. Forward currency contracts are
further described in the Statement of Additional Information.
If the Global Account engages in an offsetting transaction to terminate its
contractual obligation under a forward currency contract, the Global Account
will incur a gain or a loss to the extent that there has been movement in
forward contract prices. For more information on closing a forward currency
position, including information on associated risks, see the Statement of
Additional Information.
In hedging transactions, the precise matching of forward currency contracts
and the value of the securities involved will not generally be possible since
the future value of the securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
While forward foreign currency contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when the Global Account seeks
to enter into or close out a forward currency position, in which case the
Global Account might not be able to effect a closing purchase transaction at
any particular time. In addition, the Global Account entering a forward
foreign currency contract incurs the risk of default by the counter party to
the transaction. Forward currency contracts offer less protection against
defaults than is available when trading in currencies on an exchange. Because
a forward currency contract is not guaranteed by an exchange or clearinghouse,
a default on the contract would deprive the Global Account of unrealized
profits or force the Global Account to cover its commitments for purchase or
resale, if any, at the current market price.
Although the Global Account values its assets daily in terms of U.S. dollars,
it does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Global Account may do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Global Account at one rate, while offering a
lesser rate of exchange should the Global Account desire to resell that
currency to the dealer.
The Global Account will place cash or high grade liquid debt securities into a
segregated account in an amount equal to the value of the Global Account's
total assets committed to the consummation of forward currency contracts
requiring the Global
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Account to purchase foreign currencies or forward contracts entered into for
non-hedging purposes. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account
on a daily basis so that the value of the account will equal the amount of the
Global Account's commitments with respect to such contracts. The segregated
account will be marked-to-market on a daily basis. Although the contracts are
not presently regulated by the CFTC, the CFTC may in the future assert
authority to regulate these contracts. In such event, the Global Account's
ability to utilize forward currency contracts may be restricted.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may purchase and write call and put options on foreign
currencies. Such options will expose the Global Account to the risk of adverse
changes in the exchange rate of the currency that is subject to the option.
The Global Account may employ options on foreign currencies to increase or
shift exposure to a currency and as a hedge against changes in the value of
the U.S. dollar (or another currency) in relation to a foreign currency in
which portfolio securities of the Global Account may be denominated. Hedging
against a change in the value of a foreign currency with an option on the
foreign currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar. The Global Account may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits that may limit the ability of the Global Account to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. There is no assurance that a liquid
secondary market will exist for any particular option, or at any particular
time. In the event no liquid secondary market exists, it might not be possible
to effect closing transactions in particular currency options. If the Global
Account cannot close out an option that it holds, it would have to exercise
its option in order to realize any profit and would incur transactional costs
on the sale of the underlying assets.
BORROWING
The Global Account may borrow up to 10% of the value of its net assets. For
temporary purposes, such as to facilitate redemptions, the Global Account may
increase its borrowings up to 25% of its net assets. Reverse repurchase
agreements, short sales of securities, and sales of securities against the box
will be included as borrowing subject to the borrowing limitations described
above, except that the Global Account is permitted to engage in short sales of
securities with respect to an additional 15% of the Global Account's net
assets in excess of the limits otherwise applicable to borrowing. Securities
purchased on a when-issued or delayed delivery basis will not be subject to
the Global Account's borrowing limitations to the extent that the Global
Account establishes and maintains liquid assets in a segregated account with
the Global Account's custodian equal to the Global Account's obligations under
the when-issued or delayed delivery arrangement.
INVESTMENT RESTRICTIONS
The Global Account is subject to investment restrictions that are described in
the Statement of Additional Information. Those investment restrictions so
designated and the investment objective are "fundamental policies" of the Global
Account, which means that they may not be changed without a majority vote of the
contract owners with accumulation value allocated to the Global Account. Except
for those restrictions specifically identified as fundamental and the Global
Account's investment objective, all other investment policies and practices
described in this prospectus and Statement of Additional Information are not
fundamental, meaning that the Board of Governors may change them without
contract owner approval.
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreement, the Portfolio Manager places
orders for the purchase and sale of portfolio investments for the Global Account
with brokers or dealers selected by the Portfolio Manager in its discretion. In
executing transactions, the Portfolio Manager will attempt to obtain the best
execution. In transactions on stock exchanges in the United States, payment of
brokerage commissions are negotiated. In effecting purchases and sales of
portfolio securities in transactions on U.S. stock exchanges, the Global Account
may pay higher commission rates
57
<PAGE>
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
than the lowest available when the Portfolio Manager believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction. In the case of securities traded on
some foreign stock exchanges, brokerage commissions may be fixed and the
Portfolio Manager may be unable to negotiate commission rates for these
transactions. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price includes an undisclosed
commission or markup.
Some securities considered for investment by the Global Account may also be
appropriate for other clients served by the Portfolio Manager and/or its
affiliates. If a purchase or sale of securities consistent with the investment
policies of the Global Account and one or more of these clients served by the
Portfolio Manager and/or its affiliates is considered at or about the same time,
transactions in such securities will be allocated among the Global Account and
clients in a manner deemed fair and reasonable by the Portfolio Manager and/or
its affiliates. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Portfolio Manager, and
the results of such allocations, are subject to periodic review by the Manager
and Account D's Board of Governors.
The Portfolio Manager may place orders for the purchase of portfolio securities
with an affiliated broker-dealer where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and an affiliate of the Portfolio Manager.
PORTFOLIO TURNOVER
It is anticipated that the Global Account's annual rate of portfolio turnover
normally will not exceed 100%. Portfolio turnover for the Global Account will
vary from year to year, and depending on market conditions, the portfolio
turnover rate could be greater in periods of unusual market movement. A higher
turnover rate would result in heavier brokerage commissions or other
transactional expenses which must be borne, directly or indirectly, by the
Global Account and ultimately by the Global Account's contract owners. For
information on the calculation of the portfolio turnover rate, see the
Statement of Additional Information.
58
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Golden
American Life Insurance Company (the "Company") as of December 31, 1994 and
1993, and the related statutory-basis statements of operations, capital and
surplus, and cash flow for the years then ended. These financial statements
are the responsibility of the Company's 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.
The Company presents its 1994 and 1993 financial statements in conformity
with accounting practices prescribed or permitted by the Department of
Insurance of the State of Delaware. The variances between such practices and
generally accepted accounting principles and the effects on the accompanying
financial statements are described in Notes 2 and 4.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, or the results
of its operations or its cash flow for the years then ended. However, in our
opinion, the supplementary information included in Note 4 presents fairly, in
all material respects, stockholder's equity at December 31, 1994 and 1993,
and net income (loss) for the years ended December 31, 1994 and 1993, in
conformity with generally accepted accounting principles.
59
<PAGE>
Also, in our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, and the results
of its operations and its cash flow for the years then ended in conformity with
accounting practices prescribed or permitted by the Department of Insurance
of the State of Delaware for the years ended December 31, 1994 and 1993.
February 14, 1995
60
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $2,673,223 $ 2,127,036
Short-term investments 13,933,550 15,231,954
Common stock 15,609 321,842
Funds held in escrow pursuant to an Exchange Agreement 2,757,467 1,375,000
Cash 3,315,768 4,075,718
Policy loans 513,350 144,529
-------------------------------
23,208,967 23,276,079
Investment income due and accrued 92,423 68,002
Due from reinsurers 14,506,893 162,041
Due from parent and affiliates -- 466,129
Separate account assets 950,291,746 810,150,858
Other assets 80,119 --
Total admitted assets $988,180,148 $834,123,109
-------------------------------
-------------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Policy and contract liabilities:
Insurance and annuity reserves $ 6,036,021 $ 2,389,726
Due to reinsurers 13,860,267 87,977
-------------------------------
19,896,288 2,477,703
Other liabilities:
Due from separate accounts for net transfers (49,758,887) (39,158,451)
Due to parent and affiliates 232,587 --
Accrued expenses and other liabilities 745,569 1,220,619
Adjustable principal amount promissory note, 7.5%, due
1997 438,636 438,636
Borrowed money -- 40,040,278
Asset valuation reserve and interest maintenance reserve 41,598 131,060
-------------------------------
(28,404,209) 2,672,142
Separate account liabilities 950,291,746 810,150,858
-------------------------------
Total liabilities 921,887,537 815,300,703
Capital and surplus:
Common stock, par value $10 per share:
Authorized, issued and outstanding 250,000 shares 2,500,000 2,500,000
Redeemable preferred stock, par value $5,000 per share,
50,000 shares authorized, 10,000 shares issued and
outstanding in 1994 50,000,000 --
Paid-in surplus 42,699,479 33,949,479
Unassigned surplus (deficit) (28,906,868) (17,627,073)
-------------------------------
Total capital and surplus 66,292,611 18,822,406
-------------------------------
Total liabilities and capital and surplus $988,180,148 $834,123,109
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED December 31
1994 1993
-------------------------------
<S> <C> <C>
Premiums and annuity considerations $294,549,961 $505,465,379
Reserve adjustments on reinsurance ceded 12,705,353 --
-------------------------------
307,255,314 505,465,379
Investment income:
Gross investment income 578,107 245,507
Less investment expenses (2,310) (773,443)
-------------------------------
575,797 (527,936)
Amortization of interest maintenance reserve 3,323 14,720
Commissions and expense allowances on
reinsurance ceded 1,140,402 --
Other income -- 8,446
-------------------------------
Total income 308,974,836 504,960,609
Benefits paid or provided:
Annuity benefits 18,263,492 9,591,886
Surrender benefits 86,014,940 26,809,545
Increase (decrease) in insurance and annuity reserves 3,646,295 (59,390)
-------------------------------
107,924,727 36,342,041
Net transfers to separate accounts 178,965,551 434,471,301
Expenses:
Commissions 17,569,333 34,259,911
General insurance expenses 15,838,760 9,337,982
-------------------------------
33,408,093 43,597,893
-------------------------------
Total benefits and expenses 320,298,371 514,411,235
-------------------------------
Net loss from operations before federal income tax
benefit and net realized capital gains (11,323,535) (9,450,626)
Federal income tax benefit -- 16,083
Net realized capital gains 63,500 33,657
-------------------------------
Net loss $(11,260,035) $(9,400,886)
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
Balance at beginning of year $18,822,406 $12,204,962
Net loss (11,260,035) (9,400,886)
Change in net unrealized appreciation of investments (62,320) 47,856
Change in asset valuation reserve 92,811 (29,526)
Change in non-admitted assets (50,251) --
Issuance of redeemable preferred stock 50,000,000 --
Issuance of common stock -- 1,000,000
Contribution of capital by parent 8,750,000 15,000,000
-------------------------------
Net increase in capital and surplus 47,470,205 6,617,444
-------------------------------
Balance at end of year $66,292,611 $18,822,406
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
63
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations, net $308,461,038 $505,337,943
Policy loans (368,822) 202,132
Investment income, net of interest paid 465,559 (484,512)
Federal income tax benefit recovered -- 16,083
Benefits paid (104,913,778) (36,551,412)
Commissions and other operating expenses (33,764,277) (42,607,803)
Net transfers to separate accounts (189,565,987) (458,548,369)
Other 845,300 (274,409)
-------------------------------
Net cash used in operating activities (18,840,967) (32,910,347)
INVESTING ACTIVITIES
Proceeds from maturity and calling of bonds 321,110 552,100
Proceeds from sale of common stock 313,500 240,492
Cost of bonds acquired (857,274) (543,368)
Cost of common stock acquired (6,087) (260,576)
Investments held in escrow pursuant to an Exchange
Agreement, (net) (1,300,000) (1,375,000)
-------------------------------
Net cash used in investing activities (1,528,751) (1,386,352)
FINANCING ACTIVITIES
Issuance of common stock -- 1,000,000
Issuance of redeemable preferred stock 50,000,000 --
Contribution of capital by parent 8,750,000 15,000,000
Borrowed money (40,438,636) 33,600,000
-------------------------------
Net cash provided by financing activities 18,311,364 49,600,000
-------------------------------
Net (decrease) increase in cash and short-term
investments (2,058,354) 15,303,301
Cash and short-term investments at beginning
of year 19,307,672 4,004,371
-------------------------------
Cash and short-term investments at end of year $17,249,318 $19,307,672
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a
life insurance company in the District of Columbia and all states except New
York. Effective December 30, 1993, Golden American was redomesticated from
the State of Minnesota to the State of Delaware.
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
Directed Services, Inc. ("DSI"), an affiliate of Golden American, and certain
related assets and contributed them to BTV. The portion of the aggregate
consideration exchanged by Bankers Trust, allocable to Golden American, was
valued at $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated
value of insurance contracts in force and also included the acquisition of
net tangible assets of $.4 million. 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 is contingently supported by a $5 million note payable from
Golden American and a $6 million letter of credit from Bankers Trust. The
Golden American note is secured by a pledge of Golden American's right to
receive certain deferred sales loads. Bankers Trust has estimated that the
contingent liability due from Golden American amounted to $438,636 at
December 31, 1994 and 1993. During 1994 and 1993, Golden American deposited
with an escrow agent $1,300,000 and $1,375,000, respectively, pursuant to
certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly and
indirectly, all the issued and outstanding capital stock of Golden American,
to have at all times statutory capital and surplus of no less than the sum of
(i) $5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994 and 1993, BTV
contributed additional capital and paid-in
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. ORGANIZATION (CONTINUED)
surplus of $8,750,000 and $16,000,000, respectively, to Golden American,
including $1,000,000 in 1993 through the issuance of an additional 100,000
shares of common stock. In 1994, Golden American issued $50,000,000 of
preferred stock that was purchased by BTV for $50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements for the years ended December 31, 1994
and 1993 have been prepared on the basis of accounting practices and
procedures prescribed or permitted by the Department of Insurance of the
State of Delaware (the "Department") and the National Association of
Insurance Commissioners ("NAIC"). These practices differ in certain respects
from generally accepted accounting principles ("GAAP"). The more significant
accounting practices followed and, where indicated, their variation from
GAAP, are summarized as follows:
ADMITTED ASSETS
Assets in the accompanying balance sheets are stated at "admitted asset"
values. The term "admitted assets" means the assets are stated at values
required or permitted to be reported to the Department in accordance with the
rules and regulations of the Department and the NAIC.
ACQUISITION
The acquisition of Golden American by Bankers Trust had no effect on the
carrying value of the acquired assets and liabilities reported in the
accompanying statutory-basis financial statements. Under GAAP, the
acquisition of Golden American has been accounted for as a purchase by
Bankers Trust and, accordingly, the acquired assets and the liabilities
assumed were reported at their estimated fair values at the date of
acquisition. In addition, for GAAP purposes Golden American recorded an asset
for the cost assigned to insurance contracts in force, which represents the
value of the right to receive future profits from the life insurance and
annuity policies existing at the acquisition date. Such value is the
actuarially-determined present value of projected future profits from the
acquired contracts discounted at an interest rate of 15%. Cost assigned to
insurance contracts in force is being amortized over the estimated life of
the applicable insurance contracts in relation to estimated future gross
profits with interest at 8%.
66
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The admitted asset values of bonds and stocks have been determined on the
basis prescribed by the NAIC. Such admitted asset values represent
principally amortized cost for bonds (market value--1994: $2,658,448 and 1993:
$2,198,654) and market value for common stocks (cost--1994: $16,429 and 1993:
$260,342).
As prescribed by the NAIC, an Asset Valuation Reserve ("AVR") is required to
be maintained by insurance companies. The AVR is computed in accordance with
a prescribed formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate, and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus. As also prescribed by the NAIC, beginning in 1992, Golden
American adopted an Interest Maintenance Reserve ("IMR") that represents the
net accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity. Under GAAP, the AVR and IMR are not recorded.
Net realized capital gains and losses on investments are included in the
determination of net income using the specific identification method. Through
the use of the IMR such net realized gains and losses may be deferred, net of
applicable capital gains taxes, and amortized into investment income over the
life of the investments sold.
Unrealized gains and losses on stocks are recognized directly in unassigned
surplus. Short-term investments are carried at cost, which, when combined
with accrued interest income, approximates fair value.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden
American provides for variable accumulation and benefits under the policies
and contracts by crediting life and annuity considerations in accordance with
contractholder direction to one or more divisions within various separate
accounts or Golden American's guaranteed interest division. Allocation of
premiums to the guaranteed interest division was discontinued in 1991.
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums and annuity considerations are recorded as received and are
presented net of reinsurance premiums of $16.1 million and $.7 million in
1994 and 1993, respectively. Under GAAP, revenues from variable life and
annuity products consist of policy charges for mortality and expense risk,
the cost of insurance and policy administration costs that have been assessed
against policy account balances during the period.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent policy account balances invested in
the guaranteed interest division less the related unamortized portion of the
deferred sales load and other policy charges. Such reserves include
provisions for minimum death benefit guarantees.
Surrender values are not promised in excess of the legally computed reserves.
There was no insurance in-force at December 31, 1994 for which the gross
premiums were less than net premiums.
POLICY BENEFITS
Policy benefits paid or provided include benefit claims incurred in the
period and are net of reinsurance of $2.4 million and $.4 million in 1994 and
1993, respectively. Interest credited rates for the guaranteed interest
division ranged from 4.0% to 5.0% during 1994 and 1993. Under GAAP, policy
benefits that are charged to expense include benefits incurred in the period
in excess of the policy account balances and interest credited to policy
account balances invested in the guaranteed interest division.
ACQUISITION COSTS
Commissions and other costs incurred in acquiring new business are charged to
operations as incurred. Under GAAP, these costs are deferred and are
amortized over the lives of the policies in relation to the present value of
estimated gross profits from policy sales load and investment returns, and
mortality and expense margins.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
The separate accounts are registered investment companies under the
provisions of the Investment Company Act of 1940. At the direction of the
policyowners and contractholders, the separate accounts invest the premium
and annuity considerations from the sale of variable life and annuity
products in either shares of specified mutual funds or directly in other
investment securities. The assets and liabilities of Golden American's
separate accounts are identified and segregated from other assets and
liabilities of Golden American. The portion of the separate account assets
applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
Separate account assets are carried at the net asset value of the underlying
mutual funds, which approximates market value, and generally represent
contractholder and policyowner funds maintained in the accounts and
unamortized deferred sales loads and other charges payable to Golden American
over a specified period. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are not included
in the accompanying statements of operations of Golden American.
A sales load ranging from 0% to 9% in addition to other charges is applicable
to each premium payment for policy related expenses. Although this sales load
is assessed on each premium when it is received by Golden American, such
sales load is initially advanced by Golden American to contractholders and
policyowners and included in the separate or general account assets, as
applicable, and then deducted in equal installments on each contract
processing date over a period specified in the contract or policy. Sales
loads are included in operations when assessed by Golden American. Under
GAAP, these sales loads are earned over the life of the contract in relation
to estimated future gross profits. Sales load amounts that have been deducted
but not yet earned are reported as unearned income.
REINSURANCE
Premiums and policy benefits are reported in the accompanying financial
statements net of reinsurance ceded. Golden American would remain liable to
the extent that any reinsurers do not meet their obligations under the
reinsurance agreements. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts" which was issued
in December 1992, was adopted by Golden American in 1993. However, its
adoption did not have a material impact on the financial statements of Golden
American.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Federal income tax benefits are based on net losses from operations after
adjusting for certain income and expense items, principally differences
between statutory and tax reserves, accrual of bond discount, and specified
policy acquisition expenses that, in accordance with the provisions of the
Internal Revenue Code ("IRC"), are not included in the determination of
current taxable income.
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the IRC. At December 31, 1994
and 1993, Golden American had net operating loss ("NOL") carryforwards for
federal income tax purposes of approximately $17.3 million and $7.3 million,
respectively. Approximately $2.4 million of these NOL's, relating to
operations prior to ownership by Mutual Benefit, can be used to offset future
taxable income of Golden American only through the year 2005, subject to
annual limitations. Approximately $.8 million, $4.1 million and $10.0 million
are available through the years 2007, 2008, and 2009, respectively.
STATEMENTS OF CASH FLOW
For purposes of Golden American's statements of cash flow, all highly liquid
investments with a maturity of one year or less are considered to be
short-term investments.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount
promissory note, and policy and contract liabilities and determined that
carrying amounts reported in the balance sheets approximate fair value.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000,000 under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. Golden American met the RBC requirements as of December 31,
1994 and 1993.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock in 1994. As of December 31, 1994, Dividends in Arrears on
the Redeemable Preferred Stock were $17,917 or $1.79 per share. The
dividends are cumulative and are calculated based on a rate not to exceed the
sum of the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable
at the option of Golden American at the redemption price of $5,000 per share.
Dividend payments to common stockholders are limited by statutory
restrictions issued by the State of Delaware. The maximum amount of
dividends which can be paid by State of Delaware insurance companies to
stockholders without prior approval of the Insurance Commissioner is the
higher of either (a) prior year net income or (b) 10% of ending prior year
surplus. Statutory surplus at December 31, 1994, was $13,792,611. The net
loss for 1994 was $(11,260,035). The maximum dividend payout which may be
made without prior approval in 1995 is $1,379,261. No dividends were paid in
1994.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS (CONTINUED)
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1994 and 1993 and net loss for the years ended December 31, 1994
and 1993 to its statutory-basis capital and surplus and net loss included in
the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME/(LOSS)
--------------------------- -------------------------
1994 1993 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C>
GAAP-basis $ 89,506,318 $ 28,596,888 $ 2,221,748 $ (1,792,700)
Asset valuation reserve/interest
maintenance reserve (41,598) (131,060) 3,323 14,720
Fixed maturities from acquisition (75,609) (96,528) 14,248 4,300
Deferred policy acquisition costs (60,662,000) (42,151,111) (18,510,889) (35,101,494)
Cost assigned to insurance contracts in
force (7,620,000) (9,784,189) 2,164,189 1,356,597
Deferred sales loads and policy charges 49,223,050 42,223,470 6,999,580 26,695,281
Reserves (4,985,212) -- (5,016,676) 563,905
Unearned revenue 1,759,000 164,936 1,594,064 (1,141,495)
Other (811,338) -- (729,622) --
------------ ------------ ------------ ------------
Statutory-basis $ 66,292,611 $ 18,822,406 $(11,260,035) $ (9,400,886)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
5. INVESTMENTS
Investments in debt securities and other fixed maturity investments generally
are held for investment purposes to maturity. Included in short-term
investments at December 31, 1994 and 1993 are $13.9 million and $15.2 million
of debt securities, respectively, issued by the U.S. Government.
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1994:
U.S. Treasury bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
Total bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
-----------------------------------------------
At December 31, 1993:
U.S. Treasury $2,032,905 $68,669 $(4,191) $2,097,383
Corporate securities 94,131 7,140 -- 101,271
-----------------------------------------------
Total bonds $2,127,036 $75,809 $(4,191) $2,198,654
-----------------------------------------------
-----------------------------------------------
</TABLE>
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
5. INVESTMENTS (CONTINUED)
Fair values generally represent quoted market value prices for securities
traded in the public marketplace.
Maturities of long-term bonds are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
-----------------------------
<S> <C> <C>
Due in one year or less $701,048 $688,136
Due after one year through five years 849,927 827,009
Due after five years through ten years 1,122,248 1,143,303
$2,673,223 $2,658,448
-----------------------------
-----------------------------
</TABLE>
Proceeds from the sale of investments in bonds during 1994 and 1993 were
$321,110 and $552,100; gross gains of $6,672 and $24,919 were realized on
those sales, respectively.
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities was $(820) and $61,500, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year ended December 31, 1993, Golden
American incurred $311,121 for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
were sold primarily through two broker/dealer institutions. For 1994 and
1993, commissions paid by Golden American to DSI aggregated $17,569,333 and
$34,259,911, respectively.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Golden American provided to DSI certain of its personnel to perform
management, administrative, and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,486
and $2,012,969, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
ended December 31, 1993, fees earned by BTV from Golden American for these
services aggregated $2,700,850. The agreement was terminated as of
January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative, and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
ended December 31, 1993, BTV allocated to Golden American $1,503,159. The
agreement was terminated on January 1, 1994.
At December 31, 1994 and 1993, Golden American's cash and short-term
investments on deposit at Bankers Trust were $10,063,172 and $19,307,672,
respectively.
7. REINSURANCE
Variable life and annuity product fees are reported in the accompanying
financial statements net of reinsurance premiums of $16.1 million and
$.7 million in 1994 and 1993, respectively. Effective September 30, 1992,
Golden American terminated all reinsurance agreements with Mutual Benefit.
Concurrently, Golden American entered into agreements covering mortality
risks under both life policies and annuity contracts with an unaffiliated
reinsurer. Also, effective June 1, 1994, Golden American entered into a
reinsurance agreement on a modified coinsurance basis with an unaffiliated
reinsurer. Golden American remains liable to the extent that its reinsurers
do not meet their obligations under the reinsurance agreements. Reinsurance
in-force for life mortality risks were $23.3 million and $15.4 million at
December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
7. REINSURANCE (CONTINUED)
1993, respectively. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts," was issued in
December 1992 and adopted by Golden American in 1993. However, its adoption
did not have a material impact on the financial statements of Golden American.
8. LIFE AND ANNUITIES ACTUARIAL RESERVES
The following is a reconciliation of the Life and Annuities actuarial
reserves presented in the 1994 Annual Statements of Golden American and
Golden American Separate Accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT TOTAL
--------------------------------
<S> <C> <C>
1. Subject to discretionary withdrawal
1.1 - with market value adjustment $ -- 0%
----------- -----
1.2 - at book value less current surrender charge of 5%
or more -- 0%
----------- -----
1.3 - at market value -- 0%
----------- -----
1.4 - Total with adjustment or at market value 893,814,295 100%
----------- -----
1.5 - at book value without adjustment (minimal or no
charge or adjustment) 520,244 0%
----------- -----
2. Not subject to discretionary withdrawal -- 0%
----------- -----
3. Total (gross) 894,334,539 100%
----------- -----
4. Reinsurance ceded --
-----------
5. Total (net)* (3) - (4) $894,334,539
-----------
-----------
<FN>
*Reconciliation of total annuity actuarial reserves and deposit fund
liabilities.
</TABLE>
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
8. LIFE AND ANNUITIES ACTUARIAL RESERVES (CONTINUED)
<TABLE>
<S> <C>
Life and Accident and Health Annual Statement:
6. Exhibit 8, Section B, Total (net) $ 520,244
------------
7. Exhibit 8, Section C, Total (net) --
------------
8. Exhibit 10, Column 1, Line 12 --
------------
9. Subtotal 520,244
------------
Separate Accounts Statement:
10. Exhibit 6, Column 2, Line B.10 893,814,295
------------
11. Exhibit 6, Column 2, Line C.5 --
------------
12. Page 3, Line 3 --
------------
13. Page 3, Line 3 --
------------
14. Subtotal 893,814,295
------------
15. Combined total $894,334,539
------------
------------
</TABLE>
9. BORROWED MONEY
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
10. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
Golden American's employees are covered under the Parent's benefit plans.
The noncontributory pension plan and the profit sharing plan of the Parent
are also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were approximately $207,000.
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
11. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. BTV, an indirect subsidiary of Bankers Trust, is
the corporate parent of the Company and DSI. The acquisition is subject to
the approval of the appropriate regulators. First Colony is the corporate
parent of two insurance companies, First Colony Life Insurance Company and
American Mayflower Life Insurance Company, which together provide life
insurance and annuity products throughout the United States. The agreement
was amended to extend to June 15, 1995, the date at which either party may
terminate the agreement if the closing has not occurred by such time.
77
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying balance sheets of Golden American Life
Insurance Company (the Company) as of December 31, 1994 and 1993 and the
related statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1994 and 1993 and for the period from
September 30, 1992 (date of acquisition) to December 31, 1992. These financial
statements are the responsibility of the Company's 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 financial position of Golden American Life Insurance
Company at December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years ended December 31, 1994 and 1993 and for the period
from September 30, 1992 to December 31, 1992, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted, as of
December 31, 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
February 14, 1995
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
---------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost
(market--$2,659 and $2,199) $ 2,749 $ 2,224
Short-term investments, at cost, which approximates market 13,933 15,232
Equity securities, at market (cost--$17 and $260) 16 322
Policy loans 513 144
-------------------------
Total investments 17,211 17,922
Cash 3,316 4,076
Accrued investment income 92 68
Due from affiliates and separate accounts 963 466
Deferred policy acquisition costs 60,662 42,151
Unamortized cost assigned to insurance contracts in force 7,620 9,784
Funds held in escrow pursuant to an Exchange Agreement 2,757 1,375
Due from reinsurers 1,713 162
Other assets 134 --
Separate account assets 950,292 810,151
-------------------------
Total assets $1,044,760 $886,155
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves (including $17 and $31
of unamortized deferred sales load) $ 1,051 $ 2,421
Due to affiliates and separate accounts 660 3,462
Accrued expenses and other liabilities 1,053 920
Short-term debt -- 40,000
Unearned revenue 1,759 165
Adjustable principal amount promissory note,
7.50%, due 1997 439 439
Separate account liabilities (including
$48,924 and $42,192 of unamortized
deferred sales load) 950,292 810,151
-------------------------
Total liabilities 955,254 857,558
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share, authorized,
issued, and outstanding 250,000 shares 2,500 2,500
Redeemable preferred stock, par value $5,000
per share, 50,000 shares authorized,
10,000 issued and outstanding in 1994 50,000 --
Additional paid-in capital 37,086 28,336
Unrealized (depreciation) appreciation of equity
securities (1) 62
Retained earnings (deficit) (79) (2,301)
-------------------------
Total stockholder's equity 89,506 28,597
-------------------------
Total liabilities and stockholder's equity $1,044,760 $886,155
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
79
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
REVENUES
Variable life and annuity product fees and policy
charges $ 17,519 $10,192 $ 694
Net investment income 560 216 67
Realized capital gain (loss) 65 35 (2)
-----------------------------------------------------
Total revenues 18,144 10,443 759
EXPENSES
Policy benefits 35 1,747 34
Commissions and overrides 16,741 34,260 6,429
Salaries, benefits and other employee-
related costs 5,866 -- --
Financing charges and interest 1,962 726 53
Other general, administrative, and
operating expenses 7,665 9,248 1,662
Deferral of policy acquisition costs (23,119) (37,129) (7,059)
Amortization of deferred policy acquisition
costs 4,608 2,027 10
Amortization of cost assigned to insurance
contracts in force 2,164 1,357 138
-----------------------------------------------------
Total expenses 15,922 12,236 1,267
-----------------------------------------------------
Net income (loss) $ 2,222 $ (1,793) $ (508)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD SEPTEMBER 30, 1992 TO DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
UNREALIZED
SHARES SHARES ADDITIONAL APPRECIATION RETAINED TOTAL
COMMON PREFERRED COMMON PREFERRED PAID-IN OF EQUITY EARNINGS STOCKHOLDER'S
STOCK STOCK STOCK STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1992 (date of
acquisition) 150,000 $1,500 $13,336 $14,836
Net loss $ (508) (508)
Unrealized appreciation of equity securities $ 14 14
------------------------------------------------------------------------------------
Balances at December 31, 1992 150,000 1,500 13,316 14 (508) 14,342
Issuance of common stock 100,000 1,000 1,000
Contribution of capital 15,000 15,000
Net loss (1,793) (1,793)
Change in unrealized appreciation of
equity securities 48 -- 48
------------------------------------------------------------------------------------
Balances at December 31, 1993 250,000 2,500 -- 28,336 62 (2,301) 28,597
Issuance of preferred stock 10,000 50,000 50,000
Contribution of capital 8,750 8,750
Net income 2,222 2,222
Change in unrealized depreciation of equity
securities (63) (63)
------------------------------------------------------------------------------------
Balances at December 31, 1994 250,000 10,000 $2,500 $50,000 $37,086 $(1) $ 79 $89,506
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,222 $ (1,793) $(508)
Adjustments to reconcile net income (loss)
to net cash used in
operating activities:
Amortization of deferred policy
acquisition costs 4,608 2,027 10
Amortization of cost assigned
to insurance contracts in force 2,164 1,357 138
Change in unearned revenue 1,594 (1,141) (136)
Increase in accrued investment income (24) (1) (13)
Change in due to/from affiliates and
separate accounts (3,299) 2,976 (81)
Changes in other assets, accrued expenses
and other liabilities (1,552) 42 (154)
Policy acquisition costs deferred (23,119) (37,129) (7,059)
Change in insurance and annuity reserves (1,370) 550 45
Amortization of premium on fixed maturity
investments 13 -- --
-----------------------------------------------------
Net cash used in operating activities (18,763) (33,112) (7,758)
INVESTING ACTIVITIES
Purchases of fixed maturities (857) (543) (151)
Sales of fixed maturities 319 552 1,177
Purchases of common stock (7) (260) (2)
Sales of common stock 250 240 --
(Increase) decrease in policy loans (369) 202 (29)
Funds held in escrow pursuant to
an Exchange Agreement (1,382) (1,375) --
-----------------------------------------------------
Net cash (used in) provided by
investing activities (2,046) (1,184) 995
FINANCING ACTIVITIES
(Retirement) issuances of short-term debt (40,000) 33,600 6,400
Issuance of common stock -- 1,000 --
Issuance of preferred stock 50,000 -- --
Contribution of capital by parent 8,750 15,000 --
-----------------------------------------------------
Net cash provided by financing activities 18,750 49,600 6,400
-----------------------------------------------------
Net (decrease) increase in cash and
short-term investments (2,059) 15,304 (363)
Cash and short-term investments at
beginning of year 19,308 4,004 4,367
-----------------------------------------------------
Cash and short-term investments at
end of year $17,249 $19,308 $4,004
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance Company
in Rehabilitation ("Mutual Benefit"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at
approximately $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of insurance contracts in force and also included the acquisition of net
tangible assets of $.4 million. 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
is contingently supported by a $5 million note payable from Golden American and
a $6 million letter of credit from Bankers Trust. The Golden American note is
secured by a pledge of Golden American's right to receive certain deferred sales
loads. Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993. Golden American
deposited with an escrow agent $1,300,000 and $1,375,000, in 1994 and 1993,
respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994, 1993, and 1992, BTV
contributed additional capital and paid-in surplus of $8,750,000, $16,000,000,
and $3,200,000, respectively, to Golden American, including $1,000,000 in 1993
through the issuance of an additional 100,000 shares of common stock. In 1994,
Golden American issued $50,000,000 of preferred stock that was purchased by BTV
for $50,000,000 in cash.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been presented in accordance with
generally accepted accounting principles ("GAAP"). The acquisition of Golden
American has been accounted for as a purchase by Bankers Trust and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair values
at September 30, 1992. In accordance with requirements of the Securities and
Exchange Commission, this new basis of accounting has been "pushed down" to
Golden American.
INVESTMENTS
Fixed maturities are carried at amortized cost. Short-term investments are
carried at cost, which approximates market. Equity securities, principally
investments in mutual funds, are carried at market based on quoted market
prices. Net unrealized appreciation of equity securities is included as a
component of stockholder's equity. The cost of investments sold is determined by
using the specific identification method.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible premium
variable life insurance policies and annuity products. Golden American provides
for variable accumulation and benefits under the policies and contracts by
crediting life and annuity considerations in accordance with contractholder
direction to one or more divisions within various separate accounts or Golden
American's guaranteed interest division. Allocation of premiums to the
guaranteed interest division was discontinued in 1991.
SEPARATE ACCOUNTS
The separate accounts are registered under the provisions of the Investment
Company Act of 1940. At the direction of the policyowners and contractholders,
the separate accounts invest the premium and annuity considerations from the
sale of variable life and annuity products either in shares of specified mutual
funds or directly in other investments. The assets and liabilities of Golden
American's separate accounts are clearly identified and segregated from other
assets and liabilities of Golden American. The portion of the separate account
assets applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS (CONTINUED)
Separate account assets are carried at net asset value, which approximates
market value and generally represent policyowner and contractholder investment
values maintained in the accounts and unamortized deferred sales loads and other
charges payable to Golden American over a specified period. Separate account
liabilities represent account balances for the variable life policies and
annuity contracts invested in the separate accounts, which include unamortized
deferred sales loads. 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 of Golden American.
REVENUE RECOGNITION
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, the cost of insurance and contract administration
charges that have been assessed against account balances during the period. In
addition, a sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for contract related expenses. Although such
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the general or separate account assets, as
applicable, and then deducted or amortized in equal installments on each
contract processing date over a period specified in the contract or policy.
These sales loads are earned over the life of the insurance contract in relation
to estimated future gross profits using methods and assumptions similar to those
for cost assigned to insurance contracts in force. Sales loads that have been
deducted but not yet earned are reported as unearned revenue.
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE
The cost assigned to insurance contracts in force represents the value of the
right to receive future profits from the life insurance and annuity policies
existing at the acquisition date. Such value is the actuarially-determined
present value of projected future profits from the acquired contracts discounted
at an interest rate of 15%. Cost assigned to insurance contracts in force is
being amortized over the estimated life of the applicable insurance contracts in
relation to estimated future gross profits with interest at 8%.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE (CONTINUED)
The following is a reconciliation of the costs assigned to insurance contracts
in force for the years ended December 31, 1994, 1993, and the period September
30, 1992 to December 31, 1992:
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 9,784,000 $11,140,000 $11,278,000
Interest accrued 696,000 942,000 244,000
Amortization (2,860,000) (2,298,000) (382,000)
-------------------------------------------------------
Ending balance $ 7,620,000 $ 9,784,000 $11,140,000
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The following table presents the expected amortization of the cost assigned to
insurance contracts in force over the next five years. The amortization may be
adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<S> <C>
1995 $1,481,000
1996 1,232,000
1997 1,156,000
1998 936,000
1999 580,000
</TABLE>
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and are
directly related to the production of new and renewal business. Acquisition
costs for variable life and annuity products are being amortized over the lives
of the policies in relation to the present value of estimated future gross
profits. The future gross profit estimates are subject to periodic evaluation
with necessary revisions applied against amortization to date.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent variable life and annuity account
balances invested in the guaranteed interest division. Interest credited rates
for this division ranged from 4.0% to 5.0% during 1994 and 1993.
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY BENEFITS
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited to
policy account balances invested in the guaranteed interest division.
REINSURANCE
Included in the accompanying financial statements are net considerations to
reinsurers of $2.4 million and $.7 million in 1994 and 1993, respectively.
Effective September 30, 1992, Golden American terminated all reinsurance
agreements with Mutual Benefit. Concurrently, Golden American entered into
agreements covering mortality risks under both life policies and annuity
contracts with an unaffiliated reinsurer. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance in-force for life mortality risks were $23.6 million and
$15.4 million at December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and 1993, respectively.
FASB Statement No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts," was adopted by Golden American in 1993.
However, its adoption did not have a material impact on the financial statements
of Golden American.
Also effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects of the treaty
which reduced 1994 net income by $27,000.
CASH EQUIVALENTS
The Company considers all short-term investments (including commercial paper,
money markets, and certificates of deposit) with a maturity of three months or
less when purchased to be cash equivalents.
PRESENTATION
Certain prior-year balances have been reclassifed to conform to the current-year
financial statement presentation.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally short-term
investments, policy loans, the adjustable principal amount promissory note, and
insurance and annuity reserves and determined that carrying amounts reported in
the balance sheets approximate fair value.
4. INVESTMENTS
Effective with the December 31, 1993 financial statements, Golden American
adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its fixed maturities as held to maturity
based on its intent and ability to hold them to maturity. The adoption of FASB
Statement No. 115 had no impact on Golden American's financial statements. The
major categories of investment income for 1994, 1993, and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities held to maturity $142 $114 $47
Short-term investments 226 90 14
Equity securities 1 1 2
Policy loans 11 11 4
Cash 99 -- --
Funds held in escrow 83 -- --
-----------------------
Gross investment income 562 216 67
Investment expenses (2)
-----------------------
Net investment income $560 $216 $67
-----------------------
-----------------------
</TABLE>
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
--------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1994:
U.S. Treasury securities $16,682 $(90) $16,592
--------------------------------------
--------------------------------------
At December 31, 1993:
U.S. Treasury securities $17,357 $(27) $17,330
Corporate securities 99 2 101
--------------------------------------
$17,456 $(25) $17,431
--------------------------------------
--------------------------------------
</TABLE>
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $14,634 $14,622 $15,454 $15,452
Due after one year through five years 850 827 793 791
Due after five years through ten years 1,198 1,143 1,209 1,188
---------------------------------------------------
$16,682 $16,592 $17,456 $17,431
---------------------------------------------------
---------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities recognized directly in stockholder's equity
was $(1,000) and $62,000, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
5. STOCKHOLDER'S EQUITY
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain of the jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total statutory-
basis capital and surplus of not less than $5,000,000 under the provisions of
the insurance laws of certain states in which it is presently licensed to sell
variable life and annuity products. Dividend payments by Golden American are
limited by statutory restrictions to the higher of 10% of surplus or 100% of the
prior year s net gain, not to exceed unassigned surplus, subject to the broad
discretionary powers of insurance regulatory authorities to further limit
dividend payments of insurance companies.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1994 and 1993, Golden American met the RBC
requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock. As of December 31, 1994, Dividends in Arrears on the
Redeemable Preferred Stock were $17,917 or $1.79 per share. The dividends
are cumulative and are calculated based on a rate not to exceed the sum of
the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable at the
option of Golden American at the redemption price of $5,000 per share.
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
1993 and the period from September 30, 1992 to December 31, 1992, fees earned
by BTV from Golden American for these services aggregated $2,701,000 and
$209,000, respectively. The agreement was terminated as of January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
1993 and the period from September 30, 1992 to December 31, 1992, BTV
allocated to Golden American $1,503,000 and $450,000, respectively. The
agreement was terminated on January 1, 1994.
Golden American's cash is on deposit at Bankers Trust.
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code (the
"Code"). At December 31, 1994 and 1993, Golden American had net operating
loss ("NOL") carryforwards for federal income tax purposes of approximately
$17.3 million and $7.3 million, respectively. Approximately $2.4 million of
these NOL s, relating to operations prior to ownership by Mutual Benefit, can
be used to offset future taxable income of Golden American only through the
year 2005, subject to annual limitations. Approximately $.8 million, $4.1
million and $10.0 million are available through the years 2007, 2008, and
2009, respectively.
Significant components of Golden American s deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $21,200 $14,800
Unamortized cost assigned to insurance
contracts in force 2,700 3,400
-------------------
23,900 18,200
Deferred tax assets:
Net operating loss carryforwards 6,000 2,400
Insurance liabilities 15,200 14,800
Deferred policy acquisition costs
proxy tax 3,700 2,900
Other 700 --
-------------------
25,600 20,100
Valuation allowance for deferred tax assets 1,700 1,900
-------------------
Net deferred tax liabilities $ $
-------------------
-------------------
</TABLE>
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The differences between the provision (benefit) for income taxes at the
federal statutory income tax rate and the taxes based on income (loss) were
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 34%
-------------------------
-------------------------
Taxes at statutory rate $ 778 $(627) $(173)
Dividends received deduction (368) (194) --
Other, net (210) (379) (92)
Valuation allowance (200) 1,200 265
-------------------------
Taxes based on income (loss) $ -- $ -- $ --
-------------------------
-------------------------
</TABLE>
8. SHORT-TERM DEBT
At December 31, 1993, Golden American had short-term debt outstanding with an
unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
9. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
The Company s employees are covered under the Parent s benefit plans. The
noncontributory pension plan and the profit sharing plan of the Parent are
also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were $.2 million.
10. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. The acquisition is subject to the approval of the
appropriate regulators. First Colony is the corporate parent of two insurance
companies, First Colony Life Insurance Company and American Mayflower Life
Insurance Company, which together provide life insurance and annuity products
throughout the United States. The agreement was amended to extend to June
15, 1995, the date at which either party may terminate the agreement if the
closing has not occurred by such time.
92
<PAGE>
-----------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
INTRODUCTION......................................................................................................... 1
PART I
Description of Golden American Life Insurance Company................................................................ 1
Safekeeping of Assets................................................................................................ 1
The Administrator.................................................................................................... 1
Independent Auditors................................................................................................. 2
Reinsurance.......................................................................................................... 2
Distribution of Contracts............................................................................................ 2
Performance Information.............................................................................................. 2
IRA Partial Withdrawal Option........................................................................................ 6
Other Information.................................................................................................... 7
PART II
Securities and Investment Techniques................................................................................. 7
U.S. Government Securities......................................................................................... 7
Debt Securities.................................................................................................... 7
Short Sales Against the Box........................................................................................ 8
Futures Contracts and Options on Futures Contracts................................................................. 8
Options on Securities.............................................................................................. 9
Options of Securities Indexes...................................................................................... 10
Foreign Currency Transactions...................................................................................... 10
Options on Foreign Currencies...................................................................................... 12
Repurchase Agreements.............................................................................................. 12
Banking Industry and Savings Industry Obligations.................................................................. 12
Commercial Paper................................................................................................... 13
When Issued or Delayed Delivery Securities......................................................................... 14
Investment Restrictions.............................................................................................. 14
Management of Separate Account D..................................................................................... 15
The Manager.......................................................................................................... 17
Portfolio Manager.................................................................................................... 18
Custodian and Portfolio Accounting Agent............................................................................. 18
Portfolio Transactions and Brokerage................................................................................. 18
Purchase and Pricing of the Global Account........................................................................... 20
Financial Statements of Separate Account B........................................................................... 21
Financial Statements of The Managed Global Account of Separate Account D............................................. 21
Appendix -- Description of Bond Ratings
</TABLE>
93
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS (CONTRACT
FORMS WC-GAL-DVA-11/88 AND WC-GAL-GDA-9/88). ADDRESS THE FORM TO OUR CUSTOMER
SERVICE CENTER, THE ADDRESS IS SHOWN ON THE COVER.
...............................................................................
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B AND THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.
PLEASE PRINT OR TYPE
- -----------------------------------
NAME
- -----------------------------------
SOCIAL SECURITY NUMBER
- -----------------------------------
STREET ADDRESS
- -----------------------------------
CITY, STATE, ZIP
(IN 3106 DVA/MVA 3/95)
...............................................................................
94
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $100,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.00%; that a full surrender is
requested two years into the Guarantee Period; that the then Guaranteed Interest
Rate for an eight year Guarantee Period ("J") is 8.0%; and that no prior
transfers or partial withdrawals affecting this Fixed Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The accumulation value of the Fixed Allocation on the date of surrender
is $114,490
($100,000 X 1.07(2))
2. N = 2,920 (365 X 8)
3. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
------------------------------------------------
1.0825 -1
= $10,159
Therefore, the amount paid to you on full surrender is $104,331 ($114,490 -
$10,159).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $100,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.0%; that a full surrender is
requested two years into the Guarantee Period; that the then Guaranteed Interest
Rate for an eight year Guarantee Period ("J") is 6.0%; and that no prior
transfers or partial withdrawals affecting this Fixed Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The accumulation value of the Fixed Allocation on the date of surrender
is $114,490
($100,000 X 1.07(2))
2. N = 2,920 (365 X 8)
3. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
------------------------------------------------
1.0625 -1
= $6,627
Therefore, the amount paid to you on full surrender is $121,117 ($114,490 +
$6,627).
A1
<PAGE>
EXAMPLE #3: PARTIAL WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $200,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.0%; that a partial withdrawal
of $104,331 is requested two years into the Guarantee period; that the then
Guaranteed Interest Rate ("J") for an eight year Guarantee Period is 8.0%; and
that no prior transfers or partial withdrawals affecting this Fixed Allocation
have been made.
First calculate the amount that must be withdrawn from the Fixed Allocation to
provide the amount requested.
1. The accumulation value in the Fixed Allocation on the date of withdrawal
is $228,980
($200,000 X 1.07(2))
2. N = 2,920 (365 X 8)
3. Amount that must be withdrawn = $114,490 [$104,331/(1.07 )2,920/365]
---------------------------------------------------------
1.0825
= $114,490 ($104,331 / .911270)
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
------------------------------------------------
1.0825 -1
= $ 10,159
Therefore, the amount of the partial withdrawal paid to you is $104,331, as
requested. The Fixed Allocation will be reduced by the amount of the partial
withdrawal, $104,331, and also reduced by the Market Value Adjustment of
$10,159, for a total reduction in the Fixed Allocation of $114,490.
EXAMPLE #4: PARTIAL WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $200,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.0%; that a partial withdrawal
of $121,117 requested two years into the Guarantee Period; that the then
Guaranteed Interest Rate ("J") for an eight year Guarantee Period is 6.0%; and
that no prior transfers or partial withdrawals affecting this Fixed Allocation
have been made.
First calculate the amount that must be withdrawn from the Fixed Allocation to
provide the amount requested.
1. The accumulation value of Fixed Allocation on the date of surrender is
$228,980
($200,000 X 1.07(2))
2. N = 2,920 (365 X 8)
3. Amount that must be withdrawn = $114,490 [$121,117/(1.07 )2,920/365]
---------------------------------------------------------
1.0625
= $114,490 ($121,117 / 1.057886)
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
------------------------------------------------
1.0625 -1
= $6,627
Therefore, the amount of the partial withdrawal paid to you is $121,117, as
requested. The Fixed Allocation will be reduced by the amount of the partial
withdrawal, $121,117, but increased by the Market Value Adjustment of $6,627,
for a total reduction in the Fixed Allocation of $114,490.
A2
<PAGE>
APPENDIX B
GOLDENSELECT SERVICE FORMS
- - Deferred Variable Annuity Application -- Use in all states except MN
- - Contact the Sales Desk for the Special Form to be used in MN
Golden Select DVA is currently Not Available in ME and NY; consult your
financial adviser to determine if the Fixed Account is available in your
state.)
- - Absolute Assignment to Effect Section 1035(a) Exchange
- - Request to Effect IRA Or Other Qualified Account Transfer
- - Certificate of Deposit Transfer Form
Submit all forms (with all other necessary documents) to the Customer Service
Center
WITHHOLDING ELECTION INSTRUCTIONS (BEFORE THE WITHHOLDING ELECTION SECTION ON
THE APPLICATION IS COMPLETED, PLEASE HAVE THE OWNER READ THE FOLLOWING
CAREFULLY)
Your withdrawals under annuity contracts may be subject to Federal income tax
withholding unless you elect not to have withholding apply. You may elect not to
have withholding apply by checking the box by line A and signing in the
signature section. Check the box by line B to make an election to have
withholding apply. If you want additional withholding made, check the box by
line C.
Withholding will only apply to the portion of your withdrawal that is subject to
Federal income tax and it will be like wage withholding. Thus, there will be no
withholding on the portion of each payment representing a return of your
premium. You may change your withholding as often as you wish by sending in IRS
Form W-4P to Golden American. Your election will remain in effect until you
revoke it. You may revoke it at any time.
If you elect not to have withholding apply to your withdrawals, or if you do not
have enough Federal income tax withheld from your withdrawal payments, you may
be responsible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
By signing the application and completing the withholding election, you certify
that no bankruptcy proceeding, attachment or other lien or claims are pending
against you.
B1
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK
COMPANY DOMICILED IN WILMINGTON, DELAWARE APPLICATION
<TABLE>
<S> <C> <C>
1. OWNER(S)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth
( )
2. ANNUITANT (IF OTHER THAN OWNER)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth Relation
( ) to Owner
CONTINGENT ANNUITANT (OPTIONAL)
Name Address Relation
to Owner
3. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Name(s) Relation
to Owner
CONTINGENT BENEFICIARY(IES) Name Relation
to Owner
4. PLAN (CHECK ONE)
/ / DVA / / Other _______________________
5. DEATH BENEFIT (CHECK ONE IF ISSUE AGE OF OWNER IS LESS THAN 76):
/ / Enhanced #1 ("7%") / / Enhanced #2 ("Annual Ratchet") / / Basic ("Return of Premium")
6. INITIAL PREMIUM AND ALLOCATION INFORMATION
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE
INSURANCE COMPANY
Fill in percentages for Premium allocation below (see (A) INITIAL.)
(B) DOLLAR COST AVERAGING (DCA): OPTIONAL. PLEASE CHECK BOX TO ELECT. / /
Amount to be transferred monthly $_________________ (minimum $250)
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division
/ / Liquid Asset Division
/ / 1 Yr. Fixed Allocation
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION OR FIXED ALLOCATION CHECKED)
Divisions Transferred To: Fill in percentages for allocation of DCA below (see (B)
DCA).
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
<S> <C> <C> <C>
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
EMERGING MARKETS BANKERS TRUST COMPANY % %
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
LIQUID ASSET BANKERS TRUST COMPANY %
FIXED ALLOCATION ELECTION 1 YEAR %
FIXED ALLOCATION ELECTION 3 YEAR %
FIXED ALLOCATION ELECTION 6 YEAR %
FIXED ALLOCATION ELECTION 8 YEAR %
FIXED ALLOCATION ELECTION 10 YEAR %
TOTAL 100% 100%
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794, Wilmington, DE 19899-8794
B2
GA-AA-1000-12/94
<PAGE>
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
If you want to receive Systematic Partial Withdrawals, your request must be
received in writing. For the appropriate form, please call our Customer Service
Center: 1-800-366-0066.
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ OWNER'S INITIALS
I authorize Golden American to act upon reallocation instructions given
by telephone from __________________________(name of your registered
representative) upon furnishing his/her social security number. Neither
Golden American nor any person authorized by Golden American will be
responsible for any claim, loss, liability or expense in connection with
reallocation instructions received by telephone from such person if Golden
American or such other person acted on such telephone instructions in good
faith in reliance upon this authorization. Golden American will continue
to act upon this authorization until such time as the person indicated
above is no longer affiliated with the broker/dealer under which my
contract was purchased or until such time that I notify Golden
American otherwise in writing.
9. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY TYPE:
/ / IRA / / IRA Rollover / / SEP/IRA / / Other ________________________
10. REPLACEMENT
Will the contract applied for replace any existing annuity or life insurance policies on the annuitant's life?
/ / Yes (If yes, please complete following) / / No
Company Name Policy Number Face Amount
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
o BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I UNDERSTAND THAT
THIS CONTRACT'S CASH SURRENDER VALUE, 1) WHEN BASED ON THE INVESTMENT EXPERIENCE
OF A SEPERATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE ON ANY DAY AND THAT NO
MINIMUM VALUE IS GUARANTEED, AND 2) WHEN, BASED ON THE FIXED ACCOUNT MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE THE
VALUES TO INCREASE OR DECREASE. THIS CERTIFICATE IS IN ACCORD WITH MY
ANTICIPATED FINANCIAL NEEDS.
O I AGREE THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS APPLICATION ARE COMPLETE AND TRUE AND MAY BE RELIED UPON IN
DETERMINING WHETHER TO ISSUE THE CERTIFICATE. MY ANSWERS WILL FORM A PART OF ANY
CERTIFICATE TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE
AUTHORITY TO MODIFY THIS APPLICATION.
O CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES WHICH FUND
CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. ALSO,
THEY ARE SUBJECT TO MARKET FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF
PRINCIPAL INVESTED.
----------------------------------------- --------------------------------------
Signature of Owner Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (IF APPLICABLE)_____________________
FOR AGENT USE ONLY
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE ANY
EXISTING ANNUITY OR LIFE INSURANCE ON THE ANNUITANT'S LIFE? / / YES / / NO
- -------------------- ----------------------- --------------------- --------------------
Agent Signature Print Agent Name & No. Social Security No. Broker/Dealer/Branch
----------------------------------
Florida License ID# (Florida Only)
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794,
Wilmington, DE 19899-8794
1-800-366-0066
</TABLE>
B3
GA-AA-1000-12/94
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK
COMPANY DOMICILED IN WILMINGTON, DELAWARE ENROLLMENT FORM
<TABLE>
<S> <C> <C>
1. OWNER(S)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth
( )
2. ANNUITANT (IF OTHER THAN OWNER)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth Relation
( ) to Owner
CONTINGENT ANNUITANT (OPTIONAL)
Name Address Relation
to Owner
3. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Name(s) Relation
to Owner
CONTINGENT BENEFICIARY(IES) Name Relation
to Owner
4. PLAN (CHECK ONE)
/ / DVA / / Other _______________________
5. DEATH BENEFIT (CHECK ONE IF ISSUE AGE OF OWNER IS LESS THAN 76):
/ / Enhanced #1 ("7% Solution") / / Enhanced #2 ("Annual Ratchet") / /
Standard ("Return of Premium")
6. INITIAL PREMIUM AND ALLOCATION INFORMATION
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE
INSURANCE COMPANY
Fill in percentages for Premium allocation below (see (A) INITIAL.)
(B) DOLLAR COST AVERAGING (DCA): OPTIONAL. PLEASE CHECK BOX TO ELECT. / /
Amount to be transferred monthly $_________________ (minimum $250)
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division
/ / Liquid Asset Division
/ / 1 Yr. Fixed Allocation
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION OR FIXED ALLOCATION CHECKED)
Divisions Transferred To: Fill in percentages for allocation of DCA below (see (B)
DCA).
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
<S> <C> <C> <C>
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
EMERGING MARKETS BANKERS TRUST COMPANY % %
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
LIQUID ASSET BANKERS TRUST COMPANY %
FIXED ALLOCATION ELECTION 1 YEAR %
FIXED ALLOCATION ELECTION 3 YEAR %
FIXED ALLOCATION ELECTION 5 YEAR %
FIXED ALLOCATION ELECTION 7 YEAR %
FIXED ALLOCATION ELECTION 10 YEAR %
TOTAL 100% 100%
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794, Wilmington, DE 19899-8794
B4
GA-EA-1000-12/94
<PAGE>
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
If you want to receive Systematic Partial Withdrawals, your request must be
received in writing. For the appropriate form, please call our Customer Service
Center: 1-800-366-0066.
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ Owner's Initials
I authorize Golden American to act upon reallocation instructions given
by telephone from __________________________ (name of your registered
representative) upon furnishing his/her social security number.
Neither Golden American nor any person authorized by Golden American
will be responsible for any claim, loss, liability or expense in
connection with reallocation instructions received by telephone from
such person if Golden American or such other person acted on such
telephone instructions in good faith in reliance upon this
authorization. Golden American will continue to act upon this
authorization until such time as the person indicated above is no longer
affiliated with the broker/dealer under which my contract was purchased
or until such time that I notify Golden American otherwise in writing.
9. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY TYPE:
/ / IRA / / IRA Rollover / / SEP/IRA / / Other ________________________
10. REPLACEMENT
Will the contract applied for replace any existing annuity or life insurance policies on the annuitant's life?
/ / Yes (If yes, please complete following) / / No
Company Name Policy Number Face Amount
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
O BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I UNDERSTAND THAT
THIS CERTIFICATE'S CASH SURRENDER VALUE, 1) WHEN BASED ON THE INVESTMENT EXPERIENCE
OF A SEPERATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE ON ANY DAY AND THAT NO
MINIMUM VALUE IS GUARANTEED, AND 2) WHEN, BASED ON THE FIXED ACCOUNT MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE THE
VALUES TO INCREASE OR DECREASE. THIS CERTIFICATE IS IN ACCORD WITH MY
ANTICIPATED FINANCIAL NEEDS.
O I AGREE THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS ENROLLMENT FORM ARE COMPLETE AND TRUE AND MAY BE RELIED UPON IN
DETERMINING WHETHER TO ISSUE THE CERTIFICATE. MY ANSWERS WILL FORM A PART OF ANY
CERTIFICATE TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE
AUTHORITY TO MODIFY THIS ENROLLMENT FORM.
O CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES WHICH FUND
CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. ALSO,
THEY ARE SUBJECT TO MARKET FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF
PRINCIPAL INVESTED.
----------------------------------------- --------------------------------------
Signature of Owner Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (IF APPLICABLE)_____________________
FOR AGENT USE ONLY
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE ANY
EXISTING ANNUITY OR LIFE INSURANCE ON THE ANNUITANT'S LIFE? / / YES / / NO
- -------------------- ----------------------- --------------------- --------------------
Agent Signature Print Agent Name & No. Social Security No. Broker/Dealer/Branch
----------------------------------
Florida License ID# (Florida Only)
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794,
Wilmington, DE 19899-8794
1-800-366-0066
B5
GA-EA-1000-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
REQUEST TO EFFECT IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
- -------------------------------------------------------------------------------
TO: -------------------------------------
PRESENT SPONSOR
------------------------------------- ACCOUNT NO.----------------------
ADDRESS
------------------------------------- ---------------------------------
ADDRESS PARTICIPANT'S NAME
RE: IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
ATTN: QUALIFIED TRANSFER DEPARTMENT
Dear Sirs:
I wish to transfer the entire value of my present Qualified Account to the
"GoldenSelect IRA" sponsored by Golden American Life Insurance Company.
I adopted the "GoldenSelect IRA" on ____________________________________________
DATE OF APPLICATION
Please make the check payable to GoldenSelect/Golden American Life Insurance
Company. As indicated below, Golden American has already indicated its
willingness to accept from you all my Qualified Account assets.
Please send all such proceeds and details to:
Golden American Life Insurance Company
IRA and Pension Operations
P.O. Box 8794
Wilmington, DE 19899-8794
Your prompt attention to this matter is appreciated.
Sincerely, (Signature Guarantee if Required)
X-------------------------------- ----------------------------------------
PARTICIPANT'S SIGNATURE (NAME OF BANK/FIRM)
----------------------------------------
(SIGNATURE OF OFFICER/TITLE)
- ------------------------------------------------------------------------------
GOLDEN AMERICAN APPROVAL FOR QUALIFIED ACCOUNT TRANSFER
Golden American Life Insurance Company has established the "GoldenSelect IRA"
application number ------------------------- for the participant named above.
We are willing to accept the transfer. Please forward all proceeds accordingly.
By: -------------------------------------- Date: ---------------------------
Name: ----------------------------------- Title: --------------------------
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-IRA-5/95
B6
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
ABSOLUTE ASSIGNMENT TO EFFECT SECTION 1035(A) EXCHANGE
- --------------------------------------------------------------------------------
OWNER: ------------------------- ANNUITANT OR INSURED:------------------------
CURRENT CONTRACT NO.:----------- EXISTING INSURANCE CO.:----------------------
I hereby make a complete and absolute assignment and transfer all rights, titles
and interest of every nature and character in and to the above contract to
Golden American Life Insurance Company ("Golden American") in an exchange
intended to qualify under Section 1035 of the Internal Revenue Code.
Upon receipt, Golden American is directed to surrender the above contract and
apply the value to the GoldenSelect product for which I have submitted an
application.
I understand that, by executing this assignment, I irrevocably waive all rights,
claims and demands under the above contract.
I acknowledge that Golden American is furnishing this form and participating in
this transaction as an accommodation to me, and that Golden American assumes no
responsibility or liability for my tax treatment under Section 1035 of the
Internal Revenue Code or otherwise.
Signed this ______________ day of ________________, 19 __________ at ___________
X--------------------------------- X------------------------------------
WITNESS SIGNATURE OF OWNER
- --------------------------------------------------------------------------------
NOTIFICATION OF ASSIGNMENT AND SURRENDER
To (Existing Insurance Company): Re: Contract No.---------------------------
- --------------------------------
- --------------------------------
This is to notify you that an absolute assignment of all rights, title and
interest in and to the above contract has been made to Golden American Life
Insurance Company, for the purpose of making an exchange under Section 1035 of
the Internal Revenue Code. Golden American, owner of the above contract, hereby
surrenders it and requests its full surrender value for the purpose of an
exchange under Section 1035 of the Internal Revenue Code. Upon surrender of this
contract, please issue a check for its cash value to Golden American Life
Insurance Company, and mail to Golden American Life Insurance Company, Customer
Service Center, P.O. Box 8794, Wilmington, DE, 19899-8794, Attn: New Business
Department. Please provide Golden American with the cost basis, issue date and
other payment information along with your check.
--------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
- ---------------------------------- By:-----------------------------------
DATE OFFICER OF ABOVE-NAMED INSURANCE COMPANY
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-1035-5/95
B7
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
CERTIFICATE OF DEPOSIT TRANSFER FORM
- --------------------------------------------------------------------------------
APPOINTMENT OF ATTORNEY-IN-FACT TO SURRENDER CERTIFICATE OF DEPOSIT
(NON-QUALIFIED ONLY)
CERTIFICATE(S) OF DEPOSIT
Issued By: _____________________________________________________________________
INSTITUTION
Address: _______________________________________________________________________
Certificate Number(s): _________________________ Issued to: ____________________
Maturity Date(s): ______________________________________________________________
Estimated Amount(s): ___________________________________________________________
I/We do hereby name and appoint Golden American Life Insurance Company ("Golden
American") through its duly authorized officers as lawful agent and
attorney-in-fact for me/us, to surrender the above Certificate(s) of Deposit
upon the respective maturity date(s).
I/We request that upon maturity all funds available be transferred to Golden
American. Golden American will apply all such funds received to a variable
contract issued to me/us.
I/We understand that Golden American assumes no responsibility for the tax
treatment of this matter and that I/ we shall be responsible for the payment of
all federal, state and local taxes and any other fees and charges incurred with
respect to the Certificate(s).
I/We acknowledge that the investment earnings credited under the variable
contract will begin to accrued when Golden American receives the proceeds from
the Certificate(s). Golden American has the responsibility only to present the
Certificate(s) for payment upon maturity and shall not be responsible for the
solvency of the issuing Financial Institution.
Dated at ______________________________ on this ______ day of
____________________, 19________________________________________________________
X----------------------------- X----------------------------------------
Witness Signature of Certificate Owner
X----------------------------- X----------------------------------------
Witness Signature of Joint Certificate Owner
Special Handling Instructions: _________________________________________________
________________________________________________________________________________
ACKNOWLEDGMENT
Golden American will accept any and all funds which discharge the obligation
listed above and request that such funds be sent to: Golden American Life
Insurance Company, Customer Service Center, P.O. Box 8794, Wilmington, DE
19899-8794
By _____________________________________________________________________________
Name Title Date
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-CDTF-5/95
B8
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3106 DVA/MVA Prosp. 3/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT DVA SERIES 100
- --------------------------------------------------------------------------------
This prospectus describes group and individual deferred variable annuity
contracts (the "Contract") offered by Golden American Life Insurance Company
("Golden American," "we," "our" or "us"). The owner ("you" or "your") purchases
the contract with an initial premium and is permitted to make additional premium
payments.
The contract is funded by three separate accounts, Separate Account B ("Account
B") and Separate Account D ("Account D") and the Fixed Account (collectively,
the "Accounts").
Eleven divisions of Account B are currently available under the contract. The
investments available through the divisions of Account B include mutual fund
portfolios (the "Series") of The GCG Trust (the "Trust"). Account D is an
open-end management investment company. The only division of Account D available
for investment is The Managed Global Account (the "Global Account") which
invests directly in securities. The investments available through the Fixed
Account include various Fixed Allocations which we credit with fixed rates of
interest for the Guarantee Periods you select. We currently offer Guarantee
Periods with durations of 1, 3, 6, 8 and 10 years. We reserve the right at any
time to increase or decrease the number of Guarantee Periods offered. We also
reserve the right to discontinue a Guarantee Period at any time.
Part I of this prospectus describes the contract and provides background
information regarding Account B, Account D and the Fixed Account. Part II of
this prospectus (beginning on page 47) provides information regarding the
investment activities of Account D and the Global Account, including its
investment policies. The prospectus for the Trust, which must accompany this
prospectus, provides information regarding investment activities and policies of
the Trust.
You may allocate your premiums among the twelve divisions and the Fixed
Allocations currently available under the contract in any way you choose,
subject to certain restrictions. You may change the allocation of your
accumulation value during a contract year free of charge. We reserve the right,
however, to assess a charge for each allocation change after the twelfth
allocation change in a contract year.
Your accumulation value in Account B and Account D will vary in accordance with
the investment performance of the divisions selected by you. Therefore, you bear
the entire investment risk for all amounts allocated to Account B and Account D.
You also bear the investment risk with respect to surrenders, partial
withdrawals, transfers and annuitization from a Fixed Allocation prior to the
end of the applicable Guarantee Period. A surrender, partial withdrawal,
transfer or annuitization made prior to the end of a Guarantee Period may be
subject to a Market Value Adjustment, which could have the effect of either
increasing or decreasing your accumulation value.
We will pay a death benefit to the beneficiary if the owner dies prior to the
annuity commencement date or the annuitant dies prior to the annuity
commencement date when the owner is other than an individual. See Part I,
Proceeds Payable to the Beneficiary.
This prospectus describes your principal rights and limitations and sets forth
the information concerning the Accounts that investors should know before
investing. A Statement of Additional Information dated May 1, 1995 relating to
Account B and Account D has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon request. To obtain a
copy of this document call or write our Customer Service Center. The Table of
Contents of the Statement of Additional Information may be found on the last
page of this prospectus. The Statement of Additional Information is incorporated
herein by reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTRACTS AND UNDERLYING SERIES SHARES WHICH FUND THE CONTRACTS ARE NOT INSURED
BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE GCG TRUST.
THE FIXED ACCOUNT IS NOT AVAILABLE IN ALL STATES. YOU MAY CONTACT OUR CUSTOMER
SERVICE CENTER TO FIND OUT ABOUT STATE AVAILABILITY.
<TABLE>
<S> <C> <C>
ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company New York, New York 10017 Mailing Address: P.O. Box 8794
Wilmington, Delaware 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATED: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITION OF TERMS.................................. 3
SUMMARY OF THE CONTRACT.............................. 5
FEE TABLE............................................ 7
CONDENSED FINANCIAL INFORMATION...................... 9
Index of Investment Experience
Financial Statements
Performance Related Information
PART I
Introduction....................................... 11
FACTS ABOUT THE COMPANY AND THE ACCOUNTS............. 12
Golden American
Separate Accounts B and D
Account B Divisions
The Managed Global Account of Account D
Changes Within Account B and D
The Fixed Account
FACTS ABOUT THE CONTRACT............................. 18
The Owner
The Annuitant
The Beneficiary
Change of Owner or Beneficiary
Availability of the Contract
Types of Contracts
Your Right to Select or Change Contract Options
Premiums
Making Additional Premium Payments
Crediting Premium Payments
Restrictions on Allocation of Premium Payments
Your Right to Reallocate
Dollar Cost Averaging
What Happens if a Division is Not Available
Your Accumulation Value
Accumulation Value in Each Division
Measurement of Investment Experience
Cash Surrender Value
Surrendering to Receive the Cash Surrender Value
Partial Withdrawals
Proceeds Payable to the Beneficiary
Reports to Owners
When We Make Payments
CHARGES AND FEES..................................... 28
Charge Deduction Division
Charges Deducted from the Accumulation Value
Charges Deducted from the Divisions
Trust Expenses
Operating Expenses of Account D
CHOOSING AN INCOME PLAN.............................. 30
The Income Plan
Annuity Commencement Date Selection
Frequency Selection
The Annuity Options
Payment When Named Person Dies
<CAPTION>
PAGE
<S> <C>
OTHER CONTRACT PROVISIONS............................ 31
In Case of Errors in Application Information
Your Right to Cancel or Exchange Your Contract
Other Contract Changes
Group or Sponsored Arrangements
Selling the Contract
REGULATORY INFORMATION............................... 33
Voting Rights
State Regulation
Legal Proceedings
Legal Matters
Experts
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE
COMPANY............................................. 34
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Directors and Executive Officers
Compensation Tables and Other Information
FEDERAL TAX CONSIDERATIONS........................... 41
Introduction
Golden American Tax Status
Taxation on Non-Qualified Annuities
Taxation of Individual Retirement Annuities
Distribution-at-Death Rules
Taxation of Death Benefit Proceeds
Transfer of Annuity Contracts
Section 1035 Exchanges
Assignments
Multiple Contracts Rule
PART II
Introduction....................................... 47
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.............. 48
The Global Account
Investment Objective and Policies of the Global Account
Non-Diversified
Risk Factors
Board of Governors of Account D
The Manager
The Portfolio Manager
Securities and Investment Techniques
Investment Restrictions
Brokerage Services
AUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE
INSURANCE COMPANY................................... 59
STATEMENT OF ADDITIONAL INFORMATION.................. 93
Table of Contents
APPENDIX A........................................... A1
Market Value Adjustment Examples
APPENDIX B........................................... B1
GoldenSelect Service Forms
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
DEFINITION OF TERMS
ACCOUNTS
Separate Account B, Separate Account D, and the Fixed Account.
ACCUMULATION VALUE
The total amount invested under the contract. Initially, this amount is equal to
the premium paid. Thereafter, the accumulation value will reflect the premiums
paid, investment experience of the divisions and interest credited to your Fixed
Allocations, charges deducted and any partial withdrawals.
ANNUITANT
The person designated by the owner to be the measuring life in determining
annuity payments.
ANNUITY COMMENCEMENT DATE
The date on which annuity payments begin.
ANNUITY OPTIONS
Options the owner selects that determine the form and amount of annuity
payments.
ANNUITY PAYMENT
The periodic payment an owner receives. It may be either a fixed or a variable
amount based on the annuity option chosen.
ATTAINED AGE
The issue age of the owner or annuitant plus the number of full years elapsed
since the contract date.
BENEFICIARY
The person designated to receive benefits in the case of the death of the owner
or the annuitant (when the owner is other than an individual).
BUSINESS DAY
Any day the New York Stock Exchange ("NYSE") is open for trading, exclusive of
Federal holidays, or any day on which the SEC requires that mutual funds, unit
investment trusts or other investment portfolios be valued.
CASH SURRENDER VALUE
The amount the owner receives upon surrender of the contract, including any
Market Value Adjustment.
CHARGE DEDUCTION DIVISION
The division from which all charges are deducted if so designated by you. The
Charge Deduction Division currently is the Liquid Asset Division.
CONTINGENT ANNUITANT
The person designated by the owner who, upon the annuitant's death prior to the
annuity commencement date, becomes the annuitant.
CONTRACT
The entire contract consisting of the basic contract and any riders or
endorsements.
CONTRACT ANNIVERSARY
The anniversary of the contract date.
CONTRACT DATE
The date on which we have received the initial premium and upon which we begin
determining the contract values. It may or may not be the same as the issue
date. This date is used to determine contract months, processing dates, years
and anniversaries.
CONTRACT PROCESSING DATES
The days when we deduct certain charges from the accumulation value. If the
contract processing date is not a valuation date, it will be on the next
succeeding valuation date. The contract processing dates will be once each year
on the contract anniversary.
CONTRACT PROCESSING PERIOD
The first contract processing period begins with the contract date and ends at
the close of business on the first contract processing date. All subsequent
contract processing periods begin at the close of business on the most recent
contract processing date and extend to the close of business on the next
contract processing date. There is one contract processing period each year.
CONTRACT YEAR
The period between contract anniversaries.
CUSTOMER SERVICE CENTER
Where service is provided to you. The mailing address and telephone number of
the Customer Service Center are shown on the cover.
DIVISIONS
The investment options available under Account B and Account D.
ENDORSEMENTS
An endorsement changes or adds provisions to the contract.
3
<PAGE>
DEFINITION OF TERMS (CONTINUED)
EXPERIENCE FACTOR
The factor which reflects the investment experience of the portfolio in which a
division invests and also reflects the charges assessed against the division for
a valuation period.
FIXED ACCOUNT
A non-unitized separate account which contains all of our assets that support
owner Fixed Allocations and any interest credited thereto.
FIXED ALLOCATION
An amount allocated to the Fixed Account that is credited with a Guaranteed
Interest Rate for a specified Guarantee Period.
FREE LOOK PERIOD
The period of time within which the owner may examine the contract and return it
for a refund.
GUARANTEED INTEREST RATE
[The effective annual interest rate which we will credit for a specified
Guarantee Period. The Guaranteed Interest Rate will never be less than 3%.
GUARANTEE PERIOD
The period of time for which a rate of interest is guaranteed to be credited to
a Fixed Allocation. We currently offer Guarantee Periods with durations of 1, 3,
6, 8 and 10 years.
INDEX OF INVESTMENT EXPERIENCE
The index that measures the performance of a division.
INITIAL PREMIUM
The payment required to put a contract into effect.
ISSUE AGE
The owner's or annuitant's age on his or her last birthday on or before the
contract date.
ISSUE DATE
The date the contract is issued at our Customer Service Center.
MARKET VALUE ADJUSTMENT
A positive or negative adjustment made to a Fixed Allocation. It may apply to
certain withdrawals, transfers and annuitizations of all or part of a Fixed
Allocation prior to the end of a Guarantee Period.
MATURITY DATE
The date on which a Guarantee Period matures.
OWNER
The person who owns the contract and is entitled to exercise all rights under
the contract. This person's death also initiates payment of the death benefit.
RIDER
A rider amends the contract, in certain instances adding benefits.
SPECIALLY DESIGNATED DIVISION
The division to which distributions from a portfolio underlying a division (or
from a division of Separate Account D) in which reinvestment is not available
will be allocated unless you specify otherwise. The Specially Designated
Division currently is the Liquid Asset Division.
VALUATION DATE
The day at the end of a valuation period when each division is valued.
VALUATION PERIOD
Each business day together with any non-business days before it.
4
<PAGE>
SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information regarding the
contract and the Accounts which fund the contract. Information concerning the
divisions of Account B and the Fixed Account is set forth in Part I of the
prospectus. Part II of this prospectus, beginning on page 47, pertains to
Account D which invests directly in securities.
This summary is intended to provide only a very brief overview of the more
significant aspects of the contract. Further detail is provided in this
prospectus and in the contract. The contract, together with any riders or
endorsements, constitutes the entire agreement between you and us and should be
retained.
This prospectus has been designed to provide you with the necessary information
to make a decision on purchasing the contract offered by Golden American and
funded by the Accounts.
You have a choice of investments. We do not promise that your accumulation value
will increase. Depending on the investment experience of the divisions and
interest credited to the Fixed Allocations in which you are invested, your
accumulation value, cash surrender value and death benefit may increase or
decrease on any day. You bear the investment risk.
DESCRIPTION OF THE CONTRACT
The contract is designed to establish retirement benefits for two types of
purchasers. The first type of purchaser is one who is eligible to participate
in, and purchases a contract for use with, an individual retirement annuity
("IRA") meeting the requirements of section 408(b) of the Internal Revenue Code
of 1986 ("qualified plan"). For a contract funding a qualified plan,
distribution must commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. The second type of
purchaser is one who purchases a contract outside of a qualified plan
("non-qualified plan").
The contract also offers a choice of annuity options to which you may apply the
accumulation value on the annuity commencement date or the cash surrender value
upon surrender of the contract. See Part I, Choosing an Income Plan.
AVAILABILITY
We can issue a contract if both the annuitant and the owner are not older than
age 85 and accept additional premium payments until either the annuitant or
owner reaches the attained age of 85 for non-qualified plans (age 70 1/2 for
qualified plans, except for rollover contributions). The minimum initial premium
is $25,000 for a non-qualified plan or for a qualified plan. We also offer a
GoldenSelect DVA through another prospectus, which is a contract with a
different charging structure. We may change the minimum initial or additional
premium requirements for certain group or sponsored arrangements. See Part I,
Group or Sponsored Arrangements.
The minimum additional premium payment we will accept is $500 for a
non-qualified plan and $250 for a qualified plan. We will take under
consideration and may refuse to accept a premium payment if the sum of all
premium payments received under the contract totals more than $1,500,000.
THE DIVISIONS
Each of the twelve divisions offered under this prospectus has its own distinct
investment objectives and policies. There are eleven divisions of Account B.
Each division of Account B invests in a corresponding Series of the Trust,
managed by Directed Services, Inc. ("DSI" or the "Manager"). The Trust and DSI
have retained several portfolio managers to manage the assets of each Series.
The division of Account D is The Managed Global Account. DSI is the Manager and
Warburg, Pincus Counsellors, Inc. ("Warburg, Pincus") is the portfolio manager
(the "Portfolio Manager"). See Part I, Facts About the Company and the Accounts,
Account B Divisions, and The Managed Global Account of Account D.
HOW THE ACCUMULATION VALUE VARIES
The accumulation value in the divisions varies each day based on investment
results. You bear the risk of poor investment performance and you receive the
benefits from favorable investment performance. The accumulation value also
reflects premium payments, charges deducted and partial withdrawals. See Part I,
Accumulation Value in Each Division.
THE FIXED ACCOUNT
The investments available through the Fixed Account include various Fixed
Allocations which we credit with fixed rates of interest for the Guarantee
Periods you select. We reset the interest rates for new Guarantee Periods
periodically based on our sole discretion. We may offer Guarantee Periods from
one to ten years. We currently offer Guarantee Periods with durations of 1, 3,
6, 8 and 10 years.
You bear the investment risk with respect to surrenders, partial withdrawals,
transfers and annuitization from your Fixed Allocations. A surrender, partial
withdrawal, transfer or annuitization made prior to the end of a Guarantee
Period may be subject to a Market Value Adjustment, which could have the effect
of either increasing or decreasing your accumulation value. We will not apply a
Market Value Adjustment
5
<PAGE>
SUMMARY OF THE CONTRACT (CONTINUED)
within 30 days of the Maturity Date of the applicable Guarantee Period or
certain transfers made in connection with the dollar cost averaging program.
Systematic withdrawals from a Fixed Allocation also are not subject to a Market
Value Adjustment.
MARKET VALUE ADJUSTMENT
We will apply the Market Value Adjustment, subject to certain exceptions, to a
surrender, partial withdrawal, transfer or annuitization from a Fixed Allocation
made prior to the end of a Guarantee Period. The Market Value Adjustment does
not apply to amounts invested in either Account B or Account D.
SURRENDERING YOUR CONTRACT
You may surrender the contract and receive its cash surrender value at any time
while both the annuitant and owner are living and before the annuity
commencement date. See Part I, Cash Surrender Value and Surrendering to Receive
the Cash Surrender Value.
TAKING PARTIAL WITHDRAWALS
After the free look period, prior to the annuity commencement date and while the
contract is in effect, you may take partial withdrawals from the accumulation
value of the contract. You may take conventional partial withdrawals once per
contract year without charge. Alternatively, you may elect in advance to take
systematic partial withdrawals on a monthly or quarterly basis. If you have an
IRA contract, you may elect IRA partial withdrawals on a monthly, quarterly or
annual basis.
Partial withdrawals are subject to certain restrictions as defined in this
prospectus and a Market Value Adjustment. Partial withdrawals above a specified
percentage of your accumulation value may be subject to a surrender charge. See
Part I, Partial Withdrawals.
DOLLAR COST AVERAGING
Under this program, you may choose to have a specified dollar amount transferred
from either the Limited Maturity Bond Division, Liquid Asset Division or a Fixed
Allocation with a one year Guarantee Period] to the other divisions of Account B
and Account D] on a monthly basis with the objective of shielding your
investment from short term price fluctuations. See Part I, dollar cost
averaging. Transfers under the dollar cost averaging program are not subject to
a Market Value Adjustment.
YOUR RIGHT TO CANCEL THE CONTRACT
You may cancel your contract within the free look period which is a ten day
period of time beginning when you receive the contract. For purposes of
administering our allocation and certain other administrative rules, we deem
this period to end 15 days after the contract is mailed from our Customer
Service Center. Some states may require that we provide a longer free look
period. In some states we restrict the initial premium allocation during the
free look period. See Part I, Your Right to Cancel or Exchange Your Contract.
YOUR RIGHT TO CHANGE THE CONTRACT
The contract may be changed to another annuity plan subject to our rules at the
time of the change. See Part I, Other Contract Changes.
DEATH BENEFIT PROCEEDS
The contract provides a death benefit to the beneficiary if the owner dies prior
to the annuity commencement date. We may offer a reduced death benefit under
certain group and sponsored arrangements. See Part I, Group or Sponsored
Arrangements.
DEDUCTIONS FOR CHARGES AND FEES
We invest the entire amount of the initial and any additional premium payments
in the divisions and the Fixed Allocations] you select, subject to certain
restrictions we impose. See Part I, Restrictions on Allocation of Premium
Payments. We then periodically deduct certain amounts from your accumulation
value. See Part I, Charges and Fees. We may reduce certain charges under group
or sponsored arrangements. See Part I, Group or Sponsored Arrangements. Unless
you have elected the Charge Deduction Division, charges are deducted
proportionately from all Account B and Account D divisions in which you are
invested. If there is no accumulation value in these divisions, charges will be
deducted from your Fixed Allocations starting with Guarantee Periods nearest
their Maturity Dates until such charges have been deducted.
FEDERAL INCOME TAXES
The ultimate effect of Federal income taxes on the amounts held under an annuity
contract, on annuity payments and on the economic benefits to the owner,
annuitant or beneficiary depends on Golden American's tax status and upon the
tax status of the individuals concerned. In general, an owner is not taxed on
increases in value under an annuity contract until some form of distribution is
made under it. There may be tax penalties if you make a withdrawal or surrender
the contract before reaching age 59 1/2. See Part I, Federal Tax Considerations.
6
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES(1) (deducted from accumulation value)
- ----------------------------------------------------------------
DISTRIBUTION FEE (ANNUAL SALES LOAD) AS A PERCENTAGE OF THE INITIAL AND EACH ADDITIONAL PREMIUM,
deducted at the end of each contract processing period (or at the time of surrender if surrendered
before the end of a contract processing period) following receipt of each premium over a ten year
period from the date we receive and accept each premium payment.................................... 0.65%(2)
SURRENDER CHARGE as a percentage of the initial or additional premium deducted upon surrender as
measured from the date the premium is accepted(3).................................................. None
EXCESS ALLOCATION CHARGE............................................................................ $0(4)
PARTIAL WITHDRAWAL CHARGE (2.0% of the withdrawal for each conventional partial withdrawal after the
first in a contract year) not to exceed............................................................ $25
ANNUAL ADMINISTRATIVE CHARGE (deducted from accumulation value)..................................... None
SEPARATE ACCOUNT ANNUAL EXPENSES (percentage of assets in each division)(5)
- ---------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE................................................................... 1.25%
ASSET BASED ADMINISTRATIVE CHARGE................................................................... 0.10%
Total Separate Account Annual Expenses.............................................................. 1.35%
</TABLE>
TRUST ANNUAL EXPENSES(6) (based on combined assets of the indicated groups of
- -----------------------------------------------------------------------------
Series)
- -------
<TABLE>
<CAPTION>
OTHER TOTAL
SERIES FEES EXPENSES(7) EXPENSES
- ------------------------------------------------------ ---------- ----------------- -------------
<S> <C> <C> <C>
Multiple Allocation, Fully Managed, Capital
Appreciation, Rising Dividends, All-Growth, 1.00% 0.00% 1.00%
Real Estate, Natural Resources and Value Equity
Series:
Emerging Markets Series: 1.50% 0.02% 1.52%
Limited Maturity Bond: 0.60% 0.00% 0.60%
Liquid Asset Series: 0.60% 0.01% 0.61%
</TABLE>
THE MANAGED GLOBAL ACCOUNT ANNUAL EXPENSES AFTER REIMBURSEMENT (percentage of
average net assets)
<TABLE>
<CAPTION>
MANAGEMENT TOTAL
AND OTHER ANNUAL
ASSETS ADVISORY FEES EXPENSES EXPENSES(8)
- ------------------------------------------------------------------------ ----------------- ------------- -----------------
<S> <C> <C> <C>
$0 to $500 million...................................................... 1.00% 0.25% 1.25%
in excess of $500 million............................................... 0.80% 0.25% 1.05%
<FN>
- --------------------------
(1) In addition to the Owner Transaction Expenses reflected in the Table, we
may apply a Market Value Adjustment to surrenders, partial withdrawals or
transfers from a Fixed Allocation made prior to the end of a Guarantee
Period, including any reallocation of your accumulation value on the
annuity commencement date subject to certain exceptions. The Market Value
Adjustment could have the effect of either increasing or decreasing your
accumulation value.
(2) We also offer DVA through another prospectus, which is a contract with a
different charging structure.
(3) Some jurisdictions impose a premium tax at the time the initial or
additional premiums are paid, regardless of the annuity commencement date.
In those states we may initially defer collection of the amount of the
charge for premium taxes from your accumulation value and deduct it from
your accumulation value on surrender of the contract or on the annuity
commencement date.
(4) You may change the allocation of your accumulation value during a contract
year free of charge. We reserve the right, however, to assess a $25 charge
for each allocation change after the twelfth allocation change in a
contract year.
(5) At issue, for issue ages 0-75, we also offer Death Benefit Option 3. If
Death Benefit Option 3 is elected, we will reduce the mortality and expense
risk charge to 1.05%.
(6) Fees decline as combined assets increase (see Part I, Account B Divisions
and the Trust prospectus for details).
(7) Other expenses generally consist of independent trustees fees and expenses.
The Emerging Markets Series incurred transfer and repatriation taxes of
0.21% of average daily net assets which are not reflected as Other Expenses
in this Fee Table.
(8) Reflects an expense reimbursement or waiver effective through December 31,
1994. In the absence of expense reimbursement or waiver, the total annual
expenses would have been 1.40% of the Global Account's average daily net
assets for 1994. This figure includes non-recurring expenses and interest
expense of approximately .06% of average daily net assets which were not
reimbursed.
</TABLE>
7
<PAGE>
FEE TABLE (CONTINUED)
EXAMPLE:
Whether you surrender or do not surrender your contract at the end of the
applicable time period, you would pay the following expenses for each $1,000 of
initial premium, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
DIVISION ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
Multiple Allocation....................................... $30.31 $92.35 $156.37 $325.75
Fully Managed............................................. 30.31 92.35 156.37 325.75
Capital Appreciation...................................... 30.31 92.35 156.37 325.75
Rising Dividends.......................................... 30.31 92.35 156.37 325.75
All-Growth................................................ 30.31 92.35 156.37 325.75
Real Estate............................................... 30.31 92.35 156.37 325.75
Natural Resources......................................... 30.31 92.35 156.37 325.75
Value Equity.............................................. 30.31 92.35 156.37 325.75
Emerging Markets.......................................... 35.51 107.79 181.82 375.07
Global Account............................................ 32.81 99.80 168.69 349.81
Limited Maturity Bond..................................... 26.30 80.31 136.32 285.88
Liquid Asset.............................................. 26.40 80.62 136.83 286.90
</TABLE>
For purposes of computing the annual per contract administrative charge, the
dollar amounts shown in the examples are based on an initial premium of $57,000.
In the example, the numbers for the Global Account reflect expenses based on
assumed assets in the Global Account of $500 million or less. If the Global
Account's assets exceed $500 million, these expenses will decrease.
At issue, if Death Benefit Option 3 is elected, the actual expenses incurred
will be less than those represented in the Examples.
The purpose of the fee table is to assist you in understanding the various costs
and expenses that you may bear directly or indirectly. The fee table reflects
expenses of the Accounts as well as the Trust. Premium taxes may also be
applicable. See Part I, Charges and Fees, PREMIUM TAXES. For a complete
description of contract costs and expenses and the charges and expenses for
Account D, see the section titled Charges and Fees in Part I of this prospectus.
For a more complete description of the Trust's costs and expenses, see the Trust
prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO
THE GUARANTEES UNDER THE CONTRACT.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
INDEX OF INVESTMENT EXPERIENCE
The upper table gives the index of investment experience for each division of
Account B and for the Global Account on their respective commencement of
operations and on December 31, 1989, 1990, 1991, 1992, 1993 and 1994, as
applicable. The index of investment experience is equal to the value of a unit
for each division of the Accounts. The total value of each division as of the
end of each period indicated is shown in the lower table.
<TABLE>
<CAPTION>
INDEX OF INVESTMENT EXPERIENCE
-------------------------------------------------------------
1/25/89 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Allocation........... $ 10.00 $ 10.82 $ 11.19 $ 13.30 $ 13.41 $ 14.75 $ 14.13
Fully Managed................. 10.00 10.38 9.87 12.59 13.24 14.11 12.68
Capital Appreciation.......... * * * * 11.01 11.81 11.40
Rising Dividends.............. *** *** *** *** *** 10.29 10.20
All-Growth.................... 10.00 10.71 9.74 13.16 12.69 13.39 11.58
Real Estate................... 10.00 9.90 7.68 10.19 11.48 13.33 13.74
Natural Resources............. 10.00 11.86 10.05 10.42 9.30 13.81 13.73
Value Equity.................. **** **** **** **** **** **** ****
Emerging Markets.............. *** *** *** *** *** 12.41 10.38
Global Account................ ** ** ** ** 10.01 10.52 9.03
Limited Maturity Bond......... 10.00 10.88 11.61 12.78 13.27 13.95 13.36
Liquid Asset.................. 10.00 10.68 11.38 11.90 12.15 12.35 12.41
</TABLE>
<TABLE>
<CAPTION>
TOTAL ACCUMULATION VALUE
----------------------------------------------------------------------------
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Multiple Allocation........... $15,556,366 $23,963,356 $57,739,245 $115,124,744 $273,158,122 $297,507,994
Fully Managed................. 5,333,885 5,414,160 9,834,436 37,352,585 108,290,963 98,836,207
Capital Appreciation.......... * * * 18,366,222 86,798,642 88,344,684
Rising Dividends.............. *** *** *** *** 14,387,382 50,384,765
All-Growth.................... 3,077,542 4,528,380 11,159,814 23,418,811 56,055,565 70,623,784
Real Estate................... 650,003 309,556 696,180 3,600,461 28,772,896 36,936,728
Natural Resources............. 2,320,696 2,460,399 2,646,183 2,882,417 21,436,544 32,746,767
Value Equity.................. **** **** **** **** **** ****
Emerging Markets.............. *** *** *** *** 30,488,589 59,747,048
Global Account................ ** ** ** 38,699,402 88,477,493 86,208,555
Limited Maturity Bond......... 2,595,966 8,009,970 15,935,184 39,861,202 71,622,231 71,573,009
Liquid Asset.................. 2,190,649 8,419,953 9,224,303 12,769,536 16,497,588 45,364,989
<FN>
- ------------------------
* The Capital Appreciation Division became available for investment on May
4, 1992 starting with an index of investment experience of $10.00.
** The Global Account Division of Account D became available for investment
on October 21, 1992 starting with an index of investment experience of
$10.00.
*** The Rising Dividends and Emerging Markets Divisions became available for
investment on October 4, 1993 starting with an index of investment
experience of $10.00.
**** The Value Equity Division became available for investment on January 1,
1995 starting with an index of investment experience of $10.00.
</TABLE>
In order to provide for continuity in results, the above table is based on
charges for the contract described in this prospectus. Contracts issued prior to
May 1, 1991, were based on lower asset charges and, thus, would have higher
values for the indices of investment experience.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years ended
December 31, 1994 and 1993 (as well as the auditor's report thereon) and the
audited financial statements of The Managed Global Account of separate Account D
for the years ended December 31, 1994 and 1993 (as well as the auditor's report
thereon) appear in the Statement of Additional Information. The audited
financial statements of Golden American prepared in accordance with statutory
accounting practices for the years ended December 31, 1994 and 1993 (as well as
the auditor's report thereon) and the audited financial statements of Golden
American prepared in accordance with generally accepted accounting principles
for the years ended December 31, 1994 and 1993 and the period September 30, 1992
to December 31, 1992 (as well as the auditor's report thereon) are contained in
the Prospectus.
PERFORMANCE RELATED INFORMATION
Performance information for the divisions of Account B and Account D, including
the yield and effective yield of the Liquid Asset Division, the yield of the
remaining divisions, and the total return of all divisions may appear in reports
and promotional literature to current or prospective owners.
Current yield for the Liquid Asset Division will be based on income received by
a hypothetical investment over a given 7-day period (less expenses accrued
during the period), and then "annualized" (I.E., assuming that the 7-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). "Effective yield" for the Liquid Asset Division is
calculated in a manner similar to that used to calculate yield, but when
annualized, the income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of earnings.
For the remaining divisions, quotations of yield will be based on all investment
income per unit (accumulation value divided by the index of investment
experience -- see Part I, Measurement of Investment Experience, INDEX OF
INVESTMENT EXPERIENCE AND UNIT VALUE) earned during a given 30-day period, less
expenses accrued during the period ("net investment income"). Quotations of
average annual total return for any division will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
contract over a period of one, five, and ten years (or, if less, up to the life
of the division), and will reflect the deduction of the applicable distribution
fee and/or surrender charge, the administrative charge and the mortality and
expense risk charge. Quotations of total return may simultaneously be shown for
other periods that do not take into account certain contractual charges, such as
the distribution fee and surrender charge for example.
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices measuring performance of a pertinent
group of securities so that investors may compare a division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services, a widely
used independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, including VARDS, companies, publications, or persons
who rank separate accounts or other investment products on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the contract. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
Performance information for any division reflects only the performance of a
hypothetical contract under which the accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the division invests or, the securities in which
Account D invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the divisions, see the Statement of Additional Information.
Reports and promotional literature may also contain other information including
the ranking of any division derived from rankings of variable annuity separate
accounts or other investment products tracked by Lipper Analytical Services or
by rating services, companies, publications, or other persons who rank separate
accounts or other investment products on overall performance or other criteria.
10
<PAGE>
PART I
INTRODUCTION THE FOLLOWING INFORMATION IN PART I DESCRIBES THE CONTRACT AND
THE SEPARATE ACCOUNTS WHICH FUND THE CONTRACT, ACCOUNT B AND ACCOUNT D AND THE
FIXED ACCOUNT. ACCOUNT B INVESTS IN MUTUAL FUND PORTFOLIOS OF THE TRUST. ACCOUNT
D INVESTS DIRECTLY IN SECURITIES. THE FIXED ACCOUNT CONTAINS ALL OF THE ASSETS
THAT SUPPORT OWNER FIXED ALLOCATIONS WHICH WE CREDIT WITH GUARANTEED INTEREST
RATES FOR THE GUARANTEE PERIODS YOU SELECT.
11
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden American
is a wholly owned indirect subsidiary of Bankers Trust Company. We are
authorized to do business in all jurisdictions except New York. We offer
variable annuities and variable life insurance. Administrative services for the
contract are provided at our Customer Service Center, the address is shown on
the cover. As of December 31, 1994 Golden American had stockholder's equity of
approximately $89.5 million and total assets of approximately $1.04 billion,
including approximately $950.3 million of separate account assets.
Bankers Trust Company is a New York banking corporation with executive offices
at 280 Park Avenue, New York, New York 10017. As of December 31, 1994, Bankers
Trust New York Corporation, parent of Bankers Trust Company, was the seventh
largest bank holding company in the United States with total assets of
approximately $98 billion. Bankers Trust Company conducts a variety of general
banking and trust activities and is a leading wholesale supplier of financial
services to the domestic and international markets.
In a transaction that closed on September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding capital stock
of Golden American and DSI, an affiliate of Golden American, and related assets.
The transaction involved settlement of pre-existing claims of Bankers Trust
Company against the former parent company of Golden American and DSI. Under
applicable banking law, stock so acquired is subject to various divestiture
requirements. While Bankers Trust Company has no immediate intent to divest its
ownership of the stock of Golden American and DSI, such a divestiture may occur
in the future. In addition, judicial or administrative decisions or
interpretations, as well as changes in either Federal or state banking statutes
or regulations, could prevent Bankers Trust Company from continuing to own the
stock of Golden American or DSI.
Effective October 3, 1994, First Colony Corporation ("First Colony") and BT
Variable, Inc. ("BT Variable") entered into an agreement providing for the
acquisition by First Colony of a minority interest in BT Variable. BT Variable,
an indirect subsidiary of Bankers Trust Company, is the corporate parent of
Golden American Life Insurance Company and Directed Services, Inc. The
acquisition is subject to the approval of the appropriate regulators.
First Colony is the corporate parent of two insurance companies, First Colony
Life Insurance Company and American Mayflower Life, which together provide life
insurance and annuity products throughout the United States.
For more information about Golden American, see Part I, More Information About
Golden American Life Insurance Company.
SEPARATE ACCOUNTS B AND D
All obligations under the contract are general obligations of Golden American.
Account B and Account D are separate investment accounts used to support our
variable annuity contracts and for other purposes as permitted by applicable
laws and regulations. The assets of Account B and Account D are kept separate
from our General Account and any other separate accounts we may have. We may
offer other variable annuity contracts investing in Account B and Account D
which are not discussed in this prospectus. Account B and Account D may also
invest in other series which are not available to the contract described in this
prospectus.
We own all the assets in Account B and Account D. Income and realized and
unrealized gains or losses from assets in each account is credited to or charged
against that account without regard to other income, gains or losses in our
other investment accounts. As required, the assets in Account B and Account D
are at least equal to the reserves and other liabilities of that account. These
assets may not be charged with liabilities from any other business we conduct.
They may, however, be subject to liabilities arising from divisions whose assets
are attributable to other variable annuity contracts supported by Account B and
Account D. If the assets exceed the required reserves and other liabilities, we
may transfer the excess to our General Account.
ACCOUNT B
Account B was established on July 14, 1988, and may invest in mutual funds,
unit investment trusts or other investment portfolios which we determine to be
suitable for the contract's purposes. Account B is treated as a unit
investment trust under Federal securities laws. It is registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act") as an investment
company. It is governed by the laws of Delaware, our state of domicile, and
may also be governed by the laws of other states in which we do business.
Registration with the SEC does not involve any supervision by the SEC of the
management or investment policies or practices of Account B.
12
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
ACCOUNT D
Account D was established on April 18, 1990 and invests directly in securities
in accordance with the investment objectives and policies of Account D.
Account D is registered with the SEC under the 1940 Act as an open-end
management investment company and meets the definition of a separate account
under the federal securities laws. It is governed by the laws of Delaware, our
state of domicile, and may also be governed by laws of other states in which
we do business. Registration with the SEC does not involve any supervision by
the SEC of the management or investment policies or practices of Account D.
ACCOUNT B DIVISIONS
Account B is divided into divisions. Currently, each division of Account B
offered under this prospectus invests in a portfolio of The GCG Trust. DSI
serves as the Manager to each Series of the Trust. See the Trust prospectus for
details. The Trust and DSI have retained several portfolio managers to manage
the assets of each Series as indicated below. There may be restrictions on the
amount of the allocation to certain divisions based on state laws and
regulations. The investment objectives of the various Series in the Trust are
described below. There is no guarantee that any portfolio or Series will meet
its investment objectives. Meeting objectives depends on various factors,
including, in certain cases, how well the portfolio managers anticipate changing
economic and market conditions. Account B may also have other divisions
investing in other series which are not available to the contract described in
this prospectus.
DSI provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series. DSI
is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series. DSI does not bear
the expense of brokerage fees and other transactional expenses for securities or
other assets (which are generally considered part of the cost for assets), taxes
(if any) paid by a Series, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the Trust prospectus for details.
The Trust pays DSI for its services a monthly fee based on the following
percentages of the average daily net assets of the Series. DSI (and not the
Trust) pays each portfolio manager a monthly fee for managing the assets of the
Series.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEES (based on combined assets of the indicated groups of
SERIES Series)
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising Dividends, 0.95% of next $1.250 billion;
All-Growth, Real Estate, Natural Resources and Value Equity 0.90% of next $1.5 billion; and
Series: 0.85% of amount in excess of $3.5 billion
Emerging Markets Series: 1.50% of average daily net assets
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
The following divisions invest in designated Series of the Trust.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current
income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS
Investment in equity and debt securities and the use of certain sophisticated
investment strategies and techniques.
PORTFOLIO MANAGER
Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE
High total investment return over the long term, consistent with the
preservation of capital and prudent investment risk.
INVESTMENTS
Pursues an active asset allocation strategy whereby investments are allocated,
based upon an evaluation of economic and market trends and the anticipated
relative total return available, among three asset classes -- debt securities,
equity securities and money market instruments.
PORTFOLIO MANAGER
Weiss, Peck & Greer Advisers, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE
Long-term capital growth.
INVESTMENTS
Invests in common stocks and preferred stock that will be allocated among
various categories of stocks referred to as "components" which consist of the
following: (i) The Growth Component -- Securities that the portfolio manager
believes have the following characteristics: stability and quality of earnings
and positive earnings momentum; dominant competitive positions; and
demonstrate above-average growth rates as compared to published S&P 500
earnings projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e., securities
selling at a discount to asset value and securities with a relatively low
price/earnings ratio. The securities eligible for this component may include
real estate stocks, such as securities of publicly-owned companies that, in
the portfolio manager's judgement, offer an optimum combination of current
dividend yield, expected dividend growth, and discount to current real estate
value.
PORTFOLIO MANAGER
Chancellor Trust Company
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment in equity securities of high quality companies that meet the
following four criteria: consistent dividend increases; substantial dividend
increases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, Inc.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long term growth prospects.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE
Capital appreciation, with current income as a secondary objective.
INVESTMENTS
Investment in publicly traded equity securities of companies in the real
estate industry listed on national exchanges or on the National Association of
Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
Chancellor Trust Company
NATURAL RESOURCES DIVISION
NATURAL RESOURCES SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the
exploration, development, production, and distribution of natural resources.
PORTFOLIO MANAGER
Van Eck Associates Corporation
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<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE
Capital appreciation with a secondary objective of dividend income.
INVESTMENTS
Investment primarily in equity securities of U.S. and foreign issuers which,
when purchased, meet quantitative standards believed by the Portfolio Manager
to indicate above average financial soundness and high intrinsic value
relative to price.
PORTFOLIO MANAGER
Eagle Asset Management, Inc.
EMERGING MARKETS DIVISION
EMERGING MARKETS SERIES
OBJECTIVE
Long term growth of capital.
INVESTMENTS
Investment primarily in equity securities of companies that are considered to
be in emerging market countries in the Pacific Basin and Latin America. Income
is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Bankers Trust Company
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE
Highest current income consistent with low risk to principal and liquidity.
Also seeks to enhance its total return through capital appreciation when
market factors indicate that capital appreciation may be available without
significant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt
securities. No individual security will at the time of purchase have a
remaining maturity longer than seven years and the dollar-weighted average
maturity of the Series will not exceed five years.
PORTFOLIO MANAGER
Bankers Trust Company
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
INVESTMENTS
Obligations of the U.S. Government and its agencies and instrumentalities;
bank obligations; commercial paper and short-term corporate debt securities.
TERM
All issues maturing in less than one year.
PORTFOLIO MANAGER
Bankers Trust Company
The Trust is an open-end management investment company, more commonly called a
mutual fund. The Trust's shares may also be available to certain separate
accounts funding variable life insurance policies offered by Golden American.
This is called "mixed funding."
The Trust may also sell its shares to separate accounts of other insurance
companies, both affiliated and not affiliated with Golden American. This is
called "shared funding." Although we do not anticipate any inherent difficulties
arising from either mixed or shared funding it is theoretically possible that,
due to differences in tax treatment or other considerations, the interest of
owners of various contracts participating in the Trust might at sometime be in
conflict. After the Trust receives the requisite order from the SEC, shares of
the Trust may also be sold to certain qualified pension and retirement plans.
The Board of Trustees of the Trust, the Trust's Manager, and we and any other
insurance companies participating in the Trust are required to monitor events to
identify any material conflicts that arise from the use of the Trust for mixed
and/or shared funding or between various policyowners and pension and retirement
plans. For more information about the risks of mixed and shared funding, please
refer to the Trust prospectus.
You will find complete information about the Trust, including the risks
associated with each Series, in the accompanying Trust prospectus. You should
read it carefully in conjunction with this prospectus before investing.
Additional copies of the Trust prospectus may be obtained by contacting our
Customer Service Center.
THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D
The Global Account is the only portfolio of Account D available under the
contract. The Global Account is a non-diversified investment company which
invests directly in securities. There can be no assurance that the Global
Account will meet its investment objective. Account D may also offer other
portfolios which are not available through the purchase of the contract offered
by this prospectus. DSI serves as Manager of Account D and Warburg, Pincus
serves as Portfolio Manager of the Global Account.
15
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
THE MANAGED GLOBAL ACCOUNT DIVISION
THE MANAGED GLOBAL ACCOUNT PORTFOLIO
OBJECTIVE
High total investment return, consistent with a prudent regard for capital
preservation.
INVESTMENTS
Investment in a wide range of equity and debt securities and money market
instruments of both domestic and foreign issuers.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
ADVISORY FEE
0.60% of the first $500 million of average daily net assets on an annual
basis; and 0.50% of the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
FOR COMPLETE INFORMATION ABOUT THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D,
INCLUDING THE RISKS ASSOCIATED WITH ITS INVESTMENTS, SEE PART II, INVESTMENT
OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT, PAGE 47.
CHANGES WITHIN ACCOUNT B AND ACCOUNT D
We may from time to time make additional divisions available. These divisions
will invest in investment portfolios we find suitable for the contract. We also
have the right to eliminate investment divisions from Account B and Account D,
to combine two or more divisions, or to substitute a new portfolio for the
portfolio in which a division invests. A substitution may become necessary if,
in our judgment, a portfolio no longer suits the purposes of the contract. This
may happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. In addition, we reserve the
right to transfer assets of Account B and Account D, which we determine to be
associated with the class of contracts to which your contract belongs, to
another account. If necessary, we will get prior approval from the insurance
department of our state of domicile before making such a substitution or
transfer. We will also get any required approval from the SEC and any other
required approvals before making such a substitution or transfer. We will notify
you as soon as practicable of any proposed changes.
When permitted by law, we reserve the right to:
(1) deregister an account under the 1940 Act;
(2) operate an account as a management company
under the 1940 Act if it is operating as a unit investment trust;
(3) operate an account as a unit investment trust
under the 1940 Act if it is operating as a managed separate account;
(4) restrict or eliminate any voting rights as to the
accounts; and
(5) combine an account with other accounts.
THE FIXED ACCOUNT
Premium payments may be allocated to the Fixed Account to the extent elected by
you at the time of the initial premium payment or as subsequently elected. In
addition, all or part of your accumulation value may be transferred to the Fixed
Account. Assets supporting amounts allocated to the Fixed Account are available
to fund the claims of all classes of our customers, owners and other creditors.
Interests under your Contract relating to the Fixed Account are registered under
the Securities Act of 1933 but the Fixed Account is not registered under the
1940 Act.
SELECTING THE GUARANTEE PERIOD
You may select one or more Fixed Allocations with specified Guarantee Periods
for investment. We currently offer Guarantee Periods with durations of 1, 3, 6,
8 and 10 years. We reserve the right at any time to decrease or increase the
number of Guarantee Periods offered, and to discontinue offering a Guarantee
Period. However, once you have selected a Guarantee Period, it cannot be
changed. Each Fixed Allocation will have a Maturity Date corresponding to the
last day of the calendar month of the applicable Guarantee Period. At least 30
calendar days prior to a Maturity Date, or earlier if required by state or
federal law, we will forward to you a notice describing the Guarantee Periods
available as of the date of such notice. The notice will list the Guaranteed
Interest Rates we then currently credit for those Guarantee Periods.
Your accumulation value in the Fixed Account equals the sum of your Fixed
Allocations plus the interest credited thereto, as adjusted for any partial
withdrawals, reallocations or other charges we may impose. Your Fixed Allocation
will be credited with the Guaranteed Interest Rate in effect on the date we
receive and accept your premium or reallocation of accumulation value. The
Guaranteed Interest Rate will be credited daily to yield the quoted Guaranteed
Interest Rate.
16
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
TRANSFERS FROM A FIXED ALLOCATION
You may transfer your accumulation value from a Fixed Allocation to one or more
new Fixed Allocations with new Guarantee Periods of any length offered by us or
to the divisions of Account B or Account D. Unless you specify in writing the
Fixed Allocations from which such transfers will be made, we will transfer
amounts from the Fixed Allocations starting with the Guarantee Period nearest
its Maturity Date, until we have honored your transfer request.
Transfers made within 30 days of the Maturity Date of the applicable Guarantee
Period or pursuant to the dollar cost averaging program will not be subject to a
Market Value Adjustment. All other transfers from your Fixed Allocations will be
subject to a Market Value Adjustment. The minimum amount that can be transferred
to or from any Fixed Allocation is $250. If a transfer request would reduce the
accumulation value remaining in your Fixed Allocation to less than $250, we will
treat such transfer request as a request to transfer the entire accumulation
value in such Fixed Allocation.
At the end of a Fixed Allocation's Guarantee Period, you may transfer amounts in
that Fixed Allocation to the divisions and one or more new Fixed Allocations
with Guarantee Periods of any length then offered by us. You may not, however,
transfer amounts to any Fixed Allocation with a Guarantee Period that extends
beyond the annuity commencement date.
[We will notify you of your right to transfer amounts at least 30 days prior to
the end of the Guarantee Period. Prior to the end of such Guarantee Period you
must notify us as to which division or new Guarantee Period you have selected.
If timely instructions are not received, we will transfer your accumulation
value to a Fixed Allocation with a Guarantee Period equal in length to the
expiring Guarantee Period. If such Guarantee Period is not available or extends
beyond the annuity commencement date, we will transfer your accumulation value
to the next shortest Guarantee Period which does not extend beyond the annuity
commencement date. If no such Guarantee Period is available, we will transfer
your accumulation value to the Specially Designated Division.
GUARANTEED INTEREST RATES
We do not have a specific formula for establishing the Guaranteed Interest Rates
for the different Guarantee Periods. The determination made will be influenced
by, but not necessarily correspond to, interest rates available on fixed income
invest-ments which we may acquire with the amounts we receive as premium
payments or reallocations of accumulation value under the contracts. These
amounts will be invested primarily in investment-grade fixed income securities
including: securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the United
States Government; debt securities that have an investment grade rating, at the
time of purchase, within the four highest grades assigned by Moody's Investor
Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or
BBB) or any other nationally recognized rating service; mortgage-backed
securities collateralized by the Federal Home Loan Mortgage Association, the
Federal National Mortgage Association or the Government National Mortgage
Association, or that have an investment grade rating at the time of purchase
within the four highest grades described above; other debt investments;
commercial paper; and cash or cash equivalents. You will have no direct or
indirect interest in these investments. We will also consider other factors in
determining the Guaranteed Interest Rates, including regulatory and tax
requirements, sales commissions and administrative expenses borne by us, general
economic trends and competitive factors. We cannot predict or guarantee the
level of future interest rates. However, no Fixed Allocation will ever have a
Guaranteed Interest Rate of less than 3% per year.
While the foregoing generally describes our investment strategy with respect to
the Fixed Account, we are not obligated to invest according to any particular
strategy, except as may be required by Delaware and other state insurance laws.
PARTIAL WITHDRAWALS
Prior to the annuity commencement date and while the contract is in effect, you
may take partial withdrawals from the accumulation value in a Fixed Allocation
by sending satisfactory notice to our Customer Service Center. You may make
systematic withdrawals of interest earnings only from a Fixed Allocation under
our Systematic Partial Withdrawal Option. (See, Part I, "Systematic Partial
Withdrawal Option".) Withdrawals from a Fixed Allocation taken within 30 days of
the Maturity Date and systematic withdrawals are not subject to a Market Value
Adjustment. Systematic withdrawals from a Fixed Allocation are not permitted if
such Fixed Allocation participates in the dollar cost averaging program.
Withdrawals may have federal income tax consequences, including a 10% penalty
tax. (See "Federal Tax Considerations".)
You must specify the division of either Account B or Account D or the Fixed
Allocation from which your partial withdrawal will be made. If you do not
specify
17
<PAGE>
FACTS ABOUT THE COMPANY AND THE ACCOUNTS (CONTINUED)
the investment option from which the partial withdrawal will be taken, we will
assess your partial withdrawal against the divisions of Account B and Account D
on a pro rata basis. If there is no accumulation value in those divisions,
partial withdrawals will be deducted from your Fixed Allocations starting with
the Guarantee Periods nearest their Maturity Dates until we have honored your
request.
MARKET VALUE ADJUSTMENT
We will apply a Market Value Adjustment, determined by application of the
formula described below, in two circumstances: First, whenever you make a
withdrawal or transfer from a Fixed Allocation, other than withdrawals or
transfers made within 30 days of the Maturity Date of the Guarantee Period,
systematic partial withdrawals, or pursuant to the dollar cost averaging
program; and Second, on the annuity commencement date with respect to any Fixed
Allocation having a Guarantee Period that does not end on or within 30 days
after the annuity commencement date.
The Market Value Adjustment is determined by multiplying the amount withdrawn,
transferred or annuitized by the following factor:
( 1+I )
1+J+.0025 N/365 -1
Where "I" is the Guaranteed Interest Rate credited to the Fixed Allocation; "J"
is the Guaranteed Interest Rate credited to new Fixed Allocations with Guarantee
Periods equal to the number of years (fractional years are rounded up to the
next full year) remaining in the Guarantee Period at the time of the withdrawal,
transfer or annuitization; and "N" is the remaining number of days in the
Guarantee Period at the time of the withdrawal, transfer or annuitization.
If a full surrender, transfer or annuitization has been requested, the balance
of the Market Value Adjustment will be added to the amount surrendered,
transferred or annuitized. If a partial withdrawal, transfer or annuitization
has been requested, the Market Value Adjustment will be calculated on the total
amount that must be withdrawn, transferred or annuitized in order to provide the
amount requested. If a negative Market Value Adjustment exceeds the accumulation
value in the Fixed Allocation, such transaction will be considered a full
surrender, transfer or annuitization. The Appendix contains several examples
which illustrate the application of the Market Value Adjustment. The Market
Value Adjustment may result in either an increase or decrease in the
accumulation value of your Fixed Allocation. Because of the Market Value
Adjustment provision of the contract, you bear the investment risk that the
Guaranteed Interest Rates offered by us at the time you make a withdrawal or
transfer from a Fixed Allocation or start receiving annuity payments may be
higher or lower than the Guaranteed Interest Rate of the Fixed Allocation to
which the Market Value Adjustment is applied, with the result that the
accumulation value of your Fixed Allocation may be substantially reduced or
increased. This will depend on the relationship of (1) the Guaranteed Interest
Rate credited to the Fixed Allocation from which the withdrawal, transfer or
annuitization is made, to (2) the current Guaranteed Interest Rate offered by us
for the Guarantee Period equal to the number of years remaining in the Guarantee
Period as of such date. If the Guaranteed Interest Rate of (1) is higher than
the then current Guaranteed Interest Rate of (2) plus .0025, application of the
Market Value Adjustment will result in an increase in your accumulation value.
If the Guaranteed Interest Rate of (1) is lower than the then current Guaranteed
Interest Rate of (2) plus .0025, application of the Market Value Adjustment will
result in a decrease in your accumulation value.
In determining "J", we use the Guaranteed Interest Rate then currently offered
by us for the Guarantee Period equal to the number of years remaining.
Otherwise, the interest rate is derived by linear interpolation between the
Guaranteed Interest Rates then currently offered for the Guarantee Periods
nearest the remaining period of time.
FACTS ABOUT THE CONTRACT
THE OWNER
You are the owner. You are also the annuitant unless another annuitant is named
in the application or enrollment form. You have the rights and options described
in the contract. One or more persons may own the contract. If there are multiple
owners named, the age of the oldest owner shall determine the applicable death
benefit.
Death of an owner activates the death benefit provision. In the case of a sole
owner who dies prior to the annuity commencement date, we will pay the
beneficiary the death benefit then due. The sole owner's estate will be the
beneficiary if no beneficiary designation is in effect, or if the designated
beneficiary has predeceased the owner. In the case of a joint owner of the
contract dying prior to the annuity commencement
18
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
date, we will designate the surviving owner(s) as the beneficiary(ies). This
supersedes any previous beneficiary designation.
In the case where the owner is a trust and a beneficial owner of the trust has
been designated, the beneficial owner will be treated as the owner of the
contract solely for the purpose of activating the death benefit provisions. If a
beneficial owner is changed or added after the contract date, this will be
treated as a change of owner for purposes of determining the death benefit. See
Change of Owner or Beneficiary. If no beneficial owner of the Trust has been
designated, the level of death benefit will be determined by the age of the
annuitant at issue.
THE ANNUITANT
The annuitant is the person designated by the owner to be the measuring life in
determining annuity payments. The owner will receive the annuity benefits of the
contract if the annuitant is living on the annuity commencement date. If the
annuitant dies before the annuity commencement date, and a contingent annuitant
has been named, the contingent annuitant becomes the annuitant (unless the owner
is not an individual, in which case the death benefit becomes payable). Once
named, the annuitant may not be changed at any time.
If there is no contingent annuitant when the annuitant dies prior to the annuity
commencement date, the owner will become the annuitant. The owner may designate
a new annuitant within 60 days of the death of the annuitant.
If there is no contingent annuitant when the annuitant dies prior to the annuity
commencement date and the owner is not an individual, we will pay the
beneficiary the death benefit then due. The beneficiary will be as provided in
the beneficiary designation then in effect. If no beneficiary designation is in
effect, or if there is no designated beneficiary living, the owner will be the
beneficiary. If the annuitant was the sole owner and there is no beneficiary
designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies and any
owner is not an individual, such death will trigger application of the
distribution rules imposed by federal tax law. See Federal Tax Considerations,
Distribution-at-Death Rules.
THE BENEFICIARY
The beneficiary is the person to whom we pay death benefit proceeds if the owner
dies prior to the annuity commencement date. We pay death benefit proceeds to
the primary beneficiary (unless there are joint owners, in which case death
proceeds are payable to the surviving owner(s). See Proceeds Payable to the
Beneficiary.
If the beneficiary dies before the annuitant or owner, the death benefit
proceeds are paid to the contingent beneficiary, if any. If there is no
surviving beneficiary, we pay the death benefit proceeds to the owner's estate.
One or more persons who must be individuals may be named as 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 may specify other than equal shares.
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 must act
together to exercise the rights and options under the contract.
CHANGE OF OWNER OR BENEFICIARY
During the annuitant's lifetime and while the contract is in effect, you may
transfer ownership of the contract (if purchased in connection with a
non-qualified plan) subject to our published rules at the time of the change. A
change in ownership may affect the amount of the death benefit and the
guaranteed death benefit. You may also change the beneficiary. To make either of
these changes, you must send us written notice of the change in a form
satisfactory to us. The change will take effect as of the day the notice is
signed. The change will not affect any payment made or action taken by us before
recording the change at our Customer Service Center. See Federal Tax
Considerations, Transfer of Annuity Contracts, and Assignments.
AVAILABILITY OF THE CONTRACT
We can issue a contract if both the annuitant and the owner are not older than
age 85.
TYPES OF CONTRACTS
QUALIFIED CONTRACTS
The contract may be issued as an Individual Retirement Annuity or in
connection with an individual retirement account. In the latter case, the
contract will be issued without an Individual Retirement Annuity endorsement,
and the rights of the participant under the contract will be affected by the
terms and conditions of the particular individual retirement
19
<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
trust or custodial account, and by provisions of the Code and the regulations
thereunder. For example, the individual retirement trust or custodial account
will impose minimum distribution rules, which require distributions to
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. For both Individual Retirement Annuities
and individual retirement accounts, the minimum initial premium is $25,000.
IF THE CONTRACT IS PURCHASED TO FUND A QUALIFIED PLAN, DISTRIBUTION MUST
COMMENCE NOT LATER THAN APRIL 1ST OF THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH YOU ATTAIN AGE 70 1/2.
NON-QUALIFIED CONTRACTS
The contract may fund any non-qualified plan. Non-qualified contracts do not
qualify for any tax-favored treatment other than the benefits provided for by
annuities.
YOUR RIGHT TO SELECT OR CHANGE CONTRACT OPTIONS
Before the annuity commencement date, you may change the annuity commencement
date, frequency of annuity payments or the annuity option by sending a written
request to our Customer Service Center. The annuitant may not be changed at any
time.
PREMIUMS
You purchase the contract with an initial premium. After the end of the free
look period, you may make additional premium payments. See Making Additional
Premium Payments. The minimum initial premium is for qualified and non-qualified
contracts. We also offer a DVA through another prospectus, which is a contract
with a different charging structure.
We may refuse a premium payment if an initial premium or the sum of all premium
payments is more than $1,500,000. We may change the minimum initial or
additional premium requirements for certain group or sponsored arrangements. See
Group or Sponsored Arrangements.
QUALIFIED PLANS
For IRA contracts, the annual premium on behalf of any individual contract may
not exceed $2,000. Provided your spouse does not make a contribution to an
IRA, you may set up a spousal IRA even if your spouse has earned some
compensation during the year. The maximum deductible amount for a spousal IRA
program is the lesser of $2,250 or 100% of your compensation reduced by the
contribution (if any) made by you for the taxable year to your own IRA.
However, no more than $2,000 can go to either your or your spouse's IRA in any
one year. For example, $1,750 may go to your IRA and $500 to your spouse's
IRA. These maximums are not applicable if the premium is the result of a
rollover from another qualified plan.
WHERE TO MAKE PAYMENTS
Remit premium payments to our Customer Service Center. The address is shown on
the cover. We will send you a confirmation notice.
MAKING ADDITIONAL PREMIUM PAYMENTS
You may make additional premium payments after the end of the free look period.
We can accept additional premium payments until either the annuitant or owner
reaches the attained age of 85 under non-qualified plans. For qualified plans,
no contributions may be made to an IRA contract for the taxable year in which
you attain age 70 1/2 and thereafter (except for rollover contributions). The
minimum additional premium payment we will accept is $500 for a non-qualified
plan and $250 for a qualified plan.
CREDITING PREMIUM PAYMENTS
The initial premium will be accepted or rejected within two business days of
receipt by us if accompanied by information sufficient to permit us to determine
if we are able to issue a contract. We may retain an initial premium for up to
five business days while attempting to obtain information sufficient to enable
us to issue the contract. If we are unable to do so within five business days,
the applicant or enrollee will be informed of the reasons for the delay and the
initial premium will be returned immediately unless the applicant or enrollee
consents to our retaining the initial premium until we have received the
information we require. Thereafter, all additional premiums will be accepted on
the day received.
In certain states we will also accept, by agreement with broker-dealers,
transmittal of initial and additional premium payments by wire order from the
broker-dealer to the Customer Service Center. Such transmittals must be
accompanied by a simultaneous telephone facsimile or other electronic data
transmission containing the essential information we require to open an account
and allocate the premium payment. Contact the Customer Service Center to find
out about state availability and broker-dealer requirements.
Upon acceptance of premium payments received via wire order and accompanied by
sufficient electronically transmitted data, we will open an account, allocate
the premium payment according to the client's instructions, and invest the
payment at the value next
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FACTS ABOUT THE CONTRACT (CONTINUED)
determined following receipt. Wire orders not accompanied by sufficient data to
enable us to accept the premium payment may be retained for up to five business
days while we attempt to obtain the required information. If we are unable to do
so, the Customer Service Center will inform the broker-dealer, on behalf of the
applicant/enrollee, of the reasons for the delay and return the premium payment
immediately to the broker-dealer for return to the applicant/enrollee, unless
the applicant/enrollee specifically consents to allow us to retain the premium
payment until the required information is received by the Customer Service
Center.
On the date we receive and accept your initial or additional premium payment:
(1) We allocate the initial premium among the
divisions according to your instructions, subject to any restrictions.
See Restrictions on Allocation of Premium Payments. For additional premium
payments, the accumulation value will increase by the amount of the premium.
If we do not receive instructions from you, the increase in the accumulation
value will be allocated among the divisions in proportion to the amount of
accumulation value in each division as of the date we receive and accept the
additional premium payment.
(2) For an initial premium, we calculate the
distribution fee and any charge for premium taxes, if applicable. When an
additional premium payment is made, we increase any distribution fee and any
charge for premium taxes, if applicable. HOWEVER, WE MAY DEFER THE
COLLECTION OF THE CHARGE FOR PREMIUM TAXES. (See Charges and Fees, Premium
Taxes.)
(3) For an initial premium, we calculate the
guaranteed death benefit. When an additional premium payment is made, we
increase the guaranteed death benefit.
Following receipt and acceptance of the wire order and accompanying data, and
investment of the premium payment, we will follow one of the two procedures set
forth below. The one we follow is determined by state availability and the
procedures of the broker-dealer which submitted the wire order.
(1) We will issue the contract; however, until we have
received and accepted at the Customer Service Center a properly completed
application or enrollment form, we reserve the right to rescind the
contract. If the form is not received within fifteen days of receipt of the
premium payment, the amount of the initial premium, together with any gain,
will be returned to the broker-dealer for return to the applicant/enrollee.
In no event will an amount less than the full amount of the initial premium
be returned to the broker-dealer.
(2) Based on the information provided, we will issue
the contract. We will mail the contract to the Owner, together with an
Application Acknowledgement Statement. The Owner must execute the
Application Acknowledgement Statement and return it to us at the Customer
Service Center. Until we receive the executed Application Acknowledgement
Statement, neither the Owner nor the broker-dealer may execute any financial
transactions with respect to the contract unless such transactions are
requested in writing by the Owner and signature guaranteed.
RESTRICTIONS ON ALLOCATION OF PREMIUM PAYMENTS
We may require that an initial premium designated for a division of either
Account B or Account D be allocated to the Specially Designated Division during
the free look period for initial premiums received from some states. After the
free look period, if your initial premium was allocated to the Specially
Designated Division, we will transfer the accumulation value to the divisions
you previously selected based on the index of investment experience next
computed for each division. See Part I, Measurement of Investment Experience,
Index of Investment Experience and Unit Value. Initial premiums designated for
the Fixed Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen.
YOUR RIGHT TO REALLOCATE
You may reallocate your accumulation value among the divisions and Fixed
Allocations at the end of the free look period. We currently do not assess a
charge for allocation changes made during a contract year. We reserve the right,
however, to assess a $25 charge for each allocation change after the twelfth
allocation change in a contract year. We require that each reallocation of your
accumulation value equal at least $250 or, if less, your entire accumulation
value within a division or Fixed Allocation. We reserve the right to limit, upon
notice, the maximum number of reallocations you may make within a contract year.
In addition, we reserve the right to defer the reallocation privilege at any
time we are unable to purchase or redeem shares of The GCG Trust or Account D.
We also reserve the right to modify or terminate your right to reallocate your
accumulation value at any time in accordance with applicable law. When a
reallocation is made, we redeem shares of the Series underlying the divisions
you are transferring from at their net asset value. Reallocations from the Fixed
Account
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FACTS ABOUT THE CONTRACT (CONTINUED)
are subject to the Market Value Adjustment unless taken as part of the dollar
cost averaging program or within 30 days of the Maturity Date of the applicable
Guarantee Period. To make a reallocation change, you must provide us with
satisfactory notice at our Customer Service Center.
We reserve the right to limit the number of reallocations of your accumulation
value among the divisions and Fixed Allocations or refuse any reallocation
request if we believe that: (a) excessive trading by you or a specific
reallocation request may have a detrimental effect on unit values or the share
prices of the underlying Series; or (b) we are informed by The GCG Trust or
Account D that the purchase or redemption of shares is to be restricted because
of excessive trading or a specific reallocation or group of reallocations is
deemed to have a detrimental effect on share prices of The GCG Trust or Account
D.
Where permitted by law, we may accept your authorization of third party
reallocation on your behalf, subject to our rules. We may suspend or cancel such
acceptance at any time. We will notify you of any such suspension or
cancellation. We may restrict the divisions and Fixed Allocations that will be
available to you for reallocations of premiums during any period in which you
authorize such third party to act on your behalf. We will give you prior
notification of any such restrictions. However, we will not enforce such
restrictions if we are provided evidence satisfactory to us that: (a) such third
party has been appointed by a court of competent jurisdiction to act on your
behalf; or (b) such third party has been appointed by you to act on your behalf
for all your financial affairs.
RESTRICTIONS ON REALLOCATIONS
Some restrictions may apply based on the free look provisions of the state
where the contract is issued. See Your Right to Cancel or Exchange Your
Contract.
DOLLAR COST AVERAGING
If you have at least $10,000 of accumulation value in the Limited Maturity Bond
Division, the Liquid Asset Division or a Fixed Allocation with a one year
Guarantee Period, you may choose to have a specified dollar amount transferred
from those divisions or such Fixed Allocation] on a monthly basis.
The main objective of dollar cost averaging is to attempt to shield your
investment from short term price fluctuations. Since the same dollar amount is
transferred to other divisions each month, more units are purchased in a
division if the value per unit is low and less units are purchased if the value
per unit is high.
Therefore, a lower than average value per unit may be achieved over the long
term. This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in declining
markets. See Measurement of Investment Experience, INDEX OF INVESTMENT
EXPERIENCE AND UNIT VALUE.
Dollar cost averaging may be elected at issue or at a later date. The minimum
amount that may be transferred each month is $250. The maximum amount which may
be transferred is equal to the accumulation value in the Limited Maturity Bond
Division[,] the Liquid Asset Division or a Fixed Allocation with a one year
Guarantee Period when elected, divided by 12.
Systematic Reallocations is another form of dollar cost averaging that we offer.
Under this program interest earnings during the prior month or quarter,
depending on whether you have chosen a monthly or quarterly frequency, can be
systematically transferred from a Fixed Allocation to the divisions. The minimum
amount that may be transferred each month is $250.
The transfer date will be the same calendar day each month as the contract date.
The dollar amount will be allocated to the divisions in which you are invested
in proportion to your accumulation value in each division unless you specify
otherwise. If, on any transfer date, the accumulation value is equal to or less
than the amount you have elected to have transferred, the entire amount will be
transferred and the program will end. You may change the transfer amount once
each contract year, or cancel this program by sending us satisfactory notice to
our Customer Service Center at least seven days before the next transfer date.
Any allocation under this program will not be included in determining if the
excess allocation charge will apply. We currently do not permit transfers under
the dollar cost averaging program, other than Systematic Reallocations, from
Fixed Allocations with other than one year Guarantee Periods. Transfers from a
Fixed Allocation under the dollar cost averaging program will not be subject to
a Market Value Adjustment. (See "Market Value Adjustment".) A Fixed Allocation
may not participate simultaneously in both the dollar cost averaging program and
the Systematic Partial Withdrawal Option.
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a division
of Account B or The Managed Global Account Division of Account D in which
reinvestment is not available, we will allocate the distribution, unless you
specify otherwise, to the Specially Designated Division.
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FACTS ABOUT THE CONTRACT (CONTINUED)
Such a distribution can occur when (a) an investment portfolio matures, or (b) a
distribution from a portfolio or division cannot be reinvested in the portfolio
or division due to the unavailability of securities for acquisition. When an
investment portfolio matures, we will notify you in writing 30 days in advance
of that date. To elect an allocation to other than the Specially Designated
Division, you must provide satisfactory notice to us at least seven days prior
to the date the portfolio matures. Such allocations are not counted for purposes
of the number of free allocation changes permitted. When a distribution from a
portfolio or division cannot be reinvested in the portfolio due to the
unavailability of securities for acquisition, we will notify you promptly after
the allocation has occurred. If within 30 days you allocate the accumulation
value from the Specially Designated Division to other divisions or Fixed
Allocations of your choice, such allocations will not be included in determining
if the excess allocation charge will apply.
YOUR ACCUMULATION VALUE
Your accumulation value is the sum of the amounts in each of the divisions and
the Fixed Allocations in which you are invested, and is the amount available for
investment at any time. You select the divisions and Fixed Allocations to which
to allocate the accumulation value. We adjust your accumulation value on each
Valuation Date to reflect the divisions' investment performance and interest
credited to your Fixed Allocations, any additional premium payments or partial
withdrawals since the previous Valuation Date, and on each contract processing
date to reflect the deduction of any charges and fees. The accumulation value is
applied to your choice of an annuity option on the annuity commencement date
subject to our published rules at such time. See Choosing an Income Plan.
ACCUMULATION VALUE IN EACH DIVISION
ON THE CONTRACT DATE
On the contract date, the accumulation value is allocated to each division as
you have specified, unless the contract is issued in a state that requires the
return of premium payments during the free look period, in which case, the
portion of your initial premium not allocated to a Fixed Allocation will be
allocated to the Specially Designated Division during the free look period.
See Your Right to Cancel or Exchange Your Contract.
ON EACH VALUATION DATE
At the end of each subsequent valuation period, the amount of accumulation
value in each division will be calculated as follows:
(1) We take the accumulation value in the division
at the end of the preceding valuation period.
(2) We multiply (1) by the division's net rate of
return for the current valuation period.
(3) We add (1) and (2).
(4) We add to (3) any additional premium
payments allocated to the division during the current valuation period.
(5) We add or subtract allocations to or from that
division during the current valuation period.
(6) We subtract from (5) any partial withdrawals
and any associated charges allocated to that division during the current
valuation period.
(7) We subtract from (6) the amounts allocated to
that division for:
(a) any contract fees; and
(b) any distribution fee and any charge for
premium taxes.
All amounts in (7) are allocated to each division in the proportion that (6)
bears to the accumulation value in Account B and Account D, unless the Charge
Deduction Division has been specified. See Charges Deducted from the
Accumulation Value.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE AND UNIT VALUE
The investment experience of a division is determined on each valuation date.
We use an index to measure changes in each division's experience during a
valuation period. We set the index at $10 when the first investments in a
division are made. The index for a current valuation period equals the index
for the preceding valuation period multiplied by the experience factor for the
current valuation period.
We may express the value of amounts allocated to the divisions in terms of
units. We determine the number of units for a given amount on a valuation date
by dividing the dollar value of that amount by the index of investment
experience for that date. The index of investment experience is equal to the
value of a unit.
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FACTS ABOUT THE CONTRACT (CONTINUED)
HOW WE DETERMINE THE EXPERIENCE FACTOR
For divisions of Account B the experience factor reflects the investment
experience of the Series in which a division invests as well as the charges
assessed against the division for a valuation period. The factor is calculated
as follows:
(1) We take the net asset value of the portfolio in
which the division invests at the end of the current valuation period.
(2) We add to (1) the amount of any dividend or
capital gains distribution declared for the investment portfolio and
reinvested in such portfolio during the current valuation period. We
subtract from that amount a charge for our taxes, if any.
(3) We divide (2) by the net asset value of the
portfolio at the end of the preceding valuation period.
(4) We subtract the daily mortality and expense
risk charge from each division for each day in the valuation period.
(5) We subtract the daily asset based
administrative charge from each division for each day in the valuation
period.
Calculations for divisions investing in a Series are made on a per share
basis.
For the Global Account the experience factor reflects the investment
experience of the Global Account as well as the charges assessed against the
Global Account for a valuation period. The factor is calculated as follows:
(1) We take the value of the assets in the Global
Account at the end of the preceding valuation period.
(2) We add to (1) any investment income and
capital gains, realized or unrealized, credited to the assets during the
current valuation period.
(3) We subtract from (2) any capital losses, realized
or unrealized, charged against the assets during the current valuation
period.
(4) We subtract from (3) any amount charged
against the Global Account for any taxes.
(5) We divide (4) by the value of the assets in the
Global Account at the end of the preceding valuation period.
(6) We subtract from (5) the daily charge for
management and investment advice for each day in the valuation period.
(7) We subtract from (6) a daily charge for
estimated operating expenses for each day in the valuation period.
(8) We subtract from (7) the daily charge for
mortality and expense risks for each day in the valuation period.
(9) We subtract from (8) the daily asset based
administrative charge for each day in the valuation period.
NET RATE OF RETURN FOR A DIVISION
The net rate of return for a division during a valuation period is the
experience factor for that valuation period minus one.
CASH SURRENDER VALUE
Your contract's cash surrender value fluctuates daily with the investment
results of the divisions, interest credited to Fixed Allocations and any Market
Value Adjustment. We do not guarantee any minimum. On any date before the
annuity commencement date while the contract is in effect, the cash surrender
value is calculated as follows:
(1) We take the contract's accumulation value;
(2) We deduct any surrender charge and any charge
for premium taxes;
(3) We deduct any charges incurred but not yet
deducted; and
(4) We adjust for any Market Value Adjustment.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
The contract may be surrendered by the owner at any time while the annuitant is
living and before the annuity commencement date.
A surrender will be effective on the date your written request and the contract
are received by us at our Customer Service Center and the cash surrender value
is determined accordingly as of that date. All benefits under the contract will
then be terminated as of that date. You may receive the cash surrender value in
a single sum payment or apply it under one or more annuity options. See The
Annuity Options. We will usually pay the cash surrender value within seven days
but we may delay payment as described in the When We Make Payments provision.
PARTIAL WITHDRAWALS
Prior to the annuity commencement date, while the annuitant is living and the
contract is in effect, you may take partial withdrawals from the accumulation
value by sending satisfactory notice to our Customer
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FACTS ABOUT THE CONTRACT (CONTINUED)
Service Center. Unless you specify otherwise, the amount of the withdrawal will
be taken in proportion to the amount of accumulation value in each division in
which you are invested. If there is no accumulation value in those divisions,
partial withdrawals will be deducted from your Fixed Allocations starting with
the Guarantee Periods nearest their Maturity Dates until we have honored your
request.
There are three options available for selecting partial withdrawals, the
Conventional Partial Withdrawal Option, the Systematic Partial Withdrawal Option
and the IRA Partial Withdrawal Option. All three options are described below.
Partial withdrawals may not be repaid.
CONVENTIONAL PARTIAL WITHDRAWAL OPTION
After the free look period, you may take conventional partial withdrawals. If
you take more than one conventional partial withdrawal in a contract year, we
impose a charge of the lesser of $25 and 2.0% of the amount withdrawn. The
minimum amount you may withdraw under this option is $1,000. A conventional
partial withdrawal from a Fixed Allocation may be subject to a Market Value
Adjustment.
In no event may a conventional partial withdrawal or a combination of a
conventional partial withdrawal and systematic partial withdrawals received or
expected to be received during the contract year, exceed 25% of the
accumulation value as of the date of the current withdrawal. Also, in no event
may a combination of a conventional partial withdrawal and IRA partial
withdrawals received or expected to be received during a contract year, exceed
25% of the accumulation value as of the date of the conventional partial
withdrawal.
SYSTEMATIC PARTIAL WITHDRAWAL OPTION
This option may be elected at the time you apply for a Contract, or at a later
date. This option may be elected to commence in a contract year where a
conventional partial withdrawal has been taken. However, it may not be elected
while the IRA Partial Withdrawal Option is in effect.
You may choose to receive systematic partial withdrawals on a monthly or
quarterly basis from the accumulation value in the divisions or the Fixed
Allocations. The commencement of payments under this option may not be elected
to start sooner than 28 days after the contract issue date. You select the
date of the quarter or month when the withdrawals will be made but no later
than the 28th day of the month. If no date is selected, the withdrawals will
be made on the same calendar day of each month as the contract date.
You may select a dollar amount or a percentage of the accumulation value from
the divisions in which you are invested as the amount of your withdrawal
subject to the following maximums, but in no event can a payment be less than
$100:
<TABLE>
<CAPTION>
FREQUENCY MAXIMUM PERCENTAGE
- ------------ -------------------------
<S> <C>
Monthly..... 1.25 %
Quarterly... 3.75 %
</TABLE>
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage of the accumulation value on
the withdrawal date, the amount withdrawn will be reduced so that it equals
such percentage. For example, if a $500 monthly withdrawal was elected and on
the withdrawal date 1.25% of the accumulation value equaled $300, the
withdrawal amount would be reduced to $300. If a percentage is selected and
the amount to be systematically withdrawn based on that percentage would be
less than the minimum of $100, we would increase the amount to $100 provided
it does not exceed the maximum percentage. If it is below the maximum
percentage we will send the minimum. If it is above the maximum percentage we
will send the amount and then cancel the option. For example, if you selected
1.0% to be systematically withdrawn on a monthly basis and that amount equaled
$90, and since $100 is less than 1.25% of the accumulation value, we would
send $100. If 1.0% equaled $75, since $100 is more than 1.25% of the
accumulation value we would send $75 and then cancel the option. In such a
case, in order to receive systematic partial withdrawals in the future, you
would be required to submit a new notice to our Customer Service Center.
Systematic Partial Withdrawals from Fixed Allocations are limited to interest
earnings during the prior month or quarter, depending on whether you have
chosen a monthly or quarterly frequency, respectively. Systematic withdrawals
are not subject to a Market Value Adjustment. A Fixed Allocation, however, may
not participate simultaneously in both the dollar cost averaging program and
the Systematic Partial Withdrawal Option.
In no event may a systematic partial withdrawal or a combination of a
conventional partial withdrawal and systematic partial withdrawals received or
expected to be received during the contract year, exceed 25% of the
accumulation value as of the date of the current withdrawal.
You may change the amount or percentage of your withdrawal once each contract
year or cancel this option at any time by sending satisfactory notice to us at
our Customer Service Center at least seven
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
days prior to the next scheduled withdrawal date. However, you may not change
the amount or percentage of your withdrawals in any contract year during which
you have previously taken a conventional partial withdrawal.
IRA PARTIAL WITHDRAWAL OPTION
If you have an IRA contract and will attain age 70 1/2 in the current calendar
year, distributions will be made to you to satisfy requirements imposed by
Federal tax law. IRA partial withdrawals provide payout of amounts required to
be distributed by the Internal Revenue Service rules governing mandatory
distributions under qualified plans. See Federal Tax Considerations, Taxation
of Individual Retirement Annuities. We will send you a notice before your
distributions must commence, and you may elect this option at that time, or at
a later date. You may not elect IRA partial withdrawals while the Systematic
Partial Withdrawal Option is in effect. If you do not elect the IRA Partial
Withdrawal Option, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax law
will be made. Thus, if the Systematic Partial Withdrawal Option is in effect,
distribution under that option must be adequate to satisfy the mandatory
distribution rules imposed by Federal tax law.
You may choose to receive IRA partial withdrawals on a monthly, quarterly or
annual frequency. You select the day of the month when the withdrawals will be
made, but it cannot be later than the 28th day of the month. If no date is
selected, the withdrawals will be made on the same calendar day of the month
as the contract date.
We will determine the amount that is required to be withdrawn from your
contract each year based on the information you give us and various choices
you make. For information regarding the calculation and choices you have to
make, see the Statement of Additional Information. The minimum dollar amount
you can withdraw is $100. At the time we determine the required partial
withdrawal amount for a taxable year based on the frequency you select, if
that amount is less than $100, we will pay $100. At any time where the partial
withdrawal amount is greater than the accumulation value, we will cancel the
contract and send you the amount of the cash surrender value.
You may change the payment frequency of your withdrawals once each contract
year or cancel this option at any time by sending us satisfactory notice to
our Customer Service Center at least seven days prior to the next scheduled
withdrawal date.
An IRA partial withdrawal in excess of the amount allowed under the Systematic
Partial Withdrawal Option may be subject to a Market Value Adjustment.
PARTIAL WITHDRAWALS IN GENERAL
CONSULT YOUR TAX ADVISOR REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
PARTIAL WITH-
DRAWALS. A partial withdrawal made before the taxpayer reaches age 59 1/2 may
result in imposition of a tax penalty of 10% of the taxable portion withdrawn.
See Federal Tax Considerations for more details.
PROCEEDS PAYABLE TO THE BENEFICIARY
If the owner or the annuitant (when the owner is other than an individual) dies
prior to the annuity commencement date, we will pay the beneficiary the death
benefit proceeds under the contract. Such amount may be received in a single sum
or applied to any of the annuity options. See The Annuity Options. If we do not
receive a request to apply the death benefit proceeds to an annuity option, a
single sum distribution will be made. Any distributions from non-qualified
contracts must comply with applicable federal tax law requirements. See Federal
Tax Considerations.
If the owner or the annuitant (when the owner is other than an individual) is
age 75 or younger at issue, the death benefit is the greatest of the
accumulation value, the guaranteed death benefit and the cash surrender value.
If the owner or the annuitant (when the owner is other than an individual) is
age 76 or older at issue, the death benefit is the greater of the cash surrender
value and the sum of the premiums paid, less any partial withdrawals.
We may offer a reduced death benefit under certain group and sponsored
arrangements. See Part I, Group or Sponsored Arrangements.
GUARANTEED DEATH BENEFIT
On the contract date the guaranteed death benefit is equal to the initial
premium. On subsequent valuation dates, the guaranteed death benefit will be
based on the guaranteed death benefit option you have chosen. Unless you elect
otherwise, the guaranteed death benefit will be calculated in accordance with
Death Benefit Option 1. You may only elect a death benefit option at issue. The
Guaranteed Death Benefit is calculated for each death benefit option as follows.
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FACTS ABOUT THE CONTRACT (CONTINUED)
DEATH BENEFIT OPTION 1
(1) We take the guaranteed death benefit from the
prior valuation date.
(2) We calculate interest on (1) for the current
valuation period at which rate is an annual rate of 7% the guaranteed
death benefit interest rate,
except that with respect to amounts in the Liquid Asset Division, the
interest rate applied to such amounts will be the net rate of return for
the Liquid Asset Division during the current valuation period, if it is
less than 7%,
and except with respect to amounts in a Fixed Allocation, the interest
rate applied to such amounts will be the interest credited to the Fixed
Allocation during the current valuation period, if it is less than 7%.
Each accumulated initial or additional premium payment reduced by any
partial withdrawals, will continue to grow at the guaranteed death benefit
interest until reaching its maximum guaranteed death benefit. The maximum
guaranteed death benefit is equal to two times each initial or additional
premium paid minus the sum of partial withdrawals taken.
(3) We add (1) and (2).
(4) We add to (3) any additional premiums paid
during the current valuation period.
(5) We subtract from (4) any partial withdrawals
made during the current valuation period.
DEATH BENEFIT OPTION 2
(1) We take the guaranteed death benefit from the
prior Valuation Date.
(2) We add to (1) any additional premiums paid
since the prior Valuation Date and subtract from (1) any partial
withdrawals taken since the prior Valuation Date.
(3) On a Valuation Date that occurs on or prior to
the owner's attained age 80 which is also a contract anniversary, we set
the guaranteed death benefit equal to the greater of (2) or the
accumulation value as of such date.
On all other Valuation Dates, the guaranteed death benefit is equal to
(2).
DEATH BENEFIT OPTION 3
(1) We take the guaranteed death benefit from the
prior valuation date.
(2) We add any premiums paid and subtract any
partial withdrawals taken during the current valuation period.
HOW TO CLAIM PAYMENTS TO BENEFICIARY
We must receive due proof of the death of the owner or the annuitant (if the
owner is other than an individual) (such as an official death certificate) at
our Customer Service Center before we will make any payments to the
beneficiary. We will calculate the death benefit as of the date we receive due
proof of death. The beneficiary should contact our Customer Service Center for
instructions.
REPORTS TO OWNERS
We will send you a report once each calendar quarter within 31 days after the
end of each calendar quarter. The report will show the accumulation value, the
cash surrender value, and the death benefit as of the end of the calendar
quarter.
The report will also show the allocation of the accumulation value as of such
date and the amounts deducted from or added to the accumulation value since the
last report. The report will also include any other information that may be
currently required by the insurance supervisory official of the jurisdiction in
which the contract is delivered. We will also send you copies of any shareholder
reports of the portfolios or securities in which the Accounts invest, as well as
any other reports, notices or documents required by law to be furnished to
owners.
WHEN WE MAKE PAYMENTS
We will generally pay death benefit proceeds and the cash surrender value within
seven days after our Customer Service Center receives all the information needed
to process the payment.
However, we may delay payment of amounts derived from the divisions if it is not
practical for us to value or dispose of shares of Account B or Account D
because:
(1) The NYSE is closed for trading;
(2) The SEC determines that a state of emergency
exists;
(3) An order or pronouncement of the SEC permits a
delay for the protection of owners; or,
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<PAGE>
FACTS ABOUT THE CONTRACT (CONTINUED)
(4) The check used to pay the premium has not
cleared through the banking system. This may take up to 15 days.
During such times, as to amounts allocated to the divisions, we may delay:
(1) Determination and payment of any cash
surrender value;
(2) Determination and payment of any death benefit
if death occurs before the annuity commencement date;
(3) Allocation changes of the accumulation value; or,
(4) Application under an annuity option of the
accumulation value.
We reserve the right to delay payment of amounts derived from the Fixed Account
for up to six months.
CHARGES AND FEES
CHARGE DEDUCTION DIVISION
You may specify at issue if you wish to use the Charge Deduction Division
Option. If you so specify, all charges against the accumulation value will be
deducted from the Liquid Asset Division. If you do not elect this option, or if
the amount of the charges is greater than the amount in the division, the
charges will be deducted as discussed below. You may also choose to elect or
cancel this option while the contract is in force by sending satisfactory notice
to our Customer Service Center.
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE
We invest the entire amount of the initial and any additional premium payments
in the divisions and the Fixed Allocations you select, subject to certain
restrictions. See Restrictions on Allocation of Premium Payments. We then
periodically deduct certain amounts from your accumulation value. We may reduce
certain fees and charges, including any distribution fees, surrender,
administration, and mortality and expense risk charges, under group or sponsored
arrangements. See Group or Sponsored Arrangements. Unless you have elected the
Charge Deduction Division, charges are deducted proportionately from all
divisions in which you are invested. If there is no accumulation value in those
divisions, we will deduct charges from your Fixed Allocations starting with the
Guarantee Periods nearest their Maturity Dates until such charges have been
paid. The charges we deduct are:
DISTRIBUTION FEE
We deduct a sales load in an annual amount of 0.65% of each premium at the end
of each contract processing period (or at the time of surrender if surrendered
before the end of a contract processing period) for a period of ten years from
the date we receive and accept each premium payment. Subject to our published
rules, we will receive the distribution fee associated with that portion of
the premium allocated to the Fixed Account while such premium remains
allocated to the time account. If a premium allocated to the Fixed Account is
transferred to one of the Divisions, we will no longer waive the distribution
fee associated with that portion and the appropriate sales load will be
deducted.
Subject to our published rules and as described in the Contract, the surrender
charge arising from a surrender or excess partial withdrawal will be waived in
the following events:
(1) you begin receiving qualified extended medical
care on or after the first Certificate Anniversary for at least 45 days
during any continuous sixty-day period, and your request for the surrender
or withdrawal, together with proof of such qualified extended medical
care, must be received at our Customer Service Center during the term of
such care or within ninety days after the last day upon which you received
such care.
(2) you are diagnosed by a qualifying medicalprofessional,
on or after the first Certificate Anniversary, as having a Qualifying
Terminal Illness. Written proof of terminal illness, satisfactory to us,
must be received at our Customer Service Center. We reserve the right to
require an examination by a physician of our choice.
The waiver of surrender charge may not be available in all states.
PREMIUM TAXES
We make a charge for state and local premium taxes in certain states which can
range from 0% to 3.5% of premium. The charge depends on the owner's state of
residence. We reserve the right to change this amount to conform with changes
in the law or if the annuitant or owner changes state of residence, as
applicable.
Premium taxes are generally incurred on the annuity commencement date and a
charge for such premium taxes is then deducted from your accumulation value on
such date. However, some jurisdictions impose a premium tax at the time that
initial and additional premiums are paid, regardless of the annuity
commencement date. In those states
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<PAGE>
CHARGES AND FEES (CONTINUED)
we may initially defer collection of the amount of the charge for premium
taxes from your accumulation value and deduct it against accumulation value on
surrender of the contract, excess partial withdrawals or on the annuity
commencement date.
In those cases when we defer collection of the charge for premium taxes from
the accumulation value, a positive net rate of return will give a higher cash
surrender value and a negative net rate of return will give a lower cash
surrender value than would be the case had the charge for premium taxes been
deducted from your premium payment.
EXCESS ALLOCATION CHARGE
We currently do not assess a charge for allocation changes made during a
contract year. We reserve the right, however, to assess a $25 charge for each
allocation change after the twelfth allocation change in a contract year. This
amount represents the maximum we will charge. The charge would be deducted
from the divisions and the Fixed Allocations] from which each such
reallocation is made in proportion to the amount being transferred from each
such division and Fixed Allocation] unless you have chosen to use the Charge
Deduction Division. The excess allocation charge is set at a level that is not
designed to produce profit for Golden American or any affiliate. Any
allocations or transfers due to the election of dollar cost averaging and
reallocation under the provision WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
will not be included in determining if the excess allocation charge should
apply.
PARTIAL WITHDRAWAL CHARGE
If you take more than one conventional partial withdrawal during a contract
year, we impose a charge of the lesser of $25 and 2.0% of the amount withdrawn
for each additional conventional partial withdrawal. The charge is deducted
from the divisions and the Fixed Allocations from which each such partial
withdrawal is made in proportion to the amount being withdrawn from each
division and Fixed Allocation unless you have chosen to use the Charge
Deduction Division. See Partial Withdrawals, CONVENTIONAL PARTIAL WITHDRAWAL
OPTION.
CHARGES DEDUCTED FROM THE DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE
The daily charge is at the rate of 0.003446% (equivalent to an annual rate of
1.25%) on the assets in each division. Approximately 0.799% is allocated to
the mortality risk and 0.451% is allocated to the expense risk. (If Death
Benefit Option 3 is elected, we will reduce the Mortality and Expense Risk
Charge to an annual rate of 1.05%.)
This charge will compensate us for mortality and expense risks we assume under
the contract. We will realize a gain from this charge to the extent it is not
needed to provide for benefits and expenses under the contract. We will use
any gain for any lawful purpose including any shortfalls on paying
distribution expenses.
The mortality risk assumed is the risk that annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. Golden American also assumes a
risk under the contract for paying a guaranteed death benefit.
The expense risk assumed is the risk that it will cost us more to issue and
administer the contract than we expect.
ASSET BASED ADMINISTRATIVE CHARGE
We will deduct a daily charge from the assets in each division, to compensate
us for a portion of the administrative expenses under the contract. The daily
charge is at a rate of 0.000276% (equivalent to an annual rate of 0.10%) on
the assets in each division.
This asset based administrative charge plus the administrative charge above
will not exceed the cost of the services to be provided over the life of the
contract.
TRUST EXPENSES
There are fees and charges deducted from each Series. Please read the Trust
prospectus for details.
OPERATING EXPENSES OF ACCOUNT D
There are additional fees and charges to the Global Account in Account D for
management and advisory services as well as other operational expenses of the
Global Account. DSI as the Manager of Account D receives a monthly fee equal to
an annual rate based upon the following percentages of the Global Account's
average daily net assets: 0.40% of the first $500 million and 0.30% of the
amount over $500 million. Warburg, Pincus as the Portfolio Manager receives a
monthly fee equal to an annual rate based upon the following percentages of the
Global Account's average daily net assets: 0.60% of the first $500 million and
0.50% of the amount over $500 million. The total fees for management and
advisory services exceed the fees for similar services paid by some other
registered investment companies with similar objectives.
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<PAGE>
CHARGES AND FEES (CONTINUED)
The Global Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, and legal and auditing services.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
The Global Account and DSI have agreed to limit the total expenses of the Global
Account. See Part I, The Managed Global Account of Account D.
CHOOSING AN INCOME PLAN
THE INCOME PLAN
If the annuitant and owner are living on the annuity commencement date, we will
begin making payments to the owner under an income plan. We will make these
payments under the annuity option chosen. You may change an annuity option by
making a written request to us at least 30 days prior to the annuity
commencement date of the contract. The amount of the payments will be determined
by applying the accumulation value on the annuity commencement date in
accordance with The Annuity Options section below, subject to our published
rules at such time. See When We Make Payments.
You may also elect an annuity option on surrender of the contract for its cash
surrender value or, you may choose one or more annuity options for the payment
of death benefit proceeds while it is in effect and before the annuity
commencement date. If, at the time of the owner's death or the annuitant's death
(if the owner is not an individual), no option has been chosen for paying death
benefit proceeds, the beneficiary may choose an option within 60 days. In all
events, payment of death benefit proceeds must comply with the distribution
requirements of applicable federal tax law. See Federal Tax Considerations.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the accumulation value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each option we will issue a separate written agreement putting the option
into effect. Before we pay any annuity benefits, we require the return of the
contract. If your contract has been lost, we will require that you complete and
return the applicable lost contract form. Various factors will affect the level
of annuity benefits including the annuity option chosen, the assumed interest
rate used and the investment results of the divisions and interest credited to
the Fixed Allocations in which the accumulation value has been invested.
Fixed annuity payments are regular payments, the amount of which is fixed and
guaranteed by us. The amount of the payments will depend only on the form and
duration of payments chosen, the age of the annuitant or beneficiary (and sex,
where applicable), the total accumulation value applied to purchase the fixed
option, and the applicable payment rate.
Our approval is needed for any option where:
(1) The person named to receive payment is other
than the owner or beneficiary;
(2) The person named is not a natural person, such as
a corporation; or
(3) Any income payment would be less than the
minimum annuity income payment allowed.
ANNUITY COMMENCEMENT DATE SELECTION
You select the annuity commencement date. You may select any date following the
third contract anniversary but before the contract processing date in the month
following the annuitant's 90th birthday. If you do not select a date, the
annuity commencement date will be in the month following the annuitant's 90th
birthday. However, in the state of Pennsylvania the annuity commencement date
may not be later than in the month following the annuitant's 85th birthday for
annuitants with an issue age of 80 and under. If the annuity commencement date
occurs when the annuitant is at an advanced age, such as over age 85, it is
possible that the contract will not be considered an annuity for Federal tax
purposes. See Federal Tax Considerations. For a contract purchased in connection
with a qualified plan, distribution must commence not later than April 1st of
the calendar year following the calendar year in which you attain age 70 1/2.
Consult your tax advisor.
FREQUENCY SELECTION
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, the payments will be made monthly. There may be certain restrictions on
minimum payments that we will allow.
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CHOOSING AN INCOME PLAN (CONTINUED)
THE ANNUITY OPTIONS
There are four options to choose from as shown below. Options 1 through 3 are
fixed and option 4 may be fixed or variable. For a fixed option, the
accumulation value in the divisions is transferred to the general account.
OPTION 1. INCOME FOR A FIXED PERIOD
Payment is made in equal installments for a fixed number of years based on the
accumulation value as of the annuity commencement date. We guarantee that each
monthly payment will be at least the amount set forth in the contract.
Guaranteed amounts for annual, semi-annual and quarterly payments are
available upon request. Illustrations are available upon request. If the cash
surrender value or accumulation value is applied under this option, a 10%
penalty tax may apply to the taxable portion of each income payment until the
owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE
Payment is made in equal monthly installments and guaranteed for at least a
period certain. The period certain can be 10 or 20 years. Other periods
certain are available on request. A refund certain may be chosen instead.
Under this arrangement, income is guaranteed until payments equal the amount
applied. If the person named lives beyond the guaranteed period, payments
continue until his or her death. We guarantee that each payment will be at
least the amount set forth in the contract corresponding to the person's age
on his or her last birthday before the option's effective date. Amounts for
ages not shown in the contract are available upon request.
OPTION 3. JOINT LIFE INCOME
This option is available if there are two persons named to receive payments.
At least one of the persons named must be either the owner or beneficiary of
the contract. Monthly payments are guaranteed and are made as long as at least
one of the named persons is living. There is no minimum number of payments.
Monthly payment amounts are available upon request.
OPTION 4. ANNUITY PLAN
An amount can be used to buy any single premium annuity we offer on the
option's effective date.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided by the option agreement. The amounts still due are determined as
follows:
(1) For option 1, or any remaining guaranteed
payments under option 2, payments will be continued. Under options 1 and 2,
the discounted values of the remaining guaranteed payments may be paid
in a single sum. This means we deduct the amount of the interest each
remaining guaranteed payment would have earned had it not been paid out
early. The discount interest rate is never less than 3% for option 1 and
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 agreement will state the
amount due, if any.
OTHER CONTRACT PROVISIONS
IN CASE OF ERRORS IN APPLICATION INFORMATION
If an age or sex given in the application or enrollment form is misstated, the
amounts payable or benefits provided by the contract shall be those that the
premium payment would have bought at the correct age or sex.
SENDING NOTICE TO US
Any written notices, inquiries or requests should be sent to our Customer
Service Center. Please include your name, your contract number and, if you are
not the annuitant, the name of the annuitant.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified contract as collateral security for a loan or
other obligation. This does not change the ownership. However, your rights and
any beneficiary's rights are subject to the terms of the assignment. See
Transfer of Annuity Contracts, and Assignments. An assignment may have Federal
tax consequences. See Federal Tax Considerations.
You must give us satisfactory written notice at our Customer Service Center in
order to make or release an assignment. We are not responsible for the
validity of any assignment.
NON-PARTICIPATING
The contract does not participate in the divisible surplus of Golden American.
AUTHORITY TO MAKE AGREEMENTS
All agreements made by us must be signed by our president or a vice president
and by our secretary or an assistant secretary. No other person, including an
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<PAGE>
OTHER CONTRACT PROVISIONS (CONTINUED)
insurance agent or broker, can change any of the contract's terms, make any
agreements binding on us or extend the time for premium payments.
CONTRACT CHANGES -- APPLICABLE TAX LAW
We reserve the right to make changes in the contract to the extent we deem it
necessary to continue to qualify the contract as an annuity. Any such changes
will apply uniformly to all contracts that are affected. You will be given
advance written notice of such changes.
YOUR RIGHT TO CANCEL OR EXCHANGE YOUR CONTRACT
CANCELLING YOUR CONTRACT
You may cancel your contract within your free look period, which is ten days
after you receive your contract. For purposes of administering our allocation
and administrative rules, we deem this period to expire 15 days after the
contract is mailed to you. Some states may require a longer free look period.
If you decide to cancel, you may mail or deliver the contract to us at our
Customer Service Center. We will refund the accumulation value plus any
charges we deducted, and the contract will be voided as of the date we receive
the contract and your request. Some states require that we return the premium
paid. In these states, we require your premiums designated for investment in
the divisions of Account B and Account D be allocated to the Specially
Designated Division during the free look period. Premiums designated for the
Fixed Account will be allocated to a Fixed Allocation with the Guarantee
Period you have chosen. If you do not choose to exercise your right to cancel
during the free look period, then at the end of the free look period your
money will be invested in the divisions chosen by you, based on the index of
investment experience next computed for each division. See Measurement of
Investment Experience, INDEX OF EXPERIENCE AND UNIT VALUE.
EXCHANGING YOUR CONTRACT
For information regarding Section 1035 exchanges, see Federal Tax
Considerations.
OTHER CONTRACT CHANGES
You may change the contract to another annuity plan subject to our rules at the
time of the change.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any distribution fee,
surrender, administration, and mortality and expense risk charges. We may also
change the minimum initial and additional premium requirements, or offer a
reduced death benefit. Group arrangements include those in which a trustee or an
employer, for example, purchases contracts covering a group of individuals on a
group basis. Sponsored arrangements include those in which an employer allows us
to sell contracts to its employees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy contracts or that have been in existence less
than six months will not qualify for reduced charges.
We will make these and any similar reductions according to our rules in effect
when an application or enrollment form for a contract is approved. We may change
these rules from time to time. Any variation in the distribution fee or
administrative charge will reflect differences in costs or services and will not
be unfairly discriminatory.
SELLING THE CONTRACT
DSI is also principal underwriter and distributor of the contract as well as for
other contracts issued through Account B and Account D and other separate
accounts of Golden American. We pay DSI for acting as principal underwriter
under a distribution agreement. The offering of the contract will be continuous.
DSI has entered into and will continue to enter into sales agreements with
broker-dealers to solicit for the sale of the contract through registered
representatives who are licensed to sell securities and variable insurance
products including variable annuities. These agreements provide that
applications for contracts may be solicited by registered representatives of the
broker-dealers appointed by Golden American to sell its variable life insurance
and variable annuities. These broker-dealers are registered with the SEC and are
members of the National Association of Securities Dealers, Inc. ("NASD"). The
registered representatives are authorized under applicable state regulations to
sell variable life insurance and variable annuities. The writing agent will
receive commissions of up to 1.15% of any initial premium payment made and up to
1.15% of the average annual contract assets per year over the life of the
contract.
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REGULATORY INFORMATION
VOTING RIGHTS
ACCOUNT B
We will vote the shares of the 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 the
Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a division by dividing the
contract's accumulation value in that division by the net asset value of one
share of the portfolio in which a division invests. Fractional votes will be
counted. We will determine the number of shares you can instruct us to vote
180 days or less before the Trust's meeting. We will ask you for voting
instructions by mail at least 10 days before the meeting.
If we do not get your instructions in time, we will vote the shares in the
same proportion as the instructions received from all contracts in that
division. We will also vote shares we hold in Account B which are not
attributable to owners in the same proportion.
ACCOUNT D
Owners with accumulation value in the Global Account have certain voting
rights. Each such owner will be given one vote for every $1.00 of accumulation
value in the Global Account with fractional interests counted, unless a
different allocation of voting rights is required under applicable law for an
investment medium for variable annuity contracts. Account D's rules do not
require Account D to hold annual meetings of owners of interests in Account D,
although special meetings may be called for Account D for purposes such as
electing or removing members of the Board of Governors, changing fundamental
policies, or approving a contract for investment advisory services. When
required, "the vote of a majority of the outstanding voting securities" of the
Global Account of Account D means the lesser of:
(1) The holders of more than 50% of all votes
entitled to be cast in respect to Account D; or,
(2) The holders of at least 67% of the votes which
are present at a meeting of such persons are the holders of more than 50%
of all votes entitled to be cast in respect to Account D are present or
represented by proxy.
We will determine the number of votes you can instruct us to vote 90 days or
less before Account D's meeting. We will ask you for voting instructions by mail
at least 14 days before the meeting.
STATE REGULATION
We are regulated and supervised by the Insurance Department of the State of
Delaware, which periodically examines our financial condition and operations. We
are also subject to the insurance laws and regulations of all jurisdictions
where we do business. The variable contract offered by this prospectus has been
approved by the Insurance Department of the State of Delaware and by the
Insurance Departments of other jurisdictions. We are required to submit annual
statements of our operations, including financial statements, to the Insurance
Departments of the various jurisdictions in which we do business to determine
solvency and compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
Golden American, as an insurance company, is ordinarily involved in litigation.
We do not believe that any current litigation is material and we do not expect
to incur significant losses from such actions.
LEGAL MATTERS
The legal validity of the contract described in this prospectus has been passed
on by Bernard R. Beckerlegge, General Counsel and Secretary of Golden American.
Sutherland, Asbill & Brennan 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,
Separate Account B and The Managed Global Account of Separate Account D,
appearing in this Prospectus or in the Statement of Additional Information and
in the 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 in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------
(IN THOUSANDS) 94 93 92 (A)
- ------------------------------------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Variable Life and Annuity Product Fees and Policy Charges............................ $ 17,519 $ 10,192 $ 694
Net Income before Federal Income Tax................................................. $ 2,222 $ (1,793) $ (508)
Net Income (Loss).................................................................... $ 2,222 $ (1,793) $ (508)
Total Assets......................................................................... $ 1,044,760 $ 886,155 $ 320,539
Total Liabilities.................................................................... $ 955,254 $ 857,558 $ 306,197
Total Stockholder's Equity........................................................... $ 89,506 $ 28,597 $ 14,342
(a) Results for 1992 are for the period September 30, 1992 (date of acquisition) to December 31, 1992.
</TABLE>
The following selected financial data was prepared on the basis of statutory
accounting practices ("SAP"), which have been prescribed or permitted by the
Department of Insurance of the State of Delaware and the National Association of
Insurance Commissioners. These practices differ in certain respects from GAAP.
The selected financial data should be read in conjunction with the financial
statements and notes thereto included in this Prospectus, which describe the
differences between SAP and GAAP.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992 1991 1990
- -------------------------------------------------------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Premiums & Annuity Considerations............................. $ 294,550 $ 505,465 $ 191,039 $ 41,615 $ 28,739
Net Income before Federal Income Tax.......................... $ (11,260) $ (9,417) $ (4,225) $ (2,086) $ (1,566)
Net Income (Loss)............................................. $ (11,260) $ (9,401) $ (3,986) $ (1,752) $ (1,566)
Total Assets.................................................. $ 988,180 $ 834,123 $ 302,200 $ 119,652 $ 74,271
Total Liabilities............................................. $ 921,888 $ 815,301 $ 289,995 $ 106,199 $ 58,573
Total Capital & Surplus....................................... $ 66,292 $ 18,822 $ 12,205 $ 13,453 $ 15,698
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and Notes
to Financial Statements included herein.
BUSINESS ENVIRONMENT
The current business and regulatory environment remains challenging for the
insurance industry. On the whole, more Americans have started to take a
proactive view toward their own retirement planning. Additionally, with the
fear that people will outlive their savings, many Americans have shifted their
resources from purchasing death benefit type products such as life insurance
to living benefit products such as annuities. As a result of this trend,
annuities have sustained a long growth phase. In recent years, variable
products provided contractholders with the opportunity to achieve diversified
investing in mutual fund type investments. The following factors provided a
positive impact on variable annuity premiums over the past three years: low
interest rates, strong stock market performance and demand for investment
alternatives. However, during 1994, the Federal Reserve Board began raising
interest rates pre-emptively to slow the growth of the economy to a more
sustainable rate and avoid a late-cycle outbreak of inflation. In part and as
a result of an increase in interest rates, fixed annuities and market value
adjusted annuity products gained popularity in many distribution networks as
variable annuities lost market share.
SUMMARY
During 1994, the rise in interest rates and stock market volatility
contributed to the slow-down in Golden American's premium growth as the
company was marketing exclusively variable annuity and life products tied to
mutual fund investing. Consequently, during 1995, the Company intends to
expand its strategic marketing emphasis by offering fixed rate investment
options in life and annuity products.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Golden American realized net income (loss) of $2.22 million and $(1.79)
million for 1994 and 1993, respectively. The increase in net earnings
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
for 1994 is attributable to the increase in average Separate Account assets
in 1994, as compared to 1993.
Variable life and annuity product fees and policy charges were $17.52
million for 1994 as compared to $10.19 million for 1993. The increase is
primarily attributable to the increased fees from the increasing block of
business under management in the Separate Accounts. Separate Account assets
have increased from $295 million at December 31, 1992 and $810 million at
December 31, 1993 to $950 million at December 31, 1994.
1993 COMPARED TO 1992
Golden American realized a net loss of $1.79 million for the year ending
December 31, 1993, as compared to a net loss of $0.52 million for the three
month period ending December 31, 1992. Results for 1992 are for the period
September 30, 1992 (date of acquisition) to December 31, 1992.
Variable life and annuity product fees and policy charges increased from
$0.69 million for the three month period ending December 31, 1992 to $10.19
million for the year ending December 31, 1993. The increase is attributable
to 1994 results including twelve months versus three months for 1993 and the
increasing block of business under management in the Separate Accounts.
Separate Account assets increased from $295 million at December 31, 1992 to
$810 million at December 31, 1993.
Total benefits and expenses in 1993 and 1992, respectively, were $12.24
million and $1.27 million. This increase is attributable to 1992 results
including twelve months versus three months for 1993 and an increase in
expenses associated with new sales and the increase in benefits costs and
the expenses associated with a growing block of business.
Golden American's earnings are principally derived from the charges imposed on
variable annuity products and, to a lesser extent, variable life products. The
primary revenues from these products consist of charges for mortality and
expense risk, the cost of insurance and contract administration charges that
have been assessed against account balances during the period. In addition, a
sales load ranging from 3% to 7.5% is assessed to each premium payment and
collected over a number of years for the variable annuity and life products.
These sales loads are earned over the life of the insurance contract in
relation to estimated future gross profits using methods and assumptions
similar to those for cost assigned to insurance in-force. Sales loads that
have been deducted but not yet earned are not recognized in current income and
are reported as unearned revenue. The costs associated with acquiring new
business are deferred at issue and amortized over the lives of the policies in
relation to the present value of estimated future gross profits. Golden
American also incurs expenses associated with the maintenance of in-force
contracts.
Cash required to fund the acquisition costs associated with deferred sales
load products written in 1992, 1993 and 1994 was provided by short-term
borrowings with an unaffiliated bank. Accordingly, the cost of these borrowed
funds increased in line with the general increase in the Federal Funds rates.
In 1994, the insurance industry saw a slow-down in the recent trend of
individuals moving away from traditional fixed products and into variable
products. Golden American experienced a similar slow-down as sales for 1994
were down 39% compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
Golden American's liquidity requirements include the payment of sales
commissions, and other acquisition and underwriting expenses on the annuity
and life business that it writes. Overall, the Company had negative cash flow
from operations in 1994 because it sold variable products exclusively; total
premiums received were invested immediately in the Company's Separate Accounts
which purchased shares of portfolios of The GCG Trust, an open-end, mangement
investment company, or directly purchased portfolio securities. Because 100%
of the premium was invested as described above, the payment of commissions and
other acquisition costs resulted in negative cash flow from operations during
the Company's early growth years.
Positive cash flow elements from operations are produced primarily from two
sources. Fees are collected from the in-force book of business. In addition,
during 1995, Golden American began to distribute a fixed account option with
its variable annuity product. Premium amounts directed to the fixed account
option produce positive cash flow from operations as amounts are retained
within the general account of the Company and are used to fund an investment
portfolio that finances future benefit payments. Investments are made in
fixed-rate investments such as bonds, and short-term investments in order to
provide a sufficient return as well as to match the duration of the obligation
for future benefit payments. Golden American products also contain surrender
charge features which reward persistency and penalize the early withdrawal of
funds.
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Golden American has developed and utilizes a projection system which forecasts
cash flow. Cash flow from operations will vary depending on the amount of
premium written and the product mix. The Company also periodically performs
asset/liability matching in the management of its asset and liability
portfolios. Those matching practices involve the monitoring of asset and
liability durations for various product lines, cash flow testing under various
interest rate scenarios, and the continuous rebalancing of assets and
liabilities with respect to yield, risk, and cash flow characteristics.
Golden American has funded those past expenses described above for its
variable annuity and life business currently in-force at the beginning of 1995
by the issuance of $50 million redeemable preferred stock with its immediate
parent, BT Variable, Inc. on December 30, 1994. The short-term debt discussed
previously in the Results of Operations was retired by Golden American and
assumed by BT Variable, Inc. as of December 30, 1994. Dividends on this
preferred stock issue are payable on the last business day of each quarter,
beginning March 31, 1995. To the extent that Golden American has funds
available, Golden American may redeem at its option the Preferred Stock in
cash. Any redemption requires the prior approval of the California Department
of Insurance and may require approval of the Delaware Department of Insurance.
Funds will become available for redemptions from future statutory earnings as
well as the collection of deferred sales loads. The outstanding amount of
deferred sales load to be collected as of December 31, 1994 was $48.9 million.
The NAIC has developed and implemented the Risk Based Capital "RBC" adequacy
monitoring system. The RBC calculates the amount of adjusted capital which a
life insurance company should have based upon that company's risk profile. The
NAIC has established four different levels of regulatory action with respect
to the RBC adequacy monitoring system. Each of these levels may be triggered
if an insurer's total adjusted capital is less than a corresponding level of
RBC. As of December 31, 1994, based on the RBC formula, Golden American's
total adjusted capital level exceeded the minimum amount of capital required
to avoid regulatory action. Under currently effective funding agreements,
expected RBC levels will remain well in excess of levels required to avoid
regulatory actions. There is no assurance, however, that Golden American will
continue to maintain its current RBC level.
During 1994, BT Variable, Inc. made capital contributions to Golden American
of $8.75 million. Golden American believes that it will be able to fund the
capital and surplus required for projected new business from existing
statutory capital and surplus, statutory earnings on the existing book of
business as well as future surplus contributions from its parent. Golden
American also believes that it will be able to fund the above liquidity
requirements of sales commissions and acquisition costs of projected new
business from affiliated borrowings and/or borrowings with non-affiliated
banks. Golden American expects to continue to receive capital contributions
from BT Variable if necessary. Golden American's future marketing efforts
could be hampered should its parent and/or affiliates be unable to provide
additional funding.
Pursuant to the terms of an escrow agreement entered into in connection with
the purchase of Golden American from Mutual Benefit by Bankers Trust Company,
Golden American is obligated to fund up to $5.0 million into an escrow account
pending final resolution of a dispute concerning the final terms of the
agreements consummating the purchase of Golden American, which dispute is
before the Chancery Court of New Jersey. Any amounts assessed against Golden
American upon final adjudication of such dispute would be paid from the escrow
account. Management believes that the likelihood of any judgment against
Golden American with respect to the escrow account is unlikely and would not
have a material impact on Golden American. As of December 31, 1994, $2,675,000
has been deposited into the escrow account. Golden American's obligation is
secured by a pledge of its right to receive certain deferred sales loads.
Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993, and has been so
accrued in the accompanying financial statements.
SEGMENT INFORMATION
During the period since the acquisition by Bankers Trust, September 30, 1992
to date of this Prospectus, Golden American's operations consisted of one
business segment, the sale of variable annuity and variable life insurance
products. Golden American and its affiliate, Directed Services Inc., are party
to 127 sales agreements with broker-dealers. Two of these broker-dealers sell
a substantial portion of its business.
REINSURANCE
Golden American reinsures its mortality risk associated with the contract's
guaranteed death benefit with Security Life of Denver Insurance Company
("Security Life Reinsurance"). Golden American
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
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.
INVESTMENTS
Golden American's assets must be invested in accordance with applicable state
laws. These laws govern the nature and the quality of investments that may be
made by life insurance companies and the percentage of their assets that may
be committed to any particular type of investment. In general, these laws
permit investments, within specified limits subject to certain qualifications,
in federal, state, and municipal obligations, corporate bonds, preferred or
common stocks, real estate mortgages, real estate and certain other
investments. All of Golden American's assets, except for assets held in escrow
and variable separate account assets supporting variable products, are
available to meet its obligations under the Contracts.
Golden American makes investments in accordance with investment guidelines
that take into account investment quality, liquidity and diversification, and
invests assets supporting the Contract guarantees primarily in fixed income
assets such as mortgage backed securities, collateralized mortgage obligations
and corporate debentures. At December 31, 1994, Golden American had invested
assets of $17.2 million consisting of $13.9 million of short-term securities
and $3.3 million of bonds and other long-term investments.
At December 31, 1994, 100% of Golden American's invested assets and cash
equivalents supporting Contract guarantees consisted of liquid and readily
marketable securities.
At December 31, 1994, 100% of the total invested assets were invested in
investment grade bonds and 0% were invested in non-investment grade
securities. Golden American defines non-investment grade as unsecured
corporate debt obligations which do not have a rating equivalent to Standard
and Poor's (or similar rating agency) BBB or higher and are not guaranteed by
an agency of the federal government.
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.
CERTAIN AGREEMENTS
During 1994, 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) has 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 are reimbursed by Golden American on an allocated
cost basis. Charges billed to Golden American by Bankers Trust (Delaware)
pursuant to the service agreement were $816,264 for 1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and administration of its products. For
the year 1993 and the period from September 30, 1992 to December 31, 1992,
fees earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its personnel
to perform management, administrative and clerical services and the use of
certain of its facilities. BT Variable charged Golden American for such
expenses and all other general and administrative costs, first on the basis of
direct charges when identifiable, and second allocated based on the estimated
amount of time spent by BT Variable's employees on behalf of Golden American.
For the year 1993 and the period from September 30, 1992 to December 31, 1992,
BT Variable allocated to Golden American $1,503,000 and $450,000,
respectively. The agreement was terminated on January 1, 1994. During 1994,
such
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expenses were allocated directly by BT New York Corporation to Golden American
and totaled $1,395,966 for the year.
DISTRIBUTION AGREEMENT
Prior to 1994, Golden American had entered into agreements with DSI to perform
services related to the management of its investments and the distribution of
its products. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years ended
1994 and 1993 and the period from September 30, 1992 to December 31, 1992,
commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000 and
$2,013,00, respectively.
EMPLOYEES
Golden American, as a result of its Service Agreements with each of Bankers
Trust (Delaware) and BT Variable, has very few direct employees. Instead,
various management services are provided by Bankers Trust (Delaware), BT
Variable and Bankers Trust New York Corporation, as described above under
"Certain Agreements." The cost of these services is allocated to Golden
American.
Certain officers of Golden American are also officers of BT Variable and DSI,
and their salaries are allocated among the three companies. One officer of
Golden American is also an officer of Bankers Trust New York Corporation, and
his salary is allocated solely to Bankers Trust New York Corporation. See
"Directors and Executive Officers."
PROPERTIES
Golden American's principal office is located at Jefferson Street, Suite 400,
Wilmington, Delaware 19801, where all of Golden American's records are
maintained. This office space is sub-leased from Bankers Trust (Delaware)
under the service agreement described above. In addition, certain legal,
sales, product development and corporate communications personnel operate in a
Bankers Trust New York managed facility at 280 Park Avenue, 14 West, New York,
New York 10017. An allocated share of this property's cost is paid by Golden
American based on square feet.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME (AGE) POSITION WITH GOLDEN AMERICAN
- --------------------------- ---------------------------------
<S> <C>
Terry K. Kendall (48) Chairman, President and Chief
Executive Officer
John Herron, Jr. (43) Director
Richard A. Marin (41) Director
Barnett Chernow (44) Executive Vice President
Mitchell R. Katcher (41) Executive Vice President
Robert B. Langel (57) Executive Vice President
Bernard R. Beckerlegge (48) General Counsel and Secretary
David L. Jacobson (45) Senior Vice President and
Assistant Secretary
Stephen J. Preston (37) Senior Vice President, Chief
Actuary and Controller
Myles R. Tashman (52) Senior Vice President
Mary B. Wilkinson (38) Senior Vice President and
Treasurer
</TABLE>
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY (CONTINUED)
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 the Company's ultimate parent,
Banker's Trust, New York.
The principal positions of the Company's directors and executive officers for
the past five years are listed below:
MR. KENDALL joined Bankers Trust Company in September 1993 as Managing Director.
He is Chairman of the Board, President and Chief Executive Officer of the
Company. From 1982 through June 1993, he was President and Chief Executive
Officer of United Pacific Life Insurance Company.
MR. MARIN joined Bankers Trust Company in 1978 and is a Managing Director. He
has been a director of the Company since 1992.
MR. HERRON joined Bankers Trust Company in 1978 and is a Managing Director. He
has been a director of the Company since 1993.
MR. CHERNOW joined the Company in October 1993 as Executive Vice President. From
1977 through 1993 he held various positions with Reliance Insurance Companies
and was Senior Vice President and Chief Financial Officer of United Pacific Life
Insurance Company from 1984 through 1993.
MR. KATCHER joined the Company in August 1993 as Executive Vice President. From
1991 to 1993 he was a Consulting Actuary for Tillinghast. Prior to 1991 he was
Senior Vice President and Chief Actuary with Monarch Financial Services, Inc.
MR. LANGEL joined the Company in April 1991 as Executive Vice President. Prior
to joining the Company, he was with J.K. Schofield and Company as Executive Vice
President.
MR. BECKERLEGGE joined the Company as General Counsel and Secretary in March
1988.
MR. TASHMAN joined the Company in August 1994 as Senior Vice President. From
1986 through 1993 he was Senior Vice President and General Counsel of United
Pacific Life Insurance Company.
MR. JACOBSON joined the Company in November 1993 as Senior Vice President and
Assistant Secretary. From April 1974 through November 1993 he held various
positions with United Pacific Life Insurance Company and was Vice President upon
leaving.
MS. WILKINSON joined the Company in November 1993 as Senior Vice President. From
August 1993 through October 1993 she was an Assistant Vice President with CIGNA
Insurance Companies. From January 1987 through July 1993 she held various
positions with United Pacific Life Insurance Company and was Vice President and
Controller upon leaving.
MR. PRESTON joined the Company in December 1993 as Senior Vice President, Chief
Actuary and Controller. From September 1993 through November 1993 he was Senior
Vice President and Actuary for Mutual of America Insurance Company. From July
1987 through August 1993 he held various positions with United Pacific Life
Insurance Company and was Vice President and Actuary upon leaving.
COMPENSATION TABLES AND OTHER INFORMATION
The following tables set forth information with respect to the former Chief
Executive Officer of Golden American as well as the annual salary and bonus for
the next four most highly compensated executive officers for the fiscal year
ended December 31, 1994. Certain executive officers of Golden American are also
officers of Directed Services, Inc. (DSI). The salaries of such individuals are
allocated between Golden American and DSI. With the exception of Mr. Kendall,
executive officers of Golden American are also officers of BT Variable and DSL.
The salaries of such individuals are allocated between Golden American, BT
Variable and DSI pursuant to an arrangement among these companies. Mr. Kendall
also serves as a Managing Director at Bankers Trust New York Corporation.
Compensation amounts for Mr. Kendall which are reflected throughout these tables
are not charged to Golden American, but are 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 former Chief
Executive Officer of Golden American as well as the annual salary and bonus for
the next four most highly compensated officers for the fiscal year ended
December 31, 1994.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
RESTRICTED SECURITIES
NAME AND ---------------------- STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)(3) OPTIONS COMPENSATION
- ---------------------------------------------- ----- --------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Terry Lee Kendall, ........................... 1994 250,000 276,030 11,000
Chairman, President and Chief Executive 1995 400,000
Officer (6) (September 1993 to Present)
Barnett Chernow, ............................. 1994 185,000 1,800 500 98,212(4)
Executive Vice President 1995 165,000
Mitchell Katcher, ............................ 1994 175,000
Executive Vice President 1995 150,000
Robert Benjamin Langel, ...................... 1994 150,000 178,000 18,750(5)
Executive Vice President 1995 35,000
Fred H. Davidson, ............................ 1994 164,766 25,125(5)
Former Executive Vice 1995
President
Stephen Preston, ............................. 1994 131,667 4,721(4)
Senior Vice President and Chief Actuary and 1995 50,000
Controller
<FN>
- ------------------------------
(1) Bonuses paid in January 1995 relate to performance for the previous year.
The amount shown does not include bonuses paid in January 1994 for
performance in 1993.
(2) Amounts shown are for awards granted and exercisable in 1994. This table
does not reflect shares granted in 1993 exercisable in 1996. All awards
have been valued for this table using closing prices of the common stock of
Bankers Trust New York Corporation as of December 31, 1994 using a
Bloomberg system. Shares of restricted stock have a three year vesting
period. The number and value of Restricted Shares and Restricted Units held
by executive officers as of December 31, 1994 is Mr. Kendall 3,000 shares
and 3,000 units -- $166,125 and Mr. Chernow: 500 shares and 500 units --
$27,688.
(3) Dividends are paid on unvested Restricted Shares and dividend equivalents
are paid on unvested Restricted units. Such dividends and dividend
equivalents are equal in amount to the dividends paid on shares on Bankers
Trust New York Corporation Common Stock.
(4) Amounts shown for 1994 represent relocation expenses paid on behalf of the
employee.
(5) Contributions are made by the Company on behalf of the employee to
PartnerShare, the deferred compensation plan sponsored by Bankers Trust New
York Corporation and its affiliates for the benefit of all Bankers Trust
employees, in February of the current year to employees on record as of
December 31 of the previous year, after the employee completes one year of
service with the company. This contribution may be in the form of deferred
compensation and/or a cash payment. In 1994, Mr. Langel received $16,495 of
deferred compensation and $2,250 of cash payment from the plan. Mr.
Davidson received $19,044 of deferred compensation and $6,081 of cash
payment from the plan. All other executives listed above were not eligible
for contributions to the PartnerShare Plan in 1994.
(6) Mr. Kendall has served as Chairman, President and Chief Executive Officer
of Golden American since September of 1993. Mr. Kendall's salary and
bonuses are paid directly by Bankers Trust New York Corporation.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
FISCAL UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION
YEAR OPTIONS GRANTED FISCAL YEAR ($ PER SHARE) DATE
----------- --------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Terry Lee Kendall...................... 1994 8,000 .0003268 68.625 6-21-2004
<CAPTION>
GRANT DATE
PRESENT
VALUE (3)
-------------
<S> <C>
Terry Lee Kendall...................... $ 161,680
<FN>
- ------------------------------
(1) Options grants in 1994 relate to performance in 1994. This table does not
include option grants in 1993 related to performance in 1993.
(2) All options on Bankers Trust New York Corporation common stock are
exercisable on June 21, 1995.
(3) Valued using a Black-Scholes style valuation. The assumptions used for the
variables in the model were: 27% volatility (which is the volatility of the
Common Stock for the 36 months preceding grant); an 8.29% rate of return
(which is the rate as of February 10, 1995 adjusted by 41 basis points to
represent the LIBOR rate as of the grant date for zero coupon bond expiring
June 2004); a 5.25% dividend yield; and a 10-year option term (which is the
term of the option granted). The actual gain Mr. Kendall will realize on
the options will depend on the future price of the Common Stock and cannot
be accurately forecast by application of an option valuation.
</TABLE>
Directors of Golden American receive no additional compensation for serving as a
director.
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OTHER COMPENSATION
On November 29, 1993, Mr. Jerome Golden resigned as President of Golden
American. He had served as President from July 1987 through November 29, 1993.
In accordance with the terms of a Separation Agreement between Mr. Golden and
the Company, Mr. Golden was paid $425,000 in 1994 and again in 1995. The
amounts represent a full settlement with no future payments required.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The contract is designed for use by individuals or groups in retirement plans
which are qualified under Section 408 or non-qualified under the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect
of Federal income taxes on the amounts paid for the contract, on the investment
return on assets held under the contract, on annuity payments and on the
economic benefits to the owner, annuitant or beneficiary depends upon the terms
of the contract, upon Golden American's tax status and upon the tax status of
the individuals concerned.
The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax advisor. No attempt is made
to consider any applicable state or other tax laws. Moreover, the discussion is
based upon Golden American's understanding of the Federal income tax laws as
they are currently interpreted. No representation is made regarding the
likelihood of continuation of the Federal income tax laws, the Treasury
Regulations, or the current interpretations by the Internal Revenue Service (the
"IRS"). For a discussion of Federal income taxes as they relate to the Trust,
please see the accompanying prospectus for the Trust.
GOLDEN AMERICAN TAX STATUS
Golden American is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the Accounts are not separate entities from Golden American
and their operations form a part of Golden American, they will not be taxed
separately as "regulated investment companies" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of Account B and
Account D are reinvested and taken into account in determining the accumulation
value in the divisions. Under existing Federal income tax law, Golden American
does not incur tax on the Accounts' investment income, including realized net
capital gains. Golden American reserves the right to make a deduction for taxes
should they be imposed with respect to such items in the future.
TAXATION OF NON-QUALIFIED ANNUITIES
1. IN GENERAL
Code Section 72 generally governs the taxation of non-qualified annuities.
Under this provision, except as described below, any increase in the
contract's value is generally not taxable to the owner until a distribution is
made from the contract, either in the form of annuity payments as contemplated
by the contract, or in some other form of distribution. (For purposes of this
rule, the amount of any indebtedness that is secured by a pledge or assignment
of the contract is treated as a payment received on account of a partial
withdrawal from the contract.) However, this rule applies only if (1) the
investments of Account B and Account D are "adequately diversified" in
accordance with Treasury Department regulations, (2) Golden American, rather
than the owner, is considered the owner of the assets of the Accounts for
Federal income tax purposes, and (3) the owner is an individual. In addition
to the foregoing, if the contract's annuity commencement date occurs at a time
when the annuitant is at an advanced age, such as over age 85, it is possible
that the owner will be taxable currently on the annual increase in the
accumulation value.
DIVERSIFICATION REQUIREMENTS. Treasury Department regulations
("Regulations") issued under Code Section 817 (h) prescribe the manner in
which the investments of a segregated asset account, such as Account B and
Account D, are to be "adequately diversified." The Regulations generally
require that on the last day of each quarter of a calendar year (i) no more
than 55% of the value of each segregated asset account is represented by any
one investment; (ii) no more than 70% is represented by any two investments;
(iii) no more than 80% is represented by any three investments; and (iv) no
more than 90% is represented by any four investments. For purposes of
complying with these requirements, all securities of the same issuer are
treated as a single investment, and each U.S. government agency or
instrumentality will be treated as a separate issuer. In addition, where a
segregated asset account invests in other regulated investment companies or
certain other entities (E.G., the divisions of Account B do), a
"look-through" rule applies and, as a result, each division of an Account
must be tested for compliance with the percentage limitations by looking
through to the assets of that division.
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
If a division of Account B or Account D failed to comply with these
diversification standards, a contract allocating values to that division
would not be treated as an annuity contract for Federal income tax purposes
and the owner would generally be taxable currently on the income on the
contract (as defined in the tax law) beginning with the first period of
non-diversification. Golden American expects that Account B and Account D,
including each of the divisions, will comply with the diversification
requirements prescribed by the Regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for Federal income tax purposes, of the
assets of the segregated asset account, such as Account B and Account D,
used to support their contracts. In those circumstances, income and gains
from the segregated asset account would be includible in the contract
owners' gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of the assets of the
segregated asset account if the owner possesses incidents of ownership in
those assets, such as the ability to exercise investment control over the
assets. In addition, the Treasury Department announced, in connection with
the issuance of regulations concerning investment diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor, rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular sub-accounts
[of a segregated asset account] without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance has
been issued.
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a
segregated asset account. For example, the owner of this contract has the
choice of more investment options to which to allocate premium payments and
accumulation values, and may be able to transfer among investment options
more frequently, than in such rulings. In addition, the owner of this
contract has the choice of certain investment options which may be more
similar to each other in their investment objectives than in such rulings.
These differences could result in the owner being treated as the owner of a
portion of the assets of Account B and Account D. In addition, Golden
American does not know what standards will be set forth in the regulations
or rulings which the Treasury Department has stated it expects to issue.
Golden American therefore reserves the right to modify the contract as
necessary to attempt to prevent contract owners from being considered the
owners of the assets of Account B and Account D.
Frequently, if the IRS or the Treasury Department sets forth a new position
which is adverse to taxpayers, the position is applied on a prospective
basis only. Thus, if the IRS or the Treasury Department were to issue
regulations or a ruling which treated an owner of this contract as the owner
of Account B and Account D, that treatment might apply on a prospective
basis. However, if the ruling or regulations were not considered to set
forth a new position, an owner might retroactively be determined to be the
owner of the assets of Account B and Account D.
NON-NATURAL OWNER. As a general rule, contracts held by "non-natural
persons" such as a corporation, trust or other similar entity, as opposed to
a natural person, are not treated as annuity contracts for Federal tax
purposes. The income on such contracts (as defined in the tax law) is taxed
as ordinary income that is received or accrued by the owner of the contract
during the taxable year. There are several exceptions to this general rule
for non-natural owners. First, contracts will generally be treated as held
by a natural person if the nominal owner is a trust or other entity which
holds the contract as an agent for a natural person. However, this special
exception will not apply in the case of any employer who is the nominal
owner of a contract under a non-qualified deferred compensation arrangement
for its employees.
In addition, exceptions to the general rule for non-natural owners will
apply with respect to (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) contracts issued in connection with
certain qualified plans, (3) contracts purchased by employers upon the
termination of certain qualified plans, (4) certain contracts used in
connection with structured settlement agreements, and (5) contracts
purchased with a single purchase payment when the annuity starting date is
no later than a year from
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<PAGE>
FEDERAL TAX CONSIDERATIONS (CONTINUED)
purchase of the contract and substantially equal periodic payments are made,
not less frequently than annually, during the annuity period.
The remainder of this discussion assumes that the contract will be treated
as an annuity contract for Federal income tax purposes.
2. WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE
Code Section 72 provides that the proceeds of a total surrender of a contract
prior to the annuity commencement date will be taxed to the extent that the
amount distributed exceeds the "investment in the contract" and that any
partial withdrawal from a contract prior to the annuity commencement date will
be treated as taxable income to the extent the amount held under the contract
immediately before the withdrawal occurs exceeds the "investment in the
contract." The "investment in the contract" is defined in the Code as that
portion, if any, of premium payments by or on behalf of an individual under a
contract which was not excluded from the individual's gross income at the time
of such payment less any amounts previously received under the contract which
were excluded from the individual's gross income at the time of their receipt.
The taxable portion of any distribution received prior to the annuity
commencement date will be subject to tax at ordinary income tax rates. For
purposes of this rule, a pledge or assignment of a contract is treated as a
payment received on account of a partial withdrawal of a contract.
In the case of systematic partial withdrawals, the amount of each withdrawal
should be considered as a distribution and taxed in the same manner as a
partial withdrawal prior to the annuity commencement date, as described above.
However, there is some uncertainty regarding the tax treatment of systematic
partial withdrawals, and it is possible that additional amounts may be
includible in income.
In addition, the contract provides a death benefit that in certain
circumstances may exceed the greater of the premium payments and the
accumulation value. As described elsewhere in this prospectus, Golden American
imposes certain charges with respect to, among other things, the death
benefit. It is possible that some portion of those charges could be treated
for Federal tax purposes as a partial withdrawal from the contract.
In certain circumstances, surrender charges may be waived because of the
owner's need of extended medical care or because of the owner's terminal
illness. Distributions in respect of which surrender charges are waived are
treated as partial withdrawals.
3. ANNUITY PAYMENTS AND WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE
Proceeds of a total surrender of the contract after the annuity commencement
date are taxable to the extent the proceeds exceed the investment in the
contract at that time. In addition, proceeds of a partial withdrawal after the
annuity commencement date are fully taxable. Also, a portion of each annuity
payment under the contract is taxable if the value of the contract exceeds the
investment in the contract. The taxable portion of an annuity payment will be
subject to tax at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment is determined
by using a formula known as the "exclusion ratio," which establishes the ratio
that the investment in the contract (allocated to the fixed annuity option)
bears to the total expected amount of fixed annuity payments for the term of
the contract. That ratio is then applied to each payment to determine the
non-taxable portion of the payment. The remaining portion of each payment is
taxed at ordinary income rates.
For variable annuity payments, in general, the taxable portion is determined
by a formula which establishes a specific dollar amount of each payment that
is not taxed. The dollar amount is determined by dividing the investment in
the contract (allocated to the variable annuity option) by the total number of
expected periodic payments. The remaining portion of each payment is taxed at
ordinary income rates.
Once the excludable portion of annuity payments to date equals the investment
in the contract, the balance of the annuity payments will be fully taxable.
If amounts have become payable under the contract (such as where the owner
elects to surrender an amount) and if the distribution-at-death rules do not
apply to such amount, the amount will be treated as a partial or full
surrender for Federal income tax purposes if applied under an annuity option
later than 60 days after the time when the amount became payable. Thus, if
such an amount is applied under an annuity option after the 60 day period, it
will be treated as a partial or full surrender, even if the full amount has
not been distributed from the contract.
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
4. WITHHOLDING AND REPORTING REQUIREMENTS
Golden American will withhold and remit to the U.S. government a part of the
taxable portion of each distribution made under a contract unless the taxpayer
notifies Golden American at or before the time of the distribution that he or
she elects not to have any amounts withheld. The withholding rates applicable
to the taxable portion of periodic annuity payments typically are the same as
the withholding rates generally applicable to payments of wages. In addition,
the withholding rate applicable to the taxable portion of non-periodic
payments (including surrenders prior to the annuity commencement date) is 10%.
Golden American also has tax reporting obligations with respect to
distributions from the contract.
5. PENALTY TAX ON CERTAIN WITHDRAWALS
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the owner, or where the owner
is not an individual, the death of the "primary annuitant" (i.e., the
individual the events in whose life are of primary importance in affecting the
timing or amount of the payout under the contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code
Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments made at least annually for the life (or life expectancy) of
the taxpayer, or the joint lives (or joint life expectancies) of the taxpayer
and his beneficiary; (iv) from certain qualified retirement plans; (v)
allocable to investment in the contract before August 14, 1982; (vi) under a
qualified funding asset (as defined in Code Section 130(d)); (vii) under an
immediate annuity contract, or (viii) which are purchased by an employer on
termination of certain types of qualified retirement plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments is subsequently
modified (other than by reason of death or disability), the tax for the year
when the modification occurs will be increased by an amount (as determined by
regulations) equal to the tax that would have been imposed but for item (iii)
above, plus interest for the deferral period, if the modification takes place
(a) before the close of the period which is within five years of the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
In the case of systematic withdrawals, it is unclear whether such withdrawals
will qualify for exception (iii) above.
TAXATION OF INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408 permits individuals or their employers to contribute to an
individual retirement program known as an Individual Retirement Annuity. If the
contract is used for this purpose, the owner must be the annuitant. In addition,
distributions from certain other types of qualified retirement plans may be
placed into an Individual Retirement Annuity on a tax deferred basis.
Individual Retirement Annuities are subject to limitations on the amount which
may be contributed and the time when distributions may commence. Tax penalties,
including disqualification in certain instances, may apply to contributions in
excess of specified limits, loans or assignments, distributions in excess of a
specified amount annually or that do not meet specified requirements, and in
certain other circumstances.
Under the Internal Revenue Code, distributions from qualified retirement plans,
including Individual Retirement Annuities, Simplified Employee Pensions, and Tax
Sheltered Annuities, generally must begin not later than April 1st of the
calendar year following the calendar year in which an owner attains age 70 1/2.
If the required minimum distribution is not withdrawn, there may be a penalty
tax in an amount equal to 50% of the difference between the amount required to
be withdrawn and the amount actually withdrawn. See the Statement of Additional
Information for a discussion of the various special rules concerning the minimum
distribution requirements.
If all premium payments made to an Individual Retirement Annuity were
deductible, all amounts distributed from the contract are included in the
recipient's income when distributed. However, if nondeductible premium payments
were made to the Individual Retirement Annuity (within the limits allowed by the
tax law), a portion of each distribution from the contract typically is included
in income when it is distributed. In such a case, any amount distributed as an
annuity payment or in a lump sum upon death or a full surrender is taxed as
described above in connection with such a distribution from a non-qualified
contract, treating the investment in the contract as the sum of the
non-deductible premium payments at the end of the taxable year in which the
distribution commences or is made (less any amounts previously distributed that
were excluded from income). Also in such a case, any amount distributed upon a
partial surrender is partially includible in income. The includible amount is
the excess of the distribution over the exclusion
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
amount, which in turn equals the distribution multiplied by the ratio of the
investment in the contract to the amount held under the contract. The amount
includible in income may be subject to a 10% penalty tax if the recipient is
under age 59 1/2.
Individual Retirement Annuities generally may not provide life insurance
coverage, but they may provide a death benefit that equals the greater of the
premiums paid and the contract value. The contract provides a death benefit that
in certain circumstances may exceed the greater of the premium payments and the
accumulation value. Golden American has plans to request a determination letter
from the IRS that would approve use of the contract, as to form as an Individual
Retirement Annuity. Subject to certain direct rollover and mandatory withholding
requirements (discussed below), amounts generally may be "rolled over" from a
qualified retirement plan to an Individual Retirement Annuity (or from an
Individual Retirement Annuity or individual retirement account to an Individual
Retirement Annuity) without incurring tax if certain conditions are met. Only
certain types of distributions from qualified retirement plans or Individual
Retirement Annuities may be rolled over. In the case of annuity contracts used
in connection with a pension, profit-sharing, or annuity plan qualified under
Code Section 401(a) or Section 403(a), or in the case of a Code Section 403(b)
"Tax Sheltered Annuity," any "eligible rollover distribution" from the contract
will be subject to direct rollover and mandatory withholding requirements. An
eligible rollover distribution generally is any taxable distribution from a
qualified pension plan under Code Section 401(a), qualified annuity plan under
Code Section 403(a), or Code Section 403(b) Tax Sheltered Annuity or custodial
account, excluding certain amounts (such as minimum distributions required under
Code Section 401 (a) (9) and distributions which are part of a "series of
substantially equal periodic payments" made for life or a specified period of 10
years or more. Under these requirements, withholding at a rate of 20 percent
will be imposed on any eligible rollover distribution. In addition, the
participant in these qualified retirement plans cannot elect out of withholding
with respect to an eligible rollover distribution. However, this 20 percent
withholding will not apply if, instead of receiving the eligible rollover
distribution, the participant elects to have amounts directly transferred to
certain qualified retirement plans (such as to this contract when issued as an
Individual Retirement Annuity).
It is important that you consult your tax advisor before purchasing an
Individual Retirement Annuity.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract for Federal tax purposes, a
non-qualified contract must provide the following two distribution rules: (a) if
any holder dies on or after the annuity commencement date, and before the entire
interest in the contract has been distributed, the remainder of his or her
interest will be distributed at least as quickly as under the method of
distribution in effect on the holder's death; and (b) if any holder dies before
the annuity commencement date, the entire interest in the contract must
generally be distributed within five years after the date of death, or to the
extent such interest is payable to a designated beneficiary, such interest must
be distributed over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, so long as the
distributions begin within one year after the date of death. If the beneficiary
is the surviving spouse of the holder, the contract (together with the deferral
of tax on the accrued and future income thereunder) may be continued in the name
of the spouse. The holder will generally be the owner.
Where any holder is not an individual, solely for the purpose of the
distribution at death rules, the primary annuitant is also considered a holder
and the death of or change of the primary annuitant is treated as the death of a
holder. The primary annuitant is the individual the events in the life of whom
are of primary importance in affecting the timing or amount of payment under a
contract. Finally, in the case of joint holders, the distribution will be
required at the death of the first of the holders to die. In some instances,
these Distribution-at-Death rules will force distributions from a contract even
though no death benefit is payable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a non-qualified contract because of the death of
an owner or annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (a) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the contract, as described above, or (b)
if distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
TRANSFER OF ANNUITY CONTRACTS
Transfers of non-qualified annuity contracts for less than the full and adequate
consideration will trigger tax on the gain in the contract, at the time of such
transfer, with the transferee getting a step-up in basis
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FEDERAL TAX CONSIDERATIONS (CONTINUED)
for the amount included in the owner's income. This provision does not apply to
transfers between spouses or incident to a divorce.
SECTION 1035 EXCHANGES
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of an annuity contract for another. If the exchanged contract was
issued prior to August 14, 1982, the tax rules which formerly provided that the
surrender was taxable only to the extent the amount received exceeds the owner's
investment in the contract will continue to apply to the new contract. In
contrast, contracts issued on or after January 19, 1985, in a Code Section 1035
exchange are treated as new contracts for purposes of the penalty tax and
distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective owners wishing to take advantage of Code
Section 1035 should consult their tax advisors.
ASSIGNMENTS
A transfer of ownership or a collateral assignment may result in tax
consequences to the owner that are not discussed herein. An owner contemplating
such a transfer or assignment of a contract should contact a competent tax
advisor with respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includible in gross
income, all non-qualified deferred annuity contracts issued by the same (or
affiliate) insurer to the same owner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's annuity starting date (as defined in the tax
law), such as a partial surrender, dividend, or loan, will be taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined income in
all such contracts. The Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. In addition, there may be other
situations in which the Treasury Department may conclude that it would be
appropriate to aggregate two or more contracts purchased by the same owner.
Accordingly, an owner should consult a competent tax advisor before purchasing
more than one annuity contract.
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PART II
THE MANAGED GLOBAL
ACCOUNT OF ACCOUNT D
INTRODUCTION PART II GIVES FURTHER BACKGROUND INFORMATION ON ACCOUNT D AND
THE GLOBAL ACCOUNT, INCLUDING ITS INVESTMENT POLICIES AND ACTIVITIES.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (GLOBAL ACCOUNT)
THE GLOBAL ACCOUNT
The Global Account is a non-diversified investment company which invests
directly in securities. There can be no assurance that the Global Account will
meet its investment objective. Account D may also offer other securities which
are not available through the purchase of the contract offered by this
prospectus. DSI serves as the Manager of Account D and Warburg, Pincus serves as
the Portfolio Manager of the Global Account.
INVESTMENT OBJECTIVE AND POLICIES OF THE GLOBAL ACCOUNT
The Global Account's investment objective is to seek high total investment
return consistent with a prudent regard for capital preservation. In seeking
this objective, the Global Account employs an asset allocation strategy
involving shifts among a wide range of investments and market sectors throughout
the world. The Global Account may invest in the following classes of securities:
equity securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities, and warrants; debt securities of
domestic and foreign issuers, including bonds, debentures, asset-backed
securities, and notes; and money market instruments of domestic and foreign
issuers. The Global Account may also use various investment strategies and
techniques in seeking its investment objective including entering into forward
currency contracts; purchasing and writing put and call options on securities,
securities indexes, and currencies; purchasing and selling futures contracts
including interest rate futures contracts, stock index futures contracts,
futures contracts based upon securities, which may be domestic or foreign and
corporate or governmental, foreign exchange futures contracts, and other
financial futures contracts; purchasing and writing put and call options on
financial futures contracts; engaging in short sales of securities; and entering
into repurchase agreements and reverse repurchase agreements.
The total investment return that the Global Account seeks may consist (i) of
capital appreciation from several possible sources, including appreciation in
the value of securities held by the Global Account, the sale of securities whose
market value has changed, the use of futures and options, and the use of forward
currency contracts; (ii) of interest from underlying securities; and (iii) of
income received from the writing of options. Changes in the value of securities
denominated in foreign currencies may be attributable in whole or in part to
changes in the value of the underlying currency relative to the U.S. dollar.
In seeking the Global Account's investment objective, the Portfolio Manager will
use an opportunistic approach to allocating the Global Account's assets through
varying economic and financial conditions. The Portfolio Manager believes that a
successful investment approach in the current global environment must be based
upon careful analysis of the global economic and geopolitical environment with a
view to capitalizing upon sector and market opportunities and to quickly
adapting to changing circumstances. Thus, the Portfolio Manager will allocate
the Global Account's assets among securities and currencies based upon the
Portfolio Manager's assessment of the most favorable markets, currencies, and
issuers. In this regard, the percentage of the Global Account's assets invested
in a particular country or denominated in a particular currency will vary in
accordance with the Portfolio Manager's assessment of the appreciation potential
of such assets and the relationship of the country's currency to the U.S.
dollar.
The Portfolio Manager may allocate the Global Account's assets among the various
types of securities and other assets and among issuers located in various
countries and regions as the Portfolio Manager deems appropriate, except that
the Global Account's assets normally will be invested in securities of issuers
domiciled or primarily traded in at least three different countries, which may
include the United States. (Certain additional foreign diversification
requirements apply as described below.) The Portfolio Manager is free to
allocate the Global Account's assets such that, at any time, the Global Account
may be primarily invested in equity securities or, alternatively, the Global
Account may have little or no assets in equity securities. Similarly, at any
time, the Global Account may be primarily invested in securities of issuers
domiciled or primarily traded in one region, such as the United States, Europe,
or the Pacific Basin, or the Global Account may have little or no assets
committed to that region.
In considering equity securities, the Portfolio Manager will emphasize large,
well-capitalized companies with strong balance sheets. The Portfolio Manager may
also consider other factors in selecting equity securities, including
price-earnings ratios, cash flows, and the relationship of an issuer's book
value to its market value.
In selecting debt instruments for the Global Account, the Portfolio Manager
emphasizes credit quality. The Global Account will invest only in the following:
(1) fixed-income instruments issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities ("U.S. Government Securities");
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
(2) obligations issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, or instrumentalities, or by
supranational entities ("foreign government securities"), which, at the time of
investment, are rated A or better by Standard & Poor's Corporation ("S&P") or A
or better by Moody's Investors Services, Inc. ("Moody's") or, if not rated by
S&P or Moody's, determined by the Portfolio Manager to be of equivalent quality;
and (3) debt securities of domestic or foreign issuers which, at the time of
investment, are rated A or better by S&P or A or better by Moody's or, if not
rated by S&P or Moody's, determined by the Portfolio Manager to be of equivalent
quality. In the event that a debt security held by the Global Account is
downgraded to a rating that would render the security ineligible for purchase by
the Global Account, the Global Account may nonetheless retain the security.
Debt securities purchased by the Global Account may be of any maturity. It is
anticipated that the weighted average maturity of the debt securities in the
portfolio (excluding money market instruments) generally will be between 5 and
15 years, but may be shorter or longer at the discretion of the Portfolio
Manager.
The Global Account invests only in high-quality money market instruments. These
include the following: (1) short-term U.S. Government securities; (2) short-term
foreign government securities which, at the time of investment, are rated AA or
better by S&P or Aa or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality; (3)
certificates of deposit, time deposits, bankers' acceptances, and short-term
obligations of banks and other depository institutions, both U.S. and foreign,
that have total assets of at least $10 billion (U.S.) and are determined by the
Portfolio Manager to be of high quality; and (4) commercial paper and other
short-term corporate obligations which, at the time of investment, are rated A-2
or better by S&P or P-2 or better by Moody's or, if not rated by S&P or Moody's,
determined by the Portfolio Manager to be of equivalent quality.
The Global Account may employ various investment strategies involving
currencies, including entering into forward currency contracts, foreign exchange
futures contracts, and options on currencies. (See "Securities and Investment
Techniques," below.) These strategies may be employed for purposes of exposing
the Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another. These strategies may
also be employed as hedging techniques to help protect against declines in the
U.S. dollar (or other currency) value of the Global Account's assets that might
result from adverse changes in currency exchange rates. The Global Account may
engage in forward currency transactions in anticipation of or to protect itself
against fluctuations in currency exchange rates. The Global Account may purchase
put and call options on foreign currencies as a hedge against changes in the
value of the U.S. dollar (or another currency) in relation to a foreign currency
in which securities of the Global Account may be denominated. Hedging against a
change in the value of a foreign currency in the foregoing manner does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Furthermore, such hedging transactions
may reduce or preclude the opportunity for gain if the value of the hedged
currency should change relative to the U.S. dollar.
NON-DIVERSIFIED
The Global Account is classified as a "non-diversified" investment company under
the 1940 Act, as amended, which means that the Global Account is not limited by
the 1940 Act in the amount of its assets that it may invest in the securities of
a single issuer. However, the Global Account will meet the diversification
requirements of Code Section 817 (h) and the Treasury Department Regulations
issued thereunder. Under applicable state law requirements, the Global Account
may not acquire the securities of any issuer if, as a result of such investment,
more than 10% of the Global Account's total assets would be invested in the
securities of any one issuer, except that this restriction shall not apply to
U.S. Government securities or foreign government securities, and the Global
Account will not invest in a security if, as a result of such investment, it
would hold more than 10% of the outstanding voting securities of any one issuer.
Nonetheless, because the Global Account, as a non-diversified investment company
under the 1940 Act, may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Global Account may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified company. This risk may include greater exposure to the risk of
poor earnings or default of one issuer than would be the case for a more
diversified fund.
The Global Account is also subject to the following guidelines for
diversification of foreign security investments. If the Global Account has less
then 20% of its assets in foreign issuers, then all of such investment may be in
issuers domiciled or primarily traded in one country. If the Global Account has
at least 20% but less than 40% of its assets in foreign
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
issuers, then such investment must be allocated to issuers domiciled or
primarily traded in at least two different countries. Similarly, if the Global
Account has at least 40% but less than 60% of its assets in foreign issuers,
such investment must be allocated in at least three different countries. Foreign
investments must be allocated to at least four different countries if at least
60% of the Global Account's assets is in foreign issuers, and to at least five
different countries if at least 80% of its assets is in foreign issuers.
The Global Account may have no more than 20% of its net assets invested in
securities of issuers domiciled or primarily traded in any one country, except
that the Global Account may have an additional 15% of its net assets invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Germany, Japan and The United Kingdom. The
Global Account's investments in U.S. issuers are not subject to these foreign
country diversification guidelines.
RISK FACTORS
The Global Account's investment policies and certain of the investment
techniques in which the Global Account may engage involve certain risks. For
instance, the Global Account will invest in non-U.S. dollar-denominated
securities of foreign issuers. Investing in such securities involves different
risk considerations than investing in securities of U.S. issuers, including the
risks of investment in foreign countries, foreign exchange rate fluctuations,
exchange controls, and others. The Global Account may also engage in
transactions in financial futures contracts, both domestic and foreign, and in
various put and call options. The Global Account may also engage in foreign
currency transactions and options on foreign currencies. Risks associated with
these techniques are described more fully under "Securities and Investment
Techniques."
In general, because investment in foreign issuers will usually involve
currencies of foreign countries, and because the Global Account may be exposed
to currency risk independent of its securities positions, the value of the
assets of the Global Account as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. To the extent that the Global
Account's assets consist of investments denominated in a particular currency,
the Global Account's exposure to adverse developments affecting the value of
that currency will increase. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investment in different countries, actual or perceived changes in
interest rates, and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by
intervention by U.S. or foreign governments or central banks in the availability
of money or interest rates, by the failure to intervene, by currency controls,
or by political and economic developments in the U.S. or abroad. The market in
forward foreign currency exchange contracts and other privately negotiated
currency instruments offers less protection against defaults by the other party
to such instruments than is available for currency instruments traded on an
exchange. To the extent that a substantial portion of the Global Account's total
assets, adjusted to reflect the Global Account's net position after giving
effect to currency transactions, is denominated in the currencies of foreign
countries, the Global Account will be more susceptible to the risk of adverse
economic and political developments within those countries.
In addition, because of the Global Account's flexible investment policy,
portfolio turnover may be greater than for a portfolio that does not allocate
assets among various types of securities and among various countries and
regions. A higher rate of portfolio turnover involves correspondingly greater
brokerage expenses which must be borne by the Global Account (and indirectly by
investors allocating accumulation value to the Global Account), and may under
certain circumstances make it more difficult for the Global Account to qualify
as a regulated investment company under the Code.
There can be no assurance that the Global Account will achieve its investment
objective. Investors should be aware that the value of the Global Account's
assets will fluctuate and a contract owner's accumulation value will increase
and decrease in value as the market value of the securities and other assets in
which the Global Account invests fluctuates.
The Global Account is intended for long-term investors who can accept the risks
involved in investments in foreign securities. The Global Account does not
purport to offer a complete investment program to which a prudent investor would
commit all of his or her investment capital, nor is it intended for investors
whose principal objective is income.
BOARD OF GOVERNORS OF ACCOUNT D
The business and affairs of Account D are managed under the direction of a Board
of Governors, which currently consists of four members. The Board of Governors
has responsibility for the investment management-related operations of Account D
and
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
matters arising under the 1940 Act. The Board of Governors does not have
responsibility for the payment of obligations under the contract and
administration of the contract. These matters are Golden American's
responsibility. The business and affairs of Account D are governed under a set
of rules adopted by the Board of Governors called "Rules and Regulations of
Separate Account D."
THE MANAGER
DSI serves as Manager to Account D pursuant to a Management Agreement with
Account D. The Manager is a corporation organized under the laws of the State of
New York. Its address is 280 Park Avenue, New York, New York 10017. DSI is a
wholly owned subsidiary of BT Variable, Inc., which is an indirect subsidiary of
Bankers Trust Company. DSI's business activities include those of a distributor
and underwriter of variable insurance products, broker-dealer and investment
manager. DSI is registered with the SEC as a broker-dealer and investment
adviser and is a member of the NASD. It is also registered as a broker-dealer
and/or investment adviser in various states.
U.S. banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System (the
"Board"), prohibit a bank holding company registered under the Bank Holding
Company Act of 1956, or any affiliate thereof, from sponsoring, organizing,
controlling, or distributing the shares of a registered open-end investment
company, which may for these purposes include the Global Account, continuously
engaged in the issuance of its securities and, except as otherwise provided by
order of the Board, prohibit banks generally from issuing, underwriting,
selling, or distributing securities. The same laws and regulations generally
permit a bank or bank affiliate to act as investment adviser, transfer, dividend
disbursing, and shareholder servicing agent and custodian to an investment
company and to purchase such shares as agent for and upon the order of a
customer.
Golden American and DSI perform the activities described above in this
prospectus and in Part I, under the caption "Selling the Contracts." As
discussed in Part I, under the caption "Golden American," while Bankers Trust
has no immediate intent to divest its ownership of the stock of Golden American
and DSI, such a divestiture may occur in the future. In addition, judicial or
administrative decisions or interpretations, as well as changes in either U.S.
Federal or state banking statutes or regulations, could prevent Golden American
from performing activities with respect to Account D, prevent DSI from
performing the activities described in this prospectus, or prevent Bankers Trust
Company from continuing to own the stock of Golden American or DSI. If any such
event were to occur, changes in the operation of Account D and the Global
Account might occur. It is not expected, however, that Account D or the Global
Account would suffer adverse financial consequences as a result of such
occurrence.
As discussed in Part I, DSI also currently provides management and
administrative services to the Trust. DSI's officers have extensive experience
in the development and distribution of investment products, specifically,
variable life insurance policies, variable annuity contracts, and management
investment companies that serve as investment media for such policies and
contracts.
Under the Management Agreement, DSI has overall responsibility, subject to the
supervision of the Board of Governors, for administering all operations of the
Global Account and for monitoring and evaluating the management of the assets of
the Global Account by the Portfolio Manager. The Manager is also responsible for
monitoring and evaluating the Portfolio Manager on a periodic basis, and will
consider its performance record with respect to the investment objective and
policies of the Global Account. The Management Agreement may be terminated
without penalty by the vote of the Board of Governors or the contract owners of
the Global Account, or by the Manager, on 60 days' written notice by the Board
or the Manager and will terminate automatically if assigned as that term is
described in the 1940 Act.
As Manager, DSI provides the overall business management and administrative
services necessary for the Global Account's operation. The Manager furnishes or
procures on behalf of the Global Account the services and information necessary
to the proper conduct of the Global Account's business. The Manager also acts as
liaison among the various service providers to the Global Account, including the
custodian, portfolio accounting personnel, Portfolio Manager, counsel, and
auditors. The Manager is also responsible for ensuring that the Global Account
operates in compliance with applicable legal requirements and for monitoring the
Portfolio Manager for compliance with requirements under applicable law and with
the investment policies and restrictions of the Global Account.
Pursuant to the Management Agreement, the Manager is authorized to exercise full
investment discretion and make all determinations with respect to the investment
of the Global Account's assets and
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the purchase and sale of securities for the Global Account in the event that at
any time a portfolio manager is not engaged to manage the assets of the Global
Account. In such event, the Management Agreement provides that the Manager will
be entitled to, in addition to its usual compensation for services as Manager,
as described below, a fee that would otherwise be paid to the Portfolio Manager.
For more information on the Management Agreement, see the Statement of
Additional Information.
For operating expenses under the Management Agreement see Part I, Charges and
Fees, Operating Expenses of Account D.
The Global Account and DSI have entered into an agreement to limit the total
expenses of the Global Account, excluding mortality and expense risk charges,
asset based administrative charges and other contractual charges, for the period
through December 31, 1994 so that such expenses do not exceed on an annual
basis: 1.25% of the first $500 million of average daily net assets and 1.05% of
the excess over $500 million.
The initial organizational expenses of the Global Account were advanced by
Golden American. The Global Account reimburses Golden American for such
expenses, which are amortized over five years from the date of the Global
Account's commencement of operations.
THE PORTFOLIO MANAGER
Warburg, Pincus serves as the Portfolio Manager of the Global Account and in
that capacity provides investment advisory services for the Global Account,
including asset allocation and security selection. The Portfolio Manager's
address is 466 Lexington Avenue, New York, New York 10017. The Global Account,
the Manager, and the Portfolio Manager have entered into a Portfolio Management
Agreement under which the Portfolio Manager has full investment discretion and
makes all determinations with respect to the investment of the Global Account's
assets and the purchase and sale of securities and other investments. The
Portfolio Management Agreement may be terminated without penalty by the vote of
the Board of Governors or the contract owners of the Global Account, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any party to
the Portfolio Management Agreement and will terminate automatically if assigned
as that term is described in the 1940 Act.
Warburg, Pincus was incorporated in Delaware on December 15, 1970. Warburg,
Pincus is a professional investment counselling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. The Portfolio Manager is
registered with the SEC as an investment adviser.
The individual primarily in charge of portfolio management decisions for the
Global Account is Richard H. King. Mr. King has been a Managing Director of E.M.
Warburg, Pincus & Co., Inc. ("EMW") since 1989, before which time he was senior
vice president of Fiduciary Trust Company International. Harold E. Sharon and
Nicholas P.W. Horsley, both of whom are research analysts and associate
portfolio managers of another investment company advised by Warburg, Pincus,
also exercise significant portfolio management responsibility with respect to
the Global Account. Mr. Sharon has been with EMW since 1990, before which time
he was an investment officer with Credit Suisse Asset Management. Mr. Horsley
has been with EMW since 1993, before which time he was a director, portfolio
manager and analyst at Barclays deZoete Wedd in New York City.
As of January 31, 1994, Warburg, Pincus managed approximately $7.0 billion of
assets and served as investment adviser to thirteen investment companies which
had total assets of approximately $2.0 billion. The Portfolio Manager is a
wholly-owned subsidiary of Warburg, Pincus Counsellors G.P., a New York general
partnership. EMW controls Warburg, Pincus through its ownership of a class of
voting preferred stock of Warburg, Pincus. Warburg, Pincus Counsellors G.P. has
no business other than being a holding company of Warburg, Pincus and its
subsidiaries.
From the commencement of operations of the Global Account through June 30, 1994,
Zulauf Asset Management AG served as portfolio manager for the Global Account.
Warburg, Pincus assumed management of the Global Account on July 1, 1994.
For operating expenses under the Portfolio Management Agreement see Part I,
Charges and Fees, Operating Expenses of Account D.
CUSTODIAN
The Custodian for the Global Account is Bankers Trust Company. DSI provides
portfolio accounting services for the Global Account.
SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes different types of securities and investment
techniques that may be used by the Global Account, as well as the risks
associated with such securities and techniques. For more
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
detailed information on these securities and investment techniques, and for
information on other securities and investment techniques that may be used by
the Global Account, including U.S. Government securities, debt securities,
foreign securities, repurchase agreements, short sales, futures contracts,
options on securities and foreign currency transactions, see the discussion in
the Statement of Additional Information on "Securities and Investment
Techniques."
FOREIGN SECURITIES
The Global Account may invest in equity and debt securities of foreign
issuers, in American Depository Receipts ("ADRs"), in foreign government
securities that are denominated in either U.S. dollars or foreign currencies,
and in foreign branches of commercial banks and foreign banks.
Investments in foreign securities offer potential benefits not available
solely in securities of domestic issuers by offering the opportunity to invest
in foreign issuers that appear to offer growth potential, or in foreign
countries with economic policies or business cycles different from those of
the United States, or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that may not move in a manner parallel to
U.S. markets. Investments in securities of foreign issuers involve certain
risks not ordinarily associated with investments in securities of domestic
issuers. Such risks include fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls, restrictions on investment or the flow of capital, or other foreign
governmental laws or restrictions. Since the Global Account may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of
investments as denominated in U.S. dollars. While the Global Account may
employ certain investment techniques to hedge its foreign currency exposure,
such techniques also entail certain risks. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social
instability, or diplomatic developments that could adversely affect
investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S. companies.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. The Global Account might have greater difficulty taking appropriate
legal action with respect to foreign investments in non-U.S. courts than with
respect to domestic issuers in U.S. courts. In addition, transactions in
foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions. Clearance and settlement
procedures in certain foreign countries have not developed at the same pace as
the related securities markets, making it difficult to execute desired
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Global Account are uninvested and no return is
earned thereon. The inability of the Global Account to make intended
investments due to settlement problems could cause it to miss attractive
investment opportunities. Inability to dispose of securities or other
investments due to settlement problems could result either in losses to the
Global Account due to subsequent declines in value of the investment, or
possible liability to a purchaser. Foreign investments also involve the risk
of possible losses through the holding of securities by custodians and
securities depositories in foreign countries.
Interest income and gains from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located.
SHORT SALES
The Global Account may make short sales of securities. A short sale is a
transaction in which the Global Account sells a security it does not own in
anticipation of a decline in market price. The Global Account may make short
sales to offset a potential decline in a long position or a group of long
positions, or if the Portfolio Manager believes that a decline in the price of
a particular security or group of securities is likely.
The Global Account's obligation to replace a security borrowed in connection
with the short sale will be secured by collateral deposited with the broker,
consisting of cash or U.S. Government securities or other securities
acceptable to the broker. In addition, with respect to any short sale, other
than short sales against the box, the Global Account will be required to
deposit collateral consisting of cash,
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cash items, or U.S. Government securities in a segregated account with its
custodian in an amount such that the value of the sum of both collateral
deposits (not including the proceeds from the short sale) is at all times
equal to at least 100% of the current market value of the securities sold
short. The deposits do not necessarily limit the Global Account's potential
loss on a short sale, which may exceed the entire amount of the collateral.
If the price of the security sold short increases between the time of the
short sale and the time the Global Account replaces the borrowed security, the
Global Account will incur a loss, and if the price declines during this
period, the Global Account will realize a capital gain. Any realized gain will
be decreased, and any incurred loss increased, by the amount of transactional
costs and any premium, dividend, or interest which the Global Account may have
to pay in connection with such short sale. Account D may have to pay a premium
to borrow the securities sold short and must pay any dividends or interest
payable on the securities until they are replaced. Possible losses from short
sales differ from losses that could be incurred from a purchase of a security,
because losses from short sales may be unlimited, whereas losses from
purchases of a security can equal only the total amount invested.
The Global Account may make a short sale only if, at the time the short sale
is made and after giving effect thereto, the market value of all securities
sold short is 25% or less of the value of its net assets. The Global Account
is not required to liquidate an existing short sale position solely because a
change in market values has caused this percentage limitation to be exceeded.
FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts.
The Global Account may engage in such futures transactions as an adjunct to
its securities activities. The Global Account's transactions in futures
transactions must constitute bona fide hedging or other permissible
transactions under regulations promulgated by the Commodity Futures Trading
Commission ("CFTC"), under which a fund engaging in futures transactions would
not be deemed a "commodity pool." Under these regulations, the Global Account
may enter into futures and options (1) for "bona fide hedging" purposes,
without regard to the percentage of assets committed to initial margin and
options premiums, or (2) for other strategies, provided that the aggregate
initial margin and premiums required to establish such positions do not exceed
5% of the liquidation value of the Global Account's portfolio, after taking
into account unrealized profits and unrealized gains on any such contracts
entered into. Transactions in futures contracts and options on futures
contracts may also be limited by the requirements of the Code for
qualification as a regulated investment company. Other requirements are
described in the Statement of Additional Information.
There are several risks associated with the use of futures and futures
options. While the Global Account's hedging transactions may protect the
Global Account against adverse movements in the general level of interest
rates, securities prices, currency exchange rates, or other economic
conditions, such transactions could also preclude the Global Account from the
opportunity to benefit from favorable movements in the level of interest
rates, securities prices, currency exchange rates, or other economic
conditions. There can be no guarantee that there will be correlation between
price movements in the hedging vehicle and in the portfolio securities or
currency being hedged. An incorrect correlation could result in a loss on both
the hedged securities in the Global Account and the hedging vehicle so that
the Global Account's return might have been better if hedging had not been
attempted. The loss that could be incurred by the Global Account in writing
options on futures is potentially unlimited.
There can be no assurance that a liquid market will exist at a time when the
Global Account seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
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preventing prompt liquidation of positions and subjecting some holders of
futures contracts to substantial losses. Lack of a liquid market for any
reason may prevent the Global Account from liquidating an unfavorable position
and the Global Account would remain obligated to meet margin requirements and
continue to incur losses until the position is closed.
The Global Account will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system, or in
the case of futures options, for which an established over-the-counter market
exists.
The Global Account may engage in futures contracts and options on futures
contracts not only on U.S. domestic markets, but also on exchanges and other
markets outside of the United States. Foreign markets may offer advantages
such as trading in indices that are not currently traded in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading on foreign
commodity markets is not regulated by the CFTC and may be subject to greater
risk than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. Trading in
foreign futures or foreign options contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protections as funds received in respect of transactions on United States
futures exchanges. In addition, the Global Account could incur losses or lose
any profits that had been realized in trading by adverse changes in the
exchange rate of the currency in which the transaction is denominated.
Transactions on foreign exchanges may include both commodities that are traded
on domestic exchanges and boards of trade and those that are not.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Global Account may purchase and write put and call options on securities
and on securities indices. The Global Account will purchase and write only
options that are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Global Account
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.
The Global Account may write a call or put option only if the option is
"covered" by the Global Account holding a position in the underlying
securities or by other means that would permit immediate satisfaction of the
Global Account's obligation as writer of the option, typically deposit with
the Global Account's custodian of cash, U.S. Government securities, or other
high grade liquid debt securities with a value at least equal to the exercise
price of the put option, or the price at which a security underlying a call
option can be acquired.
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a
writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price. If a put or call option purchased by the Global Account is not sold
when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Global Account will lose its entire investment in the option. Also,
where a put or call option on a particular security is purchased to hedge
against price movements in a related security, the price of the put or call
option may move more or less than the price of the related security.
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THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D (CONTINUED)
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out an option position. Furthermore, if trading
restrictions or a suspension is imposed on the options markets, the Global
Account may be unable to close out a position. If the Global Account cannot
effect a closing transaction, it will not be able to sell the underlying
security while the previously written option remains outstanding, even though
it might otherwise be advantageous to do so. The Global Account pays brokerage
commissions or spreads in connection with its options transactions. The
writing of options could significantly increase portfolio turnover rate.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts and enter into
currency exchange transactions on a spot (i.e., cash) basis. A forward
currency contract is an obligation to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Global Account may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale of an offsetting contract. The
Global Account may engage in forward currency transactions in anticipation of
or to protect itself against fluctuations in currency exchange rates, and
entering into a forward currency contract will expose the Global Account to
the risk of adverse changes in the exchange rate of the currency that is
subject to the contract. The Global Account may also enter into a forward
currency contract for non-hedging purposes. Forward currency contracts are
further described in the Statement of Additional Information.
If the Global Account engages in an offsetting transaction to terminate its
contractual obligation under a forward currency contract, the Global Account
will incur a gain or a loss to the extent that there has been movement in
forward contract prices. For more information on closing a forward currency
position, including information on associated risks, see the Statement of
Additional Information.
In hedging transactions, the precise matching of forward currency contracts
and the value of the securities involved will not generally be possible since
the future value of the securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. Projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
While forward foreign currency contracts tend to minimize the risk of loss due
to a decline in the value of a hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when the Global Account seeks
to enter into or close out a forward currency position, in which case the
Global Account might not be able to effect a closing purchase transaction at
any particular time. In addition, the Global Account entering a forward
foreign currency contract incurs the risk of default by the counter party to
the transaction. Forward currency contracts offer less protection against
defaults than is available when trading in currencies on an exchange. Because
a forward currency contract is not guaranteed by an exchange or clearinghouse,
a default on the contract would deprive the Global Account of unrealized
profits or force the Global Account to cover its commitments for purchase or
resale, if any, at the current market price.
Although the Global Account values its assets daily in terms of U.S. dollars,
it does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Global Account may do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Global Account at one rate, while offering a
lesser rate of exchange should the Global Account desire to resell that
currency to the dealer.
The Global Account will place cash or high grade liquid debt securities into a
segregated account in an amount equal to the value of the Global Account's
total assets committed to the consummation of forward currency contracts
requiring the Global Account to purchase foreign currencies or forward
contracts entered into for non-hedging purposes. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Global Account's commitments with
respect to such contracts. The segregated account will be marked-to- market on
a daily basis. Although the contracts are not presently regulated by the CFTC,
the CFTC
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may in the future assert authority to regulate these contracts. In such event,
the Global Account's ability to utilize forward currency contracts may be
restricted.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may purchase and write call and put options on foreign
currencies. Such options will expose the Global Account to the risk of adverse
changes in the exchange rate of the currency that is subject to the option.
The Global Account may employ options on foreign currencies to increase or
shift exposure to a currency and as a hedge against changes in the value of
the U.S. dollar (or another currency) in relation to a foreign currency in
which portfolio securities of the Global Account may be denominated. Hedging
against a change in the value of a foreign currency with an option on the
foreign currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar. The Global Account may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits that may limit the ability of the Global Account to reduce foreign
currency risk using such options. Over-the-counter options differ from traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. There is no assurance that a liquid
secondary market will exist for any particular option, or at any particular
time. In the event no liquid secondary market exists, it might not be possible
to effect closing transactions in particular currency options. If the Global
Account cannot close out an option that it holds, it would have to exercise
its option in order to realize any profit and would incur transactional costs
on the sale of the underlying assets.
BORROWING
The Global Account may borrow up to 10% of the value of its net assets. For
temporary purposes, such as to facilitate redemptions, the Global Account may
increase its borrowings up to 25% of its net assets. Reverse repurchase
agreements, short sales of securities, and sales of securities against the box
will be included as borrowing subject to the borrowing limitations described
above, except that the Global Account is permitted to engage in short sales of
securities with respect to an additional 15% of the Global Account's net
assets in excess of the limits otherwise applicable to borrowing. Securities
purchased on a when-issued or delayed delivery basis will not be subject to
the Global Account's borrowing limitations to the extent that the Global
Account establishes and maintains liquid assets in a segregated account with
the Global Account's custodian equal to the Global Account's obligations under
the when-issued or delayed delivery arrangement.
INVESTMENT RESTRICTIONS
The Global Account is subject to investment restrictions that are described in
the Statement of Additional Information. Those investment restrictions so
designated and the investment objective are "fundamental policies" of the Global
Account, which means that they may not be changed without a majority vote of the
contract owners with accumulation value allocated to the Global Account. Except
for those restrictions specifically identified as fundamental and the Global
Account's investment objective, all other investment policies and practices
described in this prospectus and Statement of Additional Information are not
fundamental, meaning that the Board of Governors may change them without
contract owner approval.
BROKERAGE SERVICES
Pursuant to the Portfolio Management Agreement, the Portfolio Manager places
orders for the purchase and sale of portfolio investments for the Global Account
with brokers or dealers selected by the Portfolio Manager in its discretion. In
executing transactions, the Portfolio Manager will attempt to obtain the best
execution. In transactions on stock exchanges in the United States, payment of
brokerage commissions are negotiated. In effecting purchases and sales of
portfolio securities in transactions on U.S. stock exchanges, the Global Account
may pay higher commission rates than the lowest available when the Portfolio
Manager believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Portfolio Manager may be unable to
negotiate commission rates for these transactions. In the case of securities
traded on the over-the-counter markets, there is generally no stated commission,
but the price includes an undisclosed commission or markup.
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Some securities considered for investment by the Global Account may also be
appropriate for other clients served by the Portfolio Manager and/or its
affiliates. If a purchase or sale of securities consistent with the investment
policies of the Global Account and one or more of these clients served by the
Portfolio Manager and/or its affiliates is considered at or about the same time,
transactions in such securities will be allocated among the Global Account and
clients in a manner deemed fair and reasonable by the Portfolio Manager and/or
its affiliates. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Portfolio Manager, and
the results of such allocations, are subject to periodic review by the Manager
and Account D's Board of Governors.
The Portfolio Manager may place orders for the purchase of portfolio securities
with an affiliated broker-dealer where, in the judgment of the Portfolio Man-
ager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and an affiliate of the Portfolio Manager.
PORTFOLIO TURNOVER
It is anticipated that the Global Account's annual rate of portfolio turnover
normally will not exceed 100%. Portfolio turnover for the Global Account will
vary from year to year, and depending on market conditions, the portfolio
turnover rate could be greater in periods of unusual market movement. A higher
turnover rate would result in heavier brokerage commissions or other
transactional expenses which must be borne, directly or indirectly, by the
Global Account and ultimately by the Global Account's contract owners. For
information on the calculation of the portfolio turnover rate, see the
Statement of Additional Information.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Golden
American Life Insurance Company (the "Company") as of December 31, 1994 and
1993, and the related statutory-basis statements of operations, capital and
surplus, and cash flow for the years then ended. These financial statements
are the responsibility of the Company's 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.
The Company presents its 1994 and 1993 financial statements in conformity
with accounting practices prescribed or permitted by the Department of
Insurance of the State of Delaware. The variances between such practices and
generally accepted accounting principles and the effects on the accompanying
financial statements are described in Notes 2 and 4.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, or the results
of its operations or its cash flow for the years then ended. However, in our
opinion, the supplementary information included in Note 4 presents fairly, in
all material respects, stockholder's equity at December 31, 1994 and 1993,
and net income (loss) for the years ended December 31, 1994 and 1993, in
conformity with generally accepted accounting principles.
59
<PAGE>
Also, in our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, and the results
of its operations and its cash flow for the years then ended in conformity with
accounting practices prescribed or permitted by the Department of Insurance
of the State of Delaware for the years ended December 31, 1994 and 1993.
February 14, 1995
60
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $2,673,223 $ 2,127,036
Short-term investments 13,933,550 15,231,954
Common stock 15,609 321,842
Funds held in escrow pursuant to an Exchange Agreement 2,757,467 1,375,000
Cash 3,315,768 4,075,718
Policy loans 513,350 144,529
-------------------------------
23,208,967 23,276,079
Investment income due and accrued 92,423 68,002
Due from reinsurers 14,506,893 162,041
Due from parent and affiliates -- 466,129
Separate account assets 950,291,746 810,150,858
Other assets 80,119 --
Total admitted assets $988,180,148 $834,123,109
-------------------------------
-------------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Policy and contract liabilities:
Insurance and annuity reserves $ 6,036,021 $ 2,389,726
Due to reinsurers 13,860,267 87,977
-------------------------------
19,896,288 2,477,703
Other liabilities:
Due from separate accounts for net transfers (49,758,887) (39,158,451)
Due to parent and affiliates 232,587 --
Accrued expenses and other liabilities 745,569 1,220,619
Adjustable principal amount promissory note, 7.5%, due
1997 438,636 438,636
Borrowed money -- 40,040,278
Asset valuation reserve and interest maintenance reserve 41,598 131,060
-------------------------------
(28,404,209) 2,672,142
Separate account liabilities 950,291,746 810,150,858
-------------------------------
Total liabilities 921,887,537 815,300,703
Capital and surplus:
Common stock, par value $10 per share:
Authorized, issued and outstanding 250,000 shares 2,500,000 2,500,000
Redeemable preferred stock, par value $5,000 per share,
50,000 shares authorized, 10,000 shares issued and
outstanding in 1994 50,000,000 --
Paid-in surplus 42,699,479 33,949,479
Unassigned surplus (deficit) (28,906,868) (17,627,073)
-------------------------------
Total capital and surplus 66,292,611 18,822,406
-------------------------------
Total liabilities and capital and surplus $988,180,148 $834,123,109
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED December 31
1994 1993
-------------------------------
<S> <C> <C>
Premiums and annuity considerations $294,549,961 $505,465,379
Reserve adjustments on reinsurance ceded 12,705,353 --
-------------------------------
307,255,314 505,465,379
Investment income:
Gross investment income 578,107 245,507
Less investment expenses (2,310) (773,443)
-------------------------------
575,797 (527,936)
Amortization of interest maintenance reserve 3,323 14,720
Commissions and expense allowances on
reinsurance ceded 1,140,402 --
Other income -- 8,446
-------------------------------
Total income 308,974,836 504,960,609
Benefits paid or provided:
Annuity benefits 18,263,492 9,591,886
Surrender benefits 86,014,940 26,809,545
Increase (decrease) in insurance and annuity reserves 3,646,295 (59,390)
-------------------------------
107,924,727 36,342,041
Net transfers to separate accounts 178,965,551 434,471,301
Expenses:
Commissions 17,569,333 34,259,911
General insurance expenses 15,838,760 9,337,982
-------------------------------
33,408,093 43,597,893
-------------------------------
Total benefits and expenses 320,298,371 514,411,235
-------------------------------
Net loss from operations before federal income tax
benefit and net realized capital gains (11,323,535) (9,450,626)
Federal income tax benefit -- 16,083
Net realized capital gains 63,500 33,657
-------------------------------
Net loss $(11,260,035) $(9,400,886)
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
Balance at beginning of year $18,822,406 $12,204,962
Net loss (11,260,035) (9,400,886)
Change in net unrealized appreciation of investments (62,320) 47,856
Change in asset valuation reserve 92,811 (29,526)
Change in non-admitted assets (50,251) --
Issuance of redeemable preferred stock 50,000,000 --
Issuance of common stock -- 1,000,000
Contribution of capital by parent 8,750,000 15,000,000
-------------------------------
Net increase in capital and surplus 47,470,205 6,617,444
-------------------------------
Balance at end of year $66,292,611 $18,822,406
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
63
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations, net $308,461,038 $505,337,943
Policy loans (368,822) 202,132
Investment income, net of interest paid 465,559 (484,512)
Federal income tax benefit recovered -- 16,083
Benefits paid (104,913,778) (36,551,412)
Commissions and other operating expenses (33,764,277) (42,607,803)
Net transfers to separate accounts (189,565,987) (458,548,369)
Other 845,300 (274,409)
-------------------------------
Net cash used in operating activities (18,840,967) (32,910,347)
INVESTING ACTIVITIES
Proceeds from maturity and calling of bonds 321,110 552,100
Proceeds from sale of common stock 313,500 240,492
Cost of bonds acquired (857,274) (543,368)
Cost of common stock acquired (6,087) (260,576)
Investments held in escrow pursuant to an Exchange
Agreement, (net) (1,300,000) (1,375,000)
-------------------------------
Net cash used in investing activities (1,528,751) (1,386,352)
FINANCING ACTIVITIES
Issuance of common stock -- 1,000,000
Issuance of redeemable preferred stock 50,000,000 --
Contribution of capital by parent 8,750,000 15,000,000
Borrowed money (40,438,636) 33,600,000
-------------------------------
Net cash provided by financing activities 18,311,364 49,600,000
-------------------------------
Net (decrease) increase in cash and short-term
investments (2,058,354) 15,303,301
Cash and short-term investments at beginning
of year 19,307,672 4,004,371
-------------------------------
Cash and short-term investments at end of year $17,249,318 $19,307,672
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a
life insurance company in the District of Columbia and all states except New
York. Effective December 30, 1993, Golden American was redomesticated from
the State of Minnesota to the State of Delaware.
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
Directed Services, Inc. ("DSI"), an affiliate of Golden American, and certain
related assets and contributed them to BTV. The portion of the aggregate
consideration exchanged by Bankers Trust, allocable to Golden American, was
valued at $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated
value of insurance contracts in force and also included the acquisition of
net tangible assets of $.4 million. 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 is contingently supported by a $5 million note payable from
Golden American and a $6 million letter of credit from Bankers Trust. The
Golden American note is secured by a pledge of Golden American's right to
receive certain deferred sales loads. Bankers Trust has estimated that the
contingent liability due from Golden American amounted to $438,636 at
December 31, 1994 and 1993. During 1994 and 1993, Golden American deposited
with an escrow agent $1,300,000 and $1,375,000, respectively, pursuant to
certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly and
indirectly, all the issued and outstanding capital stock of Golden American,
to have at all times statutory capital and surplus of no less than the sum of
(i) $5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994 and 1993, BTV
contributed additional capital and paid-in
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. ORGANIZATION (CONTINUED)
surplus of $8,750,000 and $16,000,000, respectively, to Golden American,
including $1,000,000 in 1993 through the issuance of an additional 100,000
shares of common stock. In 1994, Golden American issued $50,000,000 of
preferred stock that was purchased by BTV for $50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements for the years ended December 31, 1994
and 1993 have been prepared on the basis of accounting practices and
procedures prescribed or permitted by the Department of Insurance of the
State of Delaware (the "Department") and the National Association of
Insurance Commissioners ("NAIC"). These practices differ in certain respects
from generally accepted accounting principles ("GAAP"). The more significant
accounting practices followed and, where indicated, their variation from
GAAP, are summarized as follows:
ADMITTED ASSETS
Assets in the accompanying balance sheets are stated at "admitted asset"
values. The term "admitted assets" means the assets are stated at values
required or permitted to be reported to the Department in accordance with the
rules and regulations of the Department and the NAIC.
ACQUISITION
The acquisition of Golden American by Bankers Trust had no effect on the
carrying value of the acquired assets and liabilities reported in the
accompanying statutory-basis financial statements. Under GAAP, the
acquisition of Golden American has been accounted for as a purchase by
Bankers Trust and, accordingly, the acquired assets and the liabilities
assumed were reported at their estimated fair values at the date of
acquisition. In addition, for GAAP purposes Golden American recorded an asset
for the cost assigned to insurance contracts in force, which represents the
value of the right to receive future profits from the life insurance and
annuity policies existing at the acquisition date. Such value is the
actuarially-determined present value of projected future profits from the
acquired contracts discounted at an interest rate of 15%. Cost assigned to
insurance contracts in force is being amortized over the estimated life of
the applicable insurance contracts in relation to estimated future gross
profits with interest at 8%.
66
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The admitted asset values of bonds and stocks have been determined on the
basis prescribed by the NAIC. Such admitted asset values represent
principally amortized cost for bonds (market value--1994: $2,658,448 and 1993:
$2,198,654) and market value for common stocks (cost--1994: $16,429 and 1993:
$260,342).
As prescribed by the NAIC, an Asset Valuation Reserve ("AVR") is required to
be maintained by insurance companies. The AVR is computed in accordance with
a prescribed formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate, and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus. As also prescribed by the NAIC, beginning in 1992, Golden
American adopted an Interest Maintenance Reserve ("IMR") that represents the
net accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity. Under GAAP, the AVR and IMR are not recorded.
Net realized capital gains and losses on investments are included in the
determination of net income using the specific identification method. Through
the use of the IMR such net realized gains and losses may be deferred, net of
applicable capital gains taxes, and amortized into investment income over the
life of the investments sold.
Unrealized gains and losses on stocks are recognized directly in unassigned
surplus. Short-term investments are carried at cost, which, when combined
with accrued interest income, approximates fair value.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden
American provides for variable accumulation and benefits under the policies
and contracts by crediting life and annuity considerations in accordance with
contractholder direction to one or more divisions within various separate
accounts or Golden American's guaranteed interest division. Allocation of
premiums to the guaranteed interest division was discontinued in 1991.
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums and annuity considerations are recorded as received and are
presented net of reinsurance premiums of $16.1 million and $.7 million in
1994 and 1993, respectively. Under GAAP, revenues from variable life and
annuity products consist of policy charges for mortality and expense risk,
the cost of insurance and policy administration costs that have been assessed
against policy account balances during the period.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent policy account balances invested in
the guaranteed interest division less the related unamortized portion of the
deferred sales load and other policy charges. Such reserves include
provisions for minimum death benefit guarantees.
Surrender values are not promised in excess of the legally computed reserves.
There was no insurance in-force at December 31, 1994 for which the gross
premiums were less than net premiums.
POLICY BENEFITS
Policy benefits paid or provided include benefit claims incurred in the
period and are net of reinsurance of $2.4 million and $.4 million in 1994 and
1993, respectively. Interest credited rates for the guaranteed interest
division ranged from 4.0% to 5.0% during 1994 and 1993. Under GAAP, policy
benefits that are charged to expense include benefits incurred in the period
in excess of the policy account balances and interest credited to policy
account balances invested in the guaranteed interest division.
ACQUISITION COSTS
Commissions and other costs incurred in acquiring new business are charged to
operations as incurred. Under GAAP, these costs are deferred and are
amortized over the lives of the policies in relation to the present value of
estimated gross profits from policy sales load and investment returns, and
mortality and expense margins.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
The separate accounts are registered investment companies under the
provisions of the Investment Company Act of 1940. At the direction of the
policyowners and contractholders, the separate accounts invest the premium
and annuity considerations from the sale of variable life and annuity
products in either shares of specified mutual funds or directly in other
investment securities. The assets and liabilities of Golden American's
separate accounts are identified and segregated from other assets and
liabilities of Golden American. The portion of the separate account assets
applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
Separate account assets are carried at the net asset value of the underlying
mutual funds, which approximates market value, and generally represent
contractholder and policyowner funds maintained in the accounts and
unamortized deferred sales loads and other charges payable to Golden American
over a specified period. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are not included
in the accompanying statements of operations of Golden American.
A sales load ranging from 0% to 9% in addition to other charges is applicable
to each premium payment for policy related expenses. Although this sales load
is assessed on each premium when it is received by Golden American, such
sales load is initially advanced by Golden American to contractholders and
policyowners and included in the separate or general account assets, as
applicable, and then deducted in equal installments on each contract
processing date over a period specified in the contract or policy. Sales
loads are included in operations when assessed by Golden American. Under
GAAP, these sales loads are earned over the life of the contract in relation
to estimated future gross profits. Sales load amounts that have been deducted
but not yet earned are reported as unearned income.
REINSURANCE
Premiums and policy benefits are reported in the accompanying financial
statements net of reinsurance ceded. Golden American would remain liable to
the extent that any reinsurers do not meet their obligations under the
reinsurance agreements. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts" which was issued
in December 1992, was adopted by Golden American in 1993. However, its
adoption did not have a material impact on the financial statements of Golden
American.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Federal income tax benefits are based on net losses from operations after
adjusting for certain income and expense items, principally differences
between statutory and tax reserves, accrual of bond discount, and specified
policy acquisition expenses that, in accordance with the provisions of the
Internal Revenue Code ("IRC"), are not included in the determination of
current taxable income.
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the IRC. At December 31, 1994
and 1993, Golden American had net operating loss ("NOL") carryforwards for
federal income tax purposes of approximately $17.3 million and $7.3 million,
respectively. Approximately $2.4 million of these NOL's, relating to
operations prior to ownership by Mutual Benefit, can be used to offset future
taxable income of Golden American only through the year 2005, subject to
annual limitations. Approximately $.8 million, $4.1 million and $10.0 million
are available through the years 2007, 2008, and 2009, respectively.
STATEMENTS OF CASH FLOW
For purposes of Golden American's statements of cash flow, all highly liquid
investments with a maturity of one year or less are considered to be
short-term investments.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount
promissory note, and policy and contract liabilities and determined that
carrying amounts reported in the balance sheets approximate fair value.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000,000 under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. Golden American met the RBC requirements as of December 31,
1994 and 1993.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock in 1994. As of December 31, 1994, Dividends in Arrears on
the Redeemable Preferred Stock were $17,917 or $1.79 per share. The
dividends are cumulative and are calculated based on a rate not to exceed the
sum of the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable
at the option of Golden American at the redemption price of $5,000 per share.
Dividend payments to common stockholders are limited by statutory
restrictions issued by the State of Delaware. The maximum amount of
dividends which can be paid by State of Delaware insurance companies to
stockholders without prior approval of the Insurance Commissioner is the
higher of either (a) prior year net income or (b) 10% of ending prior year
surplus. Statutory surplus at December 31, 1994, was $13,792,611. The net
loss for 1994 was $(11,260,035). The maximum dividend payout which may be
made without prior approval in 1995 is $1,379,261. No dividends were paid in
1994.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS (CONTINUED)
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1994 and 1993 and net loss for the years ended December 31, 1994
and 1993 to its statutory-basis capital and surplus and net loss included in
the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME/(LOSS)
--------------------------- -------------------------
1994 1993 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C>
GAAP-basis $ 89,506,318 $ 28,596,888 $ 2,221,748 $ (1,792,700)
Asset valuation reserve/interest
maintenance reserve (41,598) (131,060) 3,323 14,720
Fixed maturities from acquisition (75,609) (96,528) 14,248 4,300
Deferred policy acquisition costs (60,662,000) (42,151,111) (18,510,889) (35,101,494)
Cost assigned to insurance contracts in
force (7,620,000) (9,784,189) 2,164,189 1,356,597
Deferred sales loads and policy charges 49,223,050 42,223,470 6,999,580 26,695,281
Reserves (4,985,212) -- (5,016,676) 563,905
Unearned revenue 1,759,000 164,936 1,594,064 (1,141,495)
Other (811,338) -- (729,622) --
------------ ------------ ------------ ------------
Statutory-basis $ 66,292,611 $ 18,822,406 $(11,260,035) $ (9,400,886)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
5. INVESTMENTS
Investments in debt securities and other fixed maturity investments generally
are held for investment purposes to maturity. Included in short-term
investments at December 31, 1994 and 1993 are $13.9 million and $15.2 million
of debt securities, respectively, issued by the U.S. Government.
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1994:
U.S. Treasury bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
Total bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
-----------------------------------------------
At December 31, 1993:
U.S. Treasury $2,032,905 $68,669 $(4,191) $2,097,383
Corporate securities 94,131 7,140 -- 101,271
-----------------------------------------------
Total bonds $2,127,036 $75,809 $(4,191) $2,198,654
-----------------------------------------------
-----------------------------------------------
</TABLE>
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
5. INVESTMENTS (CONTINUED)
Fair values generally represent quoted market value prices for securities
traded in the public marketplace.
Maturities of long-term bonds are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
-----------------------------
<S> <C> <C>
Due in one year or less $701,048 $688,136
Due after one year through five years 849,927 827,009
Due after five years through ten years 1,122,248 1,143,303
$2,673,223 $2,658,448
-----------------------------
-----------------------------
</TABLE>
Proceeds from the sale of investments in bonds during 1994 and 1993 were
$321,110 and $552,100; gross gains of $6,672 and $24,919 were realized on
those sales, respectively.
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities was $(820) and $61,500, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year ended December 31, 1993, Golden
American incurred $311,121 for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
were sold primarily through two broker/dealer institutions. For 1994 and
1993, commissions paid by Golden American to DSI aggregated $17,569,333 and
$34,259,911, respectively.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Golden American provided to DSI certain of its personnel to perform
management, administrative, and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,486
and $2,012,969, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
ended December 31, 1993, fees earned by BTV from Golden American for these
services aggregated $2,700,850. The agreement was terminated as of
January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative, and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
ended December 31, 1993, BTV allocated to Golden American $1,503,159. The
agreement was terminated on January 1, 1994.
At December 31, 1994 and 1993, Golden American's cash and short-term
investments on deposit at Bankers Trust were $10,063,172 and $19,307,672,
respectively.
7. REINSURANCE
Variable life and annuity product fees are reported in the accompanying
financial statements net of reinsurance premiums of $16.1 million and
$.7 million in 1994 and 1993, respectively. Effective September 30, 1992,
Golden American terminated all reinsurance agreements with Mutual Benefit.
Concurrently, Golden American entered into agreements covering mortality
risks under both life policies and annuity contracts with an unaffiliated
reinsurer. Also, effective June 1, 1994, Golden American entered into a
reinsurance agreement on a modified coinsurance basis with an unaffiliated
reinsurer. Golden American remains liable to the extent that its reinsurers
do not meet their obligations under the reinsurance agreements. Reinsurance
in-force for life mortality risks were $23.3 million and $15.4 million at
December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
7. REINSURANCE (CONTINUED)
1993, respectively. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts," was issued in
December 1992 and adopted by Golden American in 1993. However, its adoption
did not have a material impact on the financial statements of Golden American.
8. LIFE AND ANNUITIES ACTUARIAL RESERVES
The following is a reconciliation of the Life and Annuities actuarial
reserves presented in the 1994 Annual Statements of Golden American and
Golden American Separate Accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT TOTAL
--------------------------------
<S> <C> <C>
1. Subject to discretionary withdrawal
1.1 - with market value adjustment $ -- 0%
----------- -----
1.2 - at book value less current surrender charge of 5%
or more -- 0%
----------- -----
1.3 - at market value -- 0%
----------- -----
1.4 - Total with adjustment or at market value 893,814,295 100%
----------- -----
1.5 - at book value without adjustment (minimal or no
charge or adjustment) 520,244 0%
----------- -----
2. Not subject to discretionary withdrawal -- 0%
----------- -----
3. Total (gross) 894,334,539 100%
----------- -----
4. Reinsurance ceded --
-----------
5. Total (net)* (3) - (4) $894,334,539
-----------
-----------
<FN>
*Reconciliation of total annuity actuarial reserves and deposit fund
liabilities.
</TABLE>
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
8. LIFE AND ANNUITIES ACTUARIAL RESERVES (CONTINUED)
<TABLE>
<S> <C>
Life and Accident and Health Annual Statement:
6. Exhibit 8, Section B, Total (net) $ 520,244
------------
7. Exhibit 8, Section C, Total (net) --
------------
8. Exhibit 10, Column 1, Line 12 --
------------
9. Subtotal 520,244
------------
Separate Accounts Statement:
10. Exhibit 6, Column 2, Line B.10 893,814,295
------------
11. Exhibit 6, Column 2, Line C.5 --
------------
12. Page 3, Line 3 --
------------
13. Page 3, Line 3 --
------------
14. Subtotal 893,814,295
------------
15. Combined total $894,334,539
------------
------------
</TABLE>
9. BORROWED MONEY
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
10. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
Golden American's employees are covered under the Parent's benefit plans.
The noncontributory pension plan and the profit sharing plan of the Parent
are also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were approximately $207,000.
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
11. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. BTV, an indirect subsidiary of Bankers Trust, is
the corporate parent of the Company and DSI. The acquisition is subject to
the approval of the appropriate regulators. First Colony is the corporate
parent of two insurance companies, First Colony Life Insurance Company and
American Mayflower Life Insurance Company, which together provide life
insurance and annuity products throughout the United States. The agreement
was amended to extend to June 15, 1995, the date at which either party may
terminate the agreement if the closing has not occurred by such time.
77
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying balance sheets of Golden American Life
Insurance Company (the Company) as of December 31, 1994 and 1993 and the
related statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1994 and 1993 and for the period from
September 30, 1992 (date of acquisition) to December 31, 1992. These financial
statements are the responsibility of the Company's 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 financial position of Golden American Life Insurance
Company at December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years ended December 31, 1994 and 1993 and for the period
from September 30, 1992 to December 31, 1992, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted, as of
December 31, 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
February 14, 1995
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
---------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost
(market--$2,659 and $2,199) $ 2,749 $ 2,224
Short-term investments, at cost, which approximates market 13,933 15,232
Equity securities, at market (cost--$17 and $260) 16 322
Policy loans 513 144
-------------------------
Total investments 17,211 17,922
Cash 3,316 4,076
Accrued investment income 92 68
Due from affiliates and separate accounts 963 466
Deferred policy acquisition costs 60,662 42,151
Unamortized cost assigned to insurance contracts in force 7,620 9,784
Funds held in escrow pursuant to an Exchange Agreement 2,757 1,375
Due from reinsurers 1,713 162
Other assets 134 --
Separate account assets 950,292 810,151
-------------------------
Total assets $1,044,760 $886,155
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves (including $17 and $31
of unamortized deferred sales load) $ 1,051 $ 2,421
Due to affiliates and separate accounts 660 3,462
Accrued expenses and other liabilities 1,053 920
Short-term debt -- 40,000
Unearned revenue 1,759 165
Adjustable principal amount promissory note,
7.50%, due 1997 439 439
Separate account liabilities (including
$48,924 and $42,192 of unamortized
deferred sales load) 950,292 810,151
-------------------------
Total liabilities 955,254 857,558
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share, authorized,
issued, and outstanding 250,000 shares 2,500 2,500
Redeemable preferred stock, par value $5,000
per share, 50,000 shares authorized,
10,000 issued and outstanding in 1994 50,000 --
Additional paid-in capital 37,086 28,336
Unrealized (depreciation) appreciation of equity
securities (1) 62
Retained earnings (deficit) (79) (2,301)
-------------------------
Total stockholder's equity 89,506 28,597
-------------------------
Total liabilities and stockholder's equity $1,044,760 $886,155
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
79
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
REVENUES
Variable life and annuity product fees and policy
charges $ 17,519 $10,192 $ 694
Net investment income 560 216 67
Realized capital gain (loss) 65 35 (2)
-----------------------------------------------------
Total revenues 18,144 10,443 759
EXPENSES
Policy benefits 35 1,747 34
Commissions and overrides 16,741 34,260 6,429
Salaries, benefits and other employee-
related costs 5,866 -- --
Financing charges and interest 1,962 726 53
Other general, administrative, and
operating expenses 7,665 9,248 1,662
Deferral of policy acquisition costs (23,119) (37,129) (7,059)
Amortization of deferred policy acquisition
costs 4,608 2,027 10
Amortization of cost assigned to insurance
contracts in force 2,164 1,357 138
-----------------------------------------------------
Total expenses 15,922 12,236 1,267
-----------------------------------------------------
Net income (loss) $ 2,222 $ (1,793) $ (508)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD SEPTEMBER 30, 1992 TO DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
UNREALIZED
SHARES SHARES ADDITIONAL APPRECIATION RETAINED TOTAL
COMMON PREFERRED COMMON PREFERRED PAID-IN OF EQUITY EARNINGS STOCKHOLDER'S
STOCK STOCK STOCK STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1992 (date of
acquisition) 150,000 $1,500 $13,336 $14,836
Net loss $ (508) (508)
Unrealized appreciation of equity securities $ 14 14
------------------------------------------------------------------------------------
Balances at December 31, 1992 150,000 1,500 13,316 14 (508) 14,342
Issuance of common stock 100,000 1,000 1,000
Contribution of capital 15,000 15,000
Net loss (1,793) (1,793)
Change in unrealized appreciation of
equity securities 48 -- 48
------------------------------------------------------------------------------------
Balances at December 31, 1993 250,000 2,500 -- 28,336 62 (2,301) 28,597
Issuance of preferred stock 10,000 50,000 50,000
Contribution of capital 8,750 8,750
Net income 2,222 2,222
Change in unrealized depreciation of equity
securities (63) (63)
------------------------------------------------------------------------------------
Balances at December 31, 1994 250,000 10,000 $2,500 $50,000 $37,086 $(1) $ 79 $89,506
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,222 $ (1,793) $(508)
Adjustments to reconcile net income (loss)
to net cash used in
operating activities:
Amortization of deferred policy
acquisition costs 4,608 2,027 10
Amortization of cost assigned
to insurance contracts in force 2,164 1,357 138
Change in unearned revenue 1,594 (1,141) (136)
Increase in accrued investment income (24) (1) (13)
Change in due to/from affiliates and
separate accounts (3,299) 2,976 (81)
Changes in other assets, accrued expenses
and other liabilities (1,552) 42 (154)
Policy acquisition costs deferred (23,119) (37,129) (7,059)
Change in insurance and annuity reserves (1,370) 550 45
Amortization of premium on fixed maturity
investments 13 -- --
-----------------------------------------------------
Net cash used in operating activities (18,763) (33,112) (7,758)
INVESTING ACTIVITIES
Purchases of fixed maturities (857) (543) (151)
Sales of fixed maturities 319 552 1,177
Purchases of common stock (7) (260) (2)
Sales of common stock 250 240 --
(Increase) decrease in policy loans (369) 202 (29)
Funds held in escrow pursuant to
an Exchange Agreement (1,382) (1,375) --
-----------------------------------------------------
Net cash (used in) provided by
investing activities (2,046) (1,184) 995
FINANCING ACTIVITIES
(Retirement) issuances of short-term debt (40,000) 33,600 6,400
Issuance of common stock -- 1,000 --
Issuance of preferred stock 50,000 -- --
Contribution of capital by parent 8,750 15,000 --
-----------------------------------------------------
Net cash provided by financing activities 18,750 49,600 6,400
-----------------------------------------------------
Net (decrease) increase in cash and
short-term investments (2,059) 15,304 (363)
Cash and short-term investments at
beginning of year 19,308 4,004 4,367
-----------------------------------------------------
Cash and short-term investments at
end of year $17,249 $19,308 $4,004
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance Company
in Rehabilitation ("Mutual Benefit"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at
approximately $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of insurance contracts in force and also included the acquisition of net
tangible assets of $.4 million. 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
is contingently supported by a $5 million note payable from Golden American and
a $6 million letter of credit from Bankers Trust. The Golden American note is
secured by a pledge of Golden American's right to receive certain deferred sales
loads. Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993. Golden American
deposited with an escrow agent $1,300,000 and $1,375,000, in 1994 and 1993,
respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994, 1993, and 1992, BTV
contributed additional capital and paid-in surplus of $8,750,000, $16,000,000,
and $3,200,000, respectively, to Golden American, including $1,000,000 in 1993
through the issuance of an additional 100,000 shares of common stock. In 1994,
Golden American issued $50,000,000 of preferred stock that was purchased by BTV
for $50,000,000 in cash.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been presented in accordance with
generally accepted accounting principles ("GAAP"). The acquisition of Golden
American has been accounted for as a purchase by Bankers Trust and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair values
at September 30, 1992. In accordance with requirements of the Securities and
Exchange Commission, this new basis of accounting has been "pushed down" to
Golden American.
INVESTMENTS
Fixed maturities are carried at amortized cost. Short-term investments are
carried at cost, which approximates market. Equity securities, principally
investments in mutual funds, are carried at market based on quoted market
prices. Net unrealized appreciation of equity securities is included as a
component of stockholder's equity. The cost of investments sold is determined by
using the specific identification method.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible premium
variable life insurance policies and annuity products. Golden American provides
for variable accumulation and benefits under the policies and contracts by
crediting life and annuity considerations in accordance with contractholder
direction to one or more divisions within various separate accounts or Golden
American's guaranteed interest division. Allocation of premiums to the
guaranteed interest division was discontinued in 1991.
SEPARATE ACCOUNTS
The separate accounts are registered under the provisions of the Investment
Company Act of 1940. At the direction of the policyowners and contractholders,
the separate accounts invest the premium and annuity considerations from the
sale of variable life and annuity products either in shares of specified mutual
funds or directly in other investments. The assets and liabilities of Golden
American's separate accounts are clearly identified and segregated from other
assets and liabilities of Golden American. The portion of the separate account
assets applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS (CONTINUED)
Separate account assets are carried at net asset value, which approximates
market value and generally represent policyowner and contractholder investment
values maintained in the accounts and unamortized deferred sales loads and other
charges payable to Golden American over a specified period. Separate account
liabilities represent account balances for the variable life policies and
annuity contracts invested in the separate accounts, which include unamortized
deferred sales loads. 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 of Golden American.
REVENUE RECOGNITION
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, the cost of insurance and contract administration
charges that have been assessed against account balances during the period. In
addition, a sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for contract related expenses. Although such
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the general or separate account assets, as
applicable, and then deducted or amortized in equal installments on each
contract processing date over a period specified in the contract or policy.
These sales loads are earned over the life of the insurance contract in relation
to estimated future gross profits using methods and assumptions similar to those
for cost assigned to insurance contracts in force. Sales loads that have been
deducted but not yet earned are reported as unearned revenue.
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE
The cost assigned to insurance contracts in force represents the value of the
right to receive future profits from the life insurance and annuity policies
existing at the acquisition date. Such value is the actuarially-determined
present value of projected future profits from the acquired contracts discounted
at an interest rate of 15%. Cost assigned to insurance contracts in force is
being amortized over the estimated life of the applicable insurance contracts in
relation to estimated future gross profits with interest at 8%.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE (CONTINUED)
The following is a reconciliation of the costs assigned to insurance contracts
in force for the years ended December 31, 1994, 1993, and the period September
30, 1992 to December 31, 1992:
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 9,784,000 $11,140,000 $11,278,000
Interest accrued 696,000 942,000 244,000
Amortization (2,860,000) (2,298,000) (382,000)
-------------------------------------------------------
Ending balance $ 7,620,000 $ 9,784,000 $11,140,000
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The following table presents the expected amortization of the cost assigned to
insurance contracts in force over the next five years. The amortization may be
adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<S> <C>
1995 $1,481,000
1996 1,232,000
1997 1,156,000
1998 936,000
1999 580,000
</TABLE>
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and are
directly related to the production of new and renewal business. Acquisition
costs for variable life and annuity products are being amortized over the lives
of the policies in relation to the present value of estimated future gross
profits. The future gross profit estimates are subject to periodic evaluation
with necessary revisions applied against amortization to date.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent variable life and annuity account
balances invested in the guaranteed interest division. Interest credited rates
for this division ranged from 4.0% to 5.0% during 1994 and 1993.
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY BENEFITS
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited to
policy account balances invested in the guaranteed interest division.
REINSURANCE
Included in the accompanying financial statements are net considerations to
reinsurers of $2.4 million and $.7 million in 1994 and 1993, respectively.
Effective September 30, 1992, Golden American terminated all reinsurance
agreements with Mutual Benefit. Concurrently, Golden American entered into
agreements covering mortality risks under both life policies and annuity
contracts with an unaffiliated reinsurer. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance in-force for life mortality risks were $23.6 million and
$15.4 million at December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and 1993, respectively.
FASB Statement No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts," was adopted by Golden American in 1993.
However, its adoption did not have a material impact on the financial statements
of Golden American.
Also effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects of the treaty
which reduced 1994 net income by $27,000.
CASH EQUIVALENTS
The Company considers all short-term investments (including commercial paper,
money markets, and certificates of deposit) with a maturity of three months or
less when purchased to be cash equivalents.
PRESENTATION
Certain prior-year balances have been reclassifed to conform to the current-year
financial statement presentation.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally short-term
investments, policy loans, the adjustable principal amount promissory note, and
insurance and annuity reserves and determined that carrying amounts reported in
the balance sheets approximate fair value.
4. INVESTMENTS
Effective with the December 31, 1993 financial statements, Golden American
adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its fixed maturities as held to maturity
based on its intent and ability to hold them to maturity. The adoption of FASB
Statement No. 115 had no impact on Golden American's financial statements. The
major categories of investment income for 1994, 1993, and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities held to maturity $142 $114 $47
Short-term investments 226 90 14
Equity securities 1 1 2
Policy loans 11 11 4
Cash 99 -- --
Funds held in escrow 83 -- --
-----------------------
Gross investment income 562 216 67
Investment expenses (2)
-----------------------
Net investment income $560 $216 $67
-----------------------
-----------------------
</TABLE>
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
--------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1994:
U.S. Treasury securities $16,682 $(90) $16,592
--------------------------------------
--------------------------------------
At December 31, 1993:
U.S. Treasury securities $17,357 $(27) $17,330
Corporate securities 99 2 101
--------------------------------------
$17,456 $(25) $17,431
--------------------------------------
--------------------------------------
</TABLE>
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $14,634 $14,622 $15,454 $15,452
Due after one year through five years 850 827 793 791
Due after five years through ten years 1,198 1,143 1,209 1,188
---------------------------------------------------
$16,682 $16,592 $17,456 $17,431
---------------------------------------------------
---------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities recognized directly in stockholder's equity
was $(1,000) and $62,000, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
5. STOCKHOLDER'S EQUITY
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain of the jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total statutory-
basis capital and surplus of not less than $5,000,000 under the provisions of
the insurance laws of certain states in which it is presently licensed to sell
variable life and annuity products. Dividend payments by Golden American are
limited by statutory restrictions to the higher of 10% of surplus or 100% of the
prior year s net gain, not to exceed unassigned surplus, subject to the broad
discretionary powers of insurance regulatory authorities to further limit
dividend payments of insurance companies.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1994 and 1993, Golden American met the RBC
requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock. As of December 31, 1994, Dividends in Arrears on the
Redeemable Preferred Stock were $17,917 or $1.79 per share. The dividends
are cumulative and are calculated based on a rate not to exceed the sum of
the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable at the
option of Golden American at the redemption price of $5,000 per share.
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
1993 and the period from September 30, 1992 to December 31, 1992, fees earned
by BTV from Golden American for these services aggregated $2,701,000 and
$209,000, respectively. The agreement was terminated as of January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
1993 and the period from September 30, 1992 to December 31, 1992, BTV
allocated to Golden American $1,503,000 and $450,000, respectively. The
agreement was terminated on January 1, 1994.
Golden American's cash is on deposit at Bankers Trust.
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code (the
"Code"). At December 31, 1994 and 1993, Golden American had net operating
loss ("NOL") carryforwards for federal income tax purposes of approximately
$17.3 million and $7.3 million, respectively. Approximately $2.4 million of
these NOL s, relating to operations prior to ownership by Mutual Benefit, can
be used to offset future taxable income of Golden American only through the
year 2005, subject to annual limitations. Approximately $.8 million, $4.1
million and $10.0 million are available through the years 2007, 2008, and
2009, respectively.
Significant components of Golden American s deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $21,200 $14,800
Unamortized cost assigned to insurance
contracts in force 2,700 3,400
-------------------
23,900 18,200
Deferred tax assets:
Net operating loss carryforwards 6,000 2,400
Insurance liabilities 15,200 14,800
Deferred policy acquisition costs
proxy tax 3,700 2,900
Other 700 --
-------------------
25,600 20,100
Valuation allowance for deferred tax assets 1,700 1,900
-------------------
Net deferred tax liabilities $ $
-------------------
-------------------
</TABLE>
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The differences between the provision (benefit) for income taxes at the
federal statutory income tax rate and the taxes based on income (loss) were
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 34%
-------------------------
-------------------------
Taxes at statutory rate $ 778 $(627) $(173)
Dividends received deduction (368) (194) --
Other, net (210) (379) (92)
Valuation allowance (200) 1,200 265
-------------------------
Taxes based on income (loss) $ -- $ -- $ --
-------------------------
-------------------------
</TABLE>
8. SHORT-TERM DEBT
At December 31, 1993, Golden American had short-term debt outstanding with an
unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
9. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
The Company s employees are covered under the Parent s benefit plans. The
noncontributory pension plan and the profit sharing plan of the Parent are
also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were $.2 million.
10. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. The acquisition is subject to the approval of the
appropriate regulators. First Colony is the corporate parent of two insurance
companies, First Colony Life Insurance Company and American Mayflower Life
Insurance Company, which together provide life insurance and annuity products
throughout the United States. The agreement was amended to extend to June
15, 1995, the date at which either party may terminate the agreement if the
closing has not occurred by such time.
92
<PAGE>
-----------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
INTRODUCTION......................................................................................................... 1
PART I
Description of Golden American Life Insurance Company................................................................ 1
Safekeeping of Assets................................................................................................ 1
The Administrator.................................................................................................... 1
Independent Auditors................................................................................................. 1
Reinsurance.......................................................................................................... 2
Distribution of Contracts............................................................................................ 2
Performance Information.............................................................................................. 2
IRA Partial Withdrawal Option........................................................................................ 5
Other Information.................................................................................................... 6
PART II
Securities and Investment Techniques................................................................................. 6
U.S. Government Securities......................................................................................... 6
Debt Securities.................................................................................................... 7
Short Sales Against the Box........................................................................................ 7
Futures Contracts and Options on Futures Contracts................................................................. 7
Options on Securities.............................................................................................. 8
Options of Securities Indexes...................................................................................... 9
Foreign Currency Transactions...................................................................................... 9
Options on Foreign Currencies...................................................................................... 10
Repurchase Agreements.............................................................................................. 11
Banking Industry and Savings Industry Obligations.................................................................. 11
Commercial Paper................................................................................................... 12
When Issued or Delayed Delivery Securities......................................................................... 12
Investment Restrictions.............................................................................................. 12
Management of Separate Account D..................................................................................... 14
The Manager.......................................................................................................... 15
Portfolio Manager.................................................................................................... 16
Custodian and Portfolio Accounting Agent............................................................................. 16
Portfolio Transactions and Brokerage................................................................................. 16
Purchase and Pricing of the Global Account........................................................................... 17
Financial Statements................................................................................................. 18
Appendix -- Description of Bond Ratings
</TABLE>
93
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. ADDRESS
THE FORM TO OUR CUSTOMER SERVICE CENTER, P.O. BOX 8794, WILMINGTON, DE
19899-8794.
...............................................................................
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B AND THE MANAGED GLOBAL ACCOUNT OF ACCOUNT D.
PLEASE PRINT OR TYPE
- -----------------------------------
NAME
- -----------------------------------
SOCIAL SECURITY NUMBER
- -----------------------------------
STREET ADDRESS
- -----------------------------------
CITY, STATE, ZIP
(IN 3206 MVA/DVA PROSP. 3/95)
...............................................................................
94
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $100,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.00%; that a full surrender is
requested two years into the Guarantee Period; that the then Guaranteed Interest
Rate for an eight year Guarantee Period ("J") is 8.0%; and that no prior
transfers or partial withdrawals affecting this Fixed Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The accumulation value of the Fixed Allocation on the date of surrender
is $114,490
($100,000 X 1.072)
2. N = 2,920 (365 X 8)
3. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
------------------------------------- = $10,159
1.0825 -1
Therefore, the amount paid to you on full surrender is $104,331 ($114,490 -
$10,159).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $100,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.0%; that a full surrender is
requested two years into the Guarantee Period; that the then Guaranteed Interest
Rate for an eight year Guarantee Period ("J") is 6.0%; and that no prior
transfers or partial withdrawals affecting this Fixed Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The accumulation value of the Fixed Allocation on the date of surrender
is $114,490
($100,000 X 1.072)
2. N = 2,920 (365 X 8)
3. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
-------------------------------------- = $6,627
1.0625 -1
Therefore, the amount paid to you on full surrender is $121,117 ($114,490 +
$6,627).
EXAMPLE #3: PARTIAL WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $200,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.0%; that a partial withdrawal
of $104,331 is requested two years into the Guarantee period; that the then
Guaranteed Interest Rate ("J") for an eight year Guarantee Period is 8.0%; and
that no prior transfers or partial withdrawals affecting this Fixed Allocation
have been made.
First calculate the amount that must be withdrawn from the Fixed Allocation to
provide the amount requested.
1. The accumulation value in the Fixed Allocation on the date of withdrawal
is $228,980
($200,000 X 1.072)
2. N = 2,920 (365 X 8)
3. Amount that must be withdrawn = $114,490 [$104,331/(1.07 )2,920/365]
---------------------------------------------------------
1.0825
= $114,490 ($104,331 / .911270)
A1
<PAGE>
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
------------------------------------- = $ 10,159
1.0825 -1
Therefore, the amount of the partial withdrawal paid to you is $104,331, as
requested. The Fixed Allocation will be reduced by the amount of the partial
withdrawal, $104,331, and also reduced by the Market Value Adjustment of
$10,159, for a total reduction in the Fixed Allocation of $114,490.
EXAMPLE #4: PARTIAL WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
(MVA)
Assume $200,000 was allocated to a Fixed Allocation with a Guarantee Period of
ten years at a Guaranteed Interest Rate ("I") of 7.0%; that a partial withdrawal
of $121,117 requested two years into the Guarantee Period; that the then
Guaranteed Interest Rate ("J") for an eight year Guarantee Period is 6.0%; and
that no prior transfers or partial withdrawals affecting this Fixed Allocation
have been made.
First calculate the amount that must be withdrawn from the Fixed Allocation to
provide the amount requested.
1. The accumulation value of Fixed Allocation on the date of surrender is
$228,980
($200,000 X 1.072)
2. N = 2,920 (365 X 8)
3. Amount that must be withdrawn = $114,490 [$121,117/(1.07 )2,920/365]
---------------------------------------------------------
1.0625
= $114,490 ($121,117 / 1.057886)
Then calculate the Market Value Adjustment on that amount
4. Market Value Adjustment = $114,490 X [(1.07 )2,920/365 ]
-------------------------------------- = $6,627
1.0625 -1
Therefore, the amount of the partial withdrawal paid to you is $121,117, as
requested. The Fixed Allocation will be reduced by the amount of the partial
withdrawal, $121,117, but increased by the Market Value Adjustment of $6,627,
for a total reduction in the Fixed Allocation of $114,490.
A2
<PAGE>
APPENDIX B
GOLDENSELECT SERVICE FORMS
- - Deferred Variable Annuity Application -- Use in all states except MN
- - Contact the Sales Desk for the Special Form to be used in MN
(GoldenSelect DVA is currently Not Available in ME and NY; consult your
financial adviser to determine if the Fixed Account is available in your state)
- - Absolute Assignment to Effect Section 1035(a) Exchange
- - Request to Effect IRA Or Other Qualified Account Transfer
- - Certificate of Deposit Transfer Form
Submit all forms (with all other necessary documents) to the Customer Service
Center
WITHHOLDING ELECTION INSTRUCTIONS (BEFORE THE WITHHOLDING ELECTION SECTION ON
THE APPLICATION IS COMPLETED, PLEASE HAVE THE OWNER READ THE FOLLOWING
CAREFULLY)
Your withdrawals under annuity contracts may be subject to Federal income tax
withholding unless you elect not to have withholding apply. You may elect not to
have withholding apply by checking the box by line A and signing in the
signature section. Check the box by line B to make an election to have
withholding apply. If you want additional withholding made, check the box by
line C.
Withholding will only apply to the portion of your withdrawal that is subject to
Federal income tax and it will be like wage withholding. Thus, there will be no
withholding on the portion of each payment representing a return of your
premium. You may change your withholding as often as you wish by sending in IRS
Form W-4P to Golden American. Your election will remain in effect until you
revoke it. You may revoke it at any time.
If you elect not to have withholding apply to your withdrawals, or if you do not
have enough Federal income tax withheld from your withdrawal payments, you may
be responsible for payment of estimated tax. You may incur penalties under the
estimated tax rules if your withholding and estimated tax payments are not
sufficient.
By signing the application and completing the withholding election, you certify
that no bankruptcy proceeding, attachment or other lien or claims are pending
against you.
B1
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK
COMPANY DOMICILED IN WILMINGTON, DELAWARE APPLICATION
<TABLE>
<S> <C> <C>
1. OWNER(S)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth
( )
2. ANNUITANT (IF OTHER THAN OWNER)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth Relation
( ) to Owner
CONTINGENT ANNUITANT (OPTIONAL)
Name Address Relation
to Owner
3. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Name(s) Relation
to Owner
CONTINGENT BENEFICIARY(IES) Name Relation
to Owner
4. PLAN (CHECK ONE)
/ / DVA / / Other _______________________
5. DEATH BENEFIT (CHECK ONE IF ISSUE AGE OF OWNER IS LESS THAN 76):
/ / Enhanced #1 ("7%") / / Enhanced #2 ("Annual Ratchet") / / Basic ("Return of Premium")
6. INITIAL PREMIUM AND ALLOCATION INFORMATION
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE
INSURANCE COMPANY
Fill in percentages for Premium allocation below (see (A) INITIAL.)
(B) DOLLAR COST AVERAGING (DCA): OPTIONAL. PLEASE CHECK BOX TO ELECT. / /
Amount to be transferred monthly $_________________ (minimum $250)
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division
/ / Liquid Asset Division
/ / 1 Yr. Fixed Allocation
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION OR FIXED ALLOCATION CHECKED)
Divisions Transferred To: Fill in percentages for allocation of DCA below (see (B)
DCA).
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
<S> <C> <C> <C>
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
EMERGING MARKETS BANKERS TRUST COMPANY % %
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
LIQUID ASSET BANKERS TRUST COMPANY %
FIXED ALLOCATION ELECTION 1 YEAR %
FIXED ALLOCATION ELECTION 3 YEAR %
FIXED ALLOCATION ELECTION 6 YEAR %
FIXED ALLOCATION ELECTION 8 YEAR %
FIXED ALLOCATION ELECTION 10 YEAR %
TOTAL 100% 100%
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794, Wilmington, DE 19899-8794
B2
GA-AA-1000-12/94
<PAGE>
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
If you want to receive Systematic Partial Withdrawals, your request must be
received in writing. For the appropriate form, please call our Customer Service
Center: 1-800-366-0066.
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ OWNER'S INITIALS
I authorize Golden American to act upon reallocation instructions given
by telephone from __________________________(name of your registered
representative) upon furnishing his/her social security number. Neither
Golden American nor any person authorized by Golden American will be
responsible for any claim, loss, liability or expense in connection with
reallocation instructions received by telephone from such person if Golden
American or such other person acted on such telephone instructions in good
faith in reliance upon this authorization. Golden American will continue
to act upon this authorization until such time as the person indicated
above is no longer affiliated with the broker/dealer under which my
contract was purchased or until such time that I notify Golden
American otherwise in writing.
9. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY TYPE:
/ / IRA / / IRA Rollover / / SEP/IRA / / Other ________________________
10. REPLACEMENT
Will the contract applied for replace any existing annuity or life insurance policies on the annuitant's life?
/ / Yes (If yes, please complete following) / / No
Company Name Policy Number Face Amount
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
o BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I UNDERSTAND THAT
THIS CONTRACT'S CASH SURRENDER VALUE, 1) WHEN BASED ON THE INVESTMENT EXPERIENCE
OF A SEPERATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE ON ANY DAY AND THAT NO
MINIMUM VALUE IS GUARANTEED, AND 2) WHEN, BASED ON THE FIXED ACCOUNT MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE THE
VALUES TO INCREASE OR DECREASE. THIS CERTIFICATE IS IN ACCORD WITH MY
ANTICIPATED FINANCIAL NEEDS.
O I AGREE THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS APPLICATION ARE COMPLETE AND TRUE AND MAY BE RELIED UPON IN
DETERMINING WHETHER TO ISSUE THE CERTIFICATE. MY ANSWERS WILL FORM A PART OF ANY
CERTIFICATE TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE
AUTHORITY TO MODIFY THIS APPLICATION.
O CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES WHICH FUND
CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. ALSO,
THEY ARE SUBJECT TO MARKET FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF
PRINCIPAL INVESTED.
----------------------------------------- --------------------------------------
Signature of Owner Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (if applicable)_____________________
FOR AGENT USE ONLY
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE ANY
EXISTING ANNUITY OR LIFE INSURANCE ON THE ANNUITANT'S LIFE? / / YES / / NO
- -------------------- ----------------------- --------------------- --------------------
Agent Signature Print Agent Name & No. Social Security No. Broker/Dealer/Branch
----------------------------------
Florida License ID# (Florida Only)
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794,
Wilmington, DE 19899-8794
1-800-366-0066
</TABLE>
B3
GA-AA-1000-12/94
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK
COMPANY DOMICILED IN WILMINGTON, DELAWARE ENROLLMENT FORM
<TABLE>
<S> <C> <C>
1. OWNER(S)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth
( )
2. ANNUITANT (IF OTHER THAN OWNER)
Name Male Female Soc. Sec. #
/ / / / or Tax ID.#
Permanent City State Zip
Address
Phone Date of Birth Relation
( ) to Owner
CONTINGENT ANNUITANT (OPTIONAL)
Name Address Relation
to Owner
3. PRIMARY BENEFICIARY(IES) (IF MORE THAN ONE - INDICATE %)
Name(s) Relation
to Owner
CONTINGENT BENEFICIARY(IES) Name Relation
to Owner
4. PLAN (CHECK ONE)
/ / DVA / / Other _______________________
5. DEATH BENEFIT (CHECK ONE IF ISSUE AGE OF OWNER IS LESS THAN 76):
/ / Enhanced #1 ("7% Solution") / / Enhanced #2 ("Annual Ratchet") / /
Standard ("Return of Premium")
6. INITIAL PREMIUM AND ALLOCATION INFORMATION
(A) INITIAL PREMIUM PAID $__________ MAKE CHECK PAYABLE TO GOLDEN AMERICAN LIFE
INSURANCE COMPANY
Fill in percentages for Premium allocation below (see (A) INITIAL.)
(B) DOLLAR COST AVERAGING (DCA): OPTIONAL. PLEASE CHECK BOX TO ELECT. / /
Amount to be transferred monthly $_________________ (minimum $250)
Division or Allocation Transferred From:
/ / Limited Maturity Bond Division
/ / Liquid Asset Division
/ / 1 Yr. Fixed Allocation
(MINIMUM OF $10,000 MUST BE ALLOCATED TO THE DIVISION OR FIXED ALLOCATION CHECKED)
Divisions Transferred To: Fill in percentages for allocation of DCA below (see (B)
DCA).
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT DIVISION INVESTMENT ADVISER (A) INITIAL (B) DCA
<S> <C> <C> <C>
MULTIPLE ALLOCATION ZWEIG ADVISORS, INC. % %
FULLY MANAGED T. ROWE PRICE ASSOCIATES INC. % %
ALL-GROWTH WARBURG, PINCUS COUNSELLORS, INC. % %
CAPITAL APPRECIATION CHANCELLOR TRUST CO. % %
VALUE EQUITY EAGLE ASSET MANAGEMENT, INC. % %
RISING DIVIDENDS KAYNE, ANDERSON INV. MGMT., L.P. % %
REAL ESTATE EII REALTY SECURITIES, INC. % %
NATURAL RESOURCES VAN ECK ASSOCIATES CORP. % %
EMERGING MARKETS BANKERS TRUST COMPANY % %
THE MANAGED GLOBAL ACCOUNT WARBURG, PINCUS COUNSELLORS, INC. % %
LIMITED MATURITY BOND BANKERS TRUST COMPANY %
LIQUID ASSET BANKERS TRUST COMPANY %
FIXED ALLOCATION ELECTION 1 YEAR %
FIXED ALLOCATION ELECTION 3 YEAR %
FIXED ALLOCATION ELECTION 5 YEAR %
FIXED ALLOCATION ELECTION 7 YEAR %
FIXED ALLOCATION ELECTION 10 YEAR %
TOTAL 100% 100%
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794, Wilmington, DE 19899-8794
B4
GA-EA-1000-12/94
<PAGE>
7. OPTIONAL SYSTEMATIC PARTIAL WITHDRAWALS
If you want to receive Systematic Partial Withdrawals, your request must be
received in writing. For the appropriate form, please call our Customer Service
Center: 1-800-366-0066.
8. TELEPHONE REALLOCATION AUTHORIZATION ________________ Owner's Initials
I authorize Golden American to act upon reallocation instructions given
by telephone from __________________________ (name of your registered
representative) upon furnishing his/her social security number.
Neither Golden American nor any person authorized by Golden American
will be responsible for any claim, loss, liability or expense in
connection with reallocation instructions received by telephone from
such person if Golden American or such other person acted on such
telephone instructions in good faith in reliance upon this
authorization. Golden American will continue to act upon this
authorization until such time as the person indicated above is no longer
affiliated with the broker/dealer under which my contract was purchased
or until such time that I notify Golden American otherwise in writing.
9. TAX-QUALIFIED PLANS IF YOU ARE FUNDING A QUALIFIED PLAN, PLEASE SPECIFY TYPE:
/ / IRA / / IRA Rollover / / SEP/IRA / / Other ________________________
10. REPLACEMENT
Will the contract applied for replace any existing annuity or life insurance policies on the annuitant's life?
/ / Yes (If yes, please complete following) / / No
Company Name Policy Number Face Amount
11. READ THE FOLLOWING STATEMENTS CAREFULLY AND SIGN BELOW:
O BY SIGNING BELOW, I ACKNOWLEDGE RECEIPT OF THE PROSPECTUS. I UNDERSTAND THAT
THIS CERTIFICATE'S CASH SURRENDER VALUE, 1) WHEN BASED ON THE INVESTMENT EXPERIENCE
OF A SEPERATE ACCOUNT DIVISION, MAY INCREASE OR DECREASE ON ANY DAY AND THAT NO
MINIMUM VALUE IS GUARANTEED, AND 2) WHEN, BASED ON THE FIXED ACCOUNT MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY CAUSE THE
VALUES TO INCREASE OR DECREASE. THIS CERTIFICATE IS IN ACCORD WITH MY
ANTICIPATED FINANCIAL NEEDS.
O I AGREE THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL STATEMENTS AND
ANSWERS IN THIS ENROLLMENT FORM ARE COMPLETE AND TRUE AND MAY BE RELIED UPON IN
DETERMINING WHETHER TO ISSUE THE CERTIFICATE. MY ANSWERS WILL FORM A PART OF ANY
CERTIFICATE TO BE ISSUED, AND ONLY THE OWNER AND GOLDEN AMERICAN HAVE THE
AUTHORITY TO MODIFY THIS ENROLLMENT FORM.
O CONTRACTS AND POLICIES AND UNDERLYING SERIES SHARES OR SECURITIES WHICH FUND
CONTRACTS AND POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. ALSO,
THEY ARE SUBJECT TO MARKET FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF
PRINCIPAL INVESTED.
----------------------------------------- --------------------------------------
Signature of Owner Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Joint Owner (IF APPLICABLE) Signed at (City, State) Date
----------------------------------------- --------------------------------------
Signature of Annuitant (IF OTHER THAN OWNER) Signed at (City, State) Date
Client Account No. (IF APPLICABLE)_____________________
FOR AGENT USE ONLY
DO YOU HAVE REASON TO BELIEVE THAT THE CONTRACT APPLIED FOR WILL REPLACE ANY
EXISTING ANNUITY OR LIFE INSURANCE ON THE ANNUITANT'S LIFE? / / YES / / NO
- -------------------- ----------------------- --------------------- --------------------
Agent Signature Print Agent Name & No. Social Security No. Broker/Dealer/Branch
----------------------------------
Florida License ID# (Florida Only)
</TABLE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, PO Box 8794,
Wilmington, DE 19899-8794
1-800-366-0066
B5
GA-EA-1000-5/95
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
REQUEST TO EFFECT IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TO: -------------------------------------
PRESENT SPONSOR
------------------------------------- ACCOUNT NO.
ADDRESS
------------------------------------- -----------------------------------------------------
ADDRESS PARTICIPANT'S NAME
RE: IRA OR OTHER QUALIFIED ACCOUNT TRANSFER
</TABLE>
ATTN: QUALIFIED TRANSFER DEPARTMENT
Dear Sirs:
I wish to transfer the entire value of my present Qualified Account to the
"GoldenSelect IRA" sponsored by Golden American Life Insurance Company.
I adopted the "GoldenSelect IRA" on ____________________________________________
DATE OF APPLICATION
Please make the check payable to GoldenSelect/Golden American Life Insurance
Company. As indicated below, Golden American has already indicated its
willingness to accept from you all my Qualified Account assets.
Please send all such proceeds and details to:
Golden American Life Insurance Company
IRA and Pension Operations
P.O. Box 8794
Wilmington, DE 19899-8794
Your prompt attention to this matter is appreciated.
<TABLE>
<S> <C>
Sincerely, (Signature Guarantee if Required)
X -------------------------------------- ----------------------------------------
PARTICIPANT'S SIGNATURE (NAME OF BANK/FIRM)
----------------------------------------
(SIGNATURE OF OFFICER/TITLE)
</TABLE>
- --------------------------------------------------------------------------------
GOLDEN AMERICAN APPROVAL FOR QUALIFIED ACCOUNT TRANSFER
Golden American Life Insurance Company has established the "GoldenSelect IRA"
application number ------------------------- for the participant named above.
We are willing to accept the transfer. Please forward all proceeds accordingly.
<TABLE>
<S> <C>
By: -------------------------------------- Date: ----------------------------------------------
Name: ----------------------------------- Title: ----------------------------------------------
</TABLE>
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-IRA-5/95
B6
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
ABSOLUTE ASSIGNMENT TO EFFECT SECTION 1035(A) EXCHANGE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OWNER: ANNUITANT OR INSURED:
------------------------------------- -------------------------------------
CURRENT CONTRACT NO.: EXISTING INSURANCE CO.:
---------------------- -----------------------------------
</TABLE>
I hereby make a complete and absolute assignment and transfer all rights, titles
and interest of every nature and character in and to the above contract to
Golden American Life Insurance Company ("Golden American") in an exchange
intended to qualify under Section 1035 of the Internal Revenue Code.
Upon receipt, Golden American is directed to surrender the above contract and
apply the value to the GoldenSelect product for which I have submitted an
application.
I understand that, by executing this assignment, I irrevocably waive all rights,
claims and demands under the above contract.
I acknowledge that Golden American is furnishing this form and participating in
this transaction as an accommodation to me, and that Golden American assumes no
responsibility or liability for my tax treatment under Section 1035 of the
Internal Revenue Code or otherwise.
Signed this ______________ day of ________________, 19 __________ at ___________
<TABLE>
<S> <C>
X X
------------------------------------- -------------------------------------
WITNESS SIGNATURE OF OWNER
</TABLE>
- --------------------------------------------------------------------------------
NOTIFICATION OF ASSIGNMENT AND SURRENDER
<TABLE>
<S> <C>
To (Existing Insurance Company): Re: Contract No.
- ------------------------------------- -------------------------------------
- -------------------------------------
</TABLE>
This is to notify you that an absolute assignment of all rights, title and
interest in and to the above contract has been made to Golden American Life
Insurance Company, for the purpose of making an exchange under Section 1035 of
the Internal Revenue Code. Golden American, owner of the above contract, hereby
surrenders it and requests its full surrender value for the purpose of an
exchange under Section 1035 of the Internal Revenue Code. Upon surrender of this
contract, please issue a check for its cash value to Golden American Life
Insurance Company, and mail to Golden American Life Insurance Company, Customer
Service Center, P.O. Box 8794, Wilmington, DE, 19899-8794, Attn: New Business
Department. Please provide Golden American with the cost basis, issue date and
other payment information along with your check.
<TABLE>
<S> <C>
--------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
- ------------------------------------- By:
----------------------------------------
- -------------------------------------
DATE OFFICER OF ABOVE-NAMED INSURANCE COMPANY
</TABLE>
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-1035-5/95
B7
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
CERTIFICATE OF DEPOSIT TRANSFER FORM
- --------------------------------------------------------------------------------
APPOINTMENT OF ATTORNEY-IN-FACT TO SURRENDER CERTIFICATE OF DEPOSIT
(NON-QUALIFIED ONLY)
CERTIFICATE(S) OF DEPOSIT
Issued By: _____________________________________________________________________
INSTITUTION
Address: _______________________________________________________________________
Certificate Number(s): _________________________ Issued to: ____________________
Maturity Date(s): ______________________________________________________________
Estimated Amount(s): ___________________________________________________________
I/We do hereby name and appoint Golden American Life Insurance Company ("Golden
American") through its duly authorized officers as lawful agent and
attorney-in-fact for me/us, to surrender the above Certificate(s) of Deposit
upon the respective maturity date(s).
I/We request that upon maturity all funds available be transferred to Golden
American. Golden American will apply all such funds received to a variable
contract issued to me/us.
I/We understand that Golden American assumes no responsibility for the tax
treatment of this matter and that I/ we shall be responsible for the payment of
all federal, state and local taxes and any other fees and charges incurred with
respect to the Certificate(s).
I/We acknowledge that the investment earnings credited under the variable
contract will begin to accrued when Golden American receives the proceeds from
the Certificate(s). Golden American has the responsibility only to present the
Certificate(s) for payment upon maturity and shall not be responsible for the
solvency of the issuing Financial Institution.
Dated at ______________________________ on this ______ day of
____________________, 19________________________________________________________
<TABLE>
<S> <C>
X X
------------------------------------- -------------------------------------
Witness Signature of Certificate Owner
X X
------------------------------------- -------------------------------------
Witness Signature of Joint Certificate Owner
</TABLE>
Special Handling Instructions: -------------------------------------------------
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT
Golden American will accept any and all funds which discharge the obligation
listed above and request that such funds be sent to: Golden American Life
Insurance Company, Customer Service Center, P.O. Box 8794, Wilmington, DE
19899-8794
By
------------------------------------------------------------------------------
Name Title Date
Golden American Life Insurance Company, Customer Service Center, P.O. Box 8794,
Wilmington, DE 19899-8974 1-800-366-0066
GAL-CDTF-5/95
B8
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3206 DVA/MVA Prosp. 5/95
<PAGE>
PART B
Note: Part B of this Registration Statement
consists of four Statements of Additional Information,
each of which has a related Prospectus contained in Part A
of this Registration Statement.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GOLDENSELECT DVA
DEFERRED VARIABLE
ANNUITY CONTRACT
issued by
SEPARATE ACCOUNT B ("Account B")
and
SEPARATE ACCOUNT D ("Account D")
(collectively, the "Accounts")
of
GOLDEN AMERICAN LIFE INSURANCE COMPANY
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THE
INFORMATION CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS FOR THE GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE
ANNUITY CONTRACT WHICH IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO
KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, SEND A WRITTEN REQUEST
TO GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, P.O. BOX
8794, WILMINGTON, DE 19899-8794 OR TELEPHONE 1-800-366-0066.
DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
INTRODUCTION ..............................................................1
PART I
Description of Golden American Life Insurance Company......................1
Safekeeping of Assets......................................................1
The Administrator..........................................................1
Independent Auditors.......................................................2
Reinsurance................................................................2
Distribution of Contracts..................................................2
Performance Information....................................................2
IRA Partial Withdrawal Option..............................................6
Other Information..........................................................7
PART II
Securities and Investment Techniques.......................................7
U.S. Government Securities..............................................7
Debt Securities.........................................................7
Short Sales Against the Box.............................................8
Futures Contracts and Options on Futures Contracts......................8
Options on Securities...................................................9
Options on Securities Indexes..........................................10
Foreign Currency Transactions..........................................10
Options on Foreign Currencies..........................................12
Repurchase Agreements..................................................12
Banking Industry and Savings Industry Obligations......................12
Commercial Paper.......................................................13
When Issued or Delayed Delivery Securities.............................14
Investment Restrictions...................................................14
Management of Separate Account D..........................................15
The Manager...............................................................17
Portfolio Manager.........................................................18
Custodian and Portfolio Accounting Agent..................................18
Portfolio Transactions and Brokerage......................................18
Purchase and Pricing of the Global Account................................20
Financial Statements......................................................21
Appendix - Description of Bond Ratings
<PAGE>
INTRODUCTION
Part I of this Statement of Additional Information provides background
information regarding Account B and Account D. Part II of this Statement of
Additional Information provides information regarding the investment
activities of Account D and The Managed Global Account (the "Global
Account"), including its investment policies.
PART I
DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior
to December 30, 1993, Golden American was a Minnesota corporation. From
January 2, 1973 through December 31, 1987, the name of the company was St.
Paul Life Insurance Company. On December 31, 1987, after all of St. Paul
Life Insurance Company's business was sold, the name was changed to Golden
American. On March 7, 1988, all of the stock of Golden American was acquired
by The Golden Financial Group, Inc. ("GFG"), a financial services holding
company. On October 19, 1990, GFG merged with and into MBL Variable, Inc.
("MBLV"), a wholly owned direct subsidiary of The Mutual Benefit Life
Insurance Company ("MBL"). On January 1, 1991, MBLV became a wholly owned
indirect subsidiary of MBL and Golden American became a wholly owned direct
subsidiary of MBL. Golden American's name had been changed to MB Variable
Life Insurance Company in the state of Minnesota but subsequently has been
changed back to Golden American. In a transaction that closed on September
30, 1992, Golden American was acquired by a subsidiary of Bankers Trust
Company ("Bankers Trust"). As of December 31, 1994, Golden American had over
$89.5 million in stockholders' equity and approximately $1.04 billion in
total assets, including approximately $950.3 million of separate account
assets. Golden American is authorized to do business in all jurisdictions
except New York. Golden American offers variable annuities and variable life
insurance.
SAFEKEEPING OF ASSETS
Golden American acts as its own custodian for Account B.
THE ADMINISTRATOR
Effective January 1, 1994, 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) has 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 are reimbursed by Golden
American on an allocated cost basis. Charges billed to Golden American by
Bankers Trust (Delaware) pursuant to the service agreement were $816,264 for
1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and administration of its products. For
the year 1993 and the period from September 30, 1992 to December 31, 1992,
fees earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its
personnel to perform management, administrative and clerical services and the
use of certain of its facilities. BT Variable charged Golden American for
such expenses and all other general and administrative costs, first on the
basis of direct charges when identifiable, and second allocated based on the
estimated amount of time spent by BT Variable's employees on behalf of Golden
American. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, BT Variable allocated to Golden American $1,503,000 and
$450,000, respectively. The agreement was terminated on
1
<PAGE>
January 1, 1994. During 1994, such expenses were allocated directly by BT
New York Corporation to Golden American and totaled $1,395,966 for the year.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, NY 10019, independent
auditors, will perform annual audits of Golden American and the Accounts.
REINSURANCE
Golden American reinsures its mortality risk associated with the guaranteed
death benefit with Security Life of Denver Insurance Company ("Security Life
Reinsurance").
DISTRIBUTION OF CONTRACTS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from
September 30, 1992 to December 31, 1992, Golden American incurred $311,000
and $35,000, respectively, for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
PERFORMANCE INFORMATION
Performance information for the divisions of Account B and the Global
Account, including the yield and effective yield of the Liquid Asset
Division, the yield of the remaining divisions and the Global Account, and
the total return of all divisions, may appear in reports or promotional
literature to current or prospective owners. Negative values are denoted by
parentheses. Performance information for measures other than total return do
not reflect sales load which can have a maximum level of 6% of premium, and
any applicable premium tax that can range from 0% to 3.5%.
SEC STANDARD MONEY MARKET DIVISION YIELDS
Current yield for the Liquid Asset Division will be based on the change in
the value of a hypothetical investment (exclusive of capital changes) over a
particular 7-day period, less a pro-rata share of division expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The
base period return is then annualized by multiplying by 365/7, with the
resulting yield figure carried to at least the nearest hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
2
<PAGE>
Effective Yield = [(Base Period Return) +1) (365/7)] - 1
For the 7-day period December 24, 1994 to December 31, 1994, the current
yield of the Liquid Asset Division was 4.24% and the effective yield of the
Division was 4.33%.
SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET DIVISIONS
Quotations of yield for the remaining divisions will be based on all
investment income per Unit (accumulation value divided by the index of
investment experience) earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an accumulation unit
on the last day of the period, according to the following formula:
YIELD = 2 [ ( a - b +1)(6) - 1]
cd
Where:
[a] equals the net investment income earned during the period
by the Series attributable to shares owned by a division
[b] equals the expenses accrued for the period (net of
reimbursements)
[c] equals the average daily number of Units outstanding during the
period based on the index of investment experience
[d] equals the value (maximum offering price) per index of investment
experience on the last day of the period
Yield on divisions of Account B is earned from the increase in net asset
value of shares of the Series in which the Division invests and from dividends
declared and paid by the Series, which are automatically reinvested in shares of
the Series. Yield on the Global Account is earned from the increase in asset
value of shares of the securities in which the Global Account invests.
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of average annual total return for any division will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a contract over a period of one, five and 10 years
(or, if less, up to the life of the division), calculated pursuant to the
formula:
P(1+T)(n)=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
initial premium payment made at the beginning of the period (or
fractional portion thereof)
All total return figures reflect the deduction of the maximum sales load,
the administrative charges, and the mortality and expense risk charges. The
SEC requires that an assumption be made that the contract owner surrenders
the entire contract at the end of the one, five and 10 year periods (or, if
less, up to the life of the security) for which performance is required to be
calculated. This assumption may not be consistent with the typical contract
owner's intentions in purchasing a contract and may adversely affect returns.
Quotations of total return may simultaneously be shown for other periods, as
well as quotations of total return that do not take into account certain
contractual charges such as sales load.
3
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- STANDARDIZED
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD INCEPTION TO
DIVISION ENDING 12/31/94 ENDING 12/31/94 12/31/94 INCEPTION DATE
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -8.23% 4.89%* 5.46%* 1/25/89
Fully Managed -14.27% 3.57%* 3.49%* 1/25/89
Capital Appreciation -8.64% N/A 3.23%* 5/4/92
Rising Dividends -6.48% N/A -2.97% 10/4/93
All-Growth -17.74% 1.00%* 1.89%* 1/25/89
Real Estate -0.79% 6.26%* 4.80%* 1/25/89
Natural Resources -4.56% 2.15%* 4.81%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -22.09% N/A -1.40%* 10/4/93
Limited Maturity Bond -8.24% 3.53%* 4.46%* 1/25/89
Global Account -19.64%* N/A -7.13%* 10/21/92
_____________________________
<FN>
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of non-standard average annual total return for any division
will be expressed in terms of the average annual compounded rate of return of
a hypothetical investment in a contract over a period of one, five and 10
years (or, if less, up to the life of the division), calculated pursuant to
the formula:
[P(1+T)(n)]=ERV
Where: (1) [P] equals a hypothetical initial premium payment of
$1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a
hypothetical $1,000 initial premium payment made at
the beginning of the period (or fractional portion
thereof) assuming certain loading and charges are
zero.
All total return figures reflect the deduction of the mortality and
expense risk charge and the administrative charges, but not the deduction of
the maximum sales load and the annual contract fee.
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- NON-STANDARDIZED
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD INCEPTION TO
DIVISION ENDING 12/31/94 ENDING 12/31/94 12/31/94 INCEPTION DATE
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -2.16% 5.99%* 6.38%* 1/25/89
Fully Managed -8.20% 4.70%* 4.45%* 1/25/89
Capital Appreciation -2.57% N/A 5.41%* 5/4/92
Rising Dividends -0.41% N/A 1.98% 10/4/93
All-Growth -11.67% 2.18%* 2.87%* 1/25/89
Real Estate 5.28% 7.48%* 5.88%* 1/25/89
Natural Resources 1.51% 3.53%* 5.86%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -16.02% N/A 3.38%* 10/4/93
Limited Maturity Bond -2.17% 4.66%* 5.38%* 1/25/89
Global Account -13.57%* N/A -4.25%* 10/21/92
______________________________
<FN>
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
4
<PAGE>
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a
pertinent group of securities so that investors may compare a division's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which
ranks mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank such investment companies on overall
performance or other criteria; and (iii) the Consumer Price Index (measure
for inflation) to assess the real rate of return from an investment in the
contract. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs
and expenses.
Performance information for any division reflects only the performance of
a hypothetical contract under which accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the Account B divisions invest and the
securities in which the Global Account invests, and the market conditions
during the given time period, and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other information
including the ranking of any division derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on
overall performance or other criteria.
PUBLISHED RATINGS
From time to time, the rating of Golden American as an insurance company by
A.M. Best may be referred to in advertisements or in reports to contract
owners. Each year the A.M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to
the norms of the life/health insurance industry. Best's ratings range from
A+ to C. An A+ rating means, in the opinion of A.M. Best, that the insurer
has demonstrated the strongest ability to meet its respective policyholder
and other contractual obligations.
PORTFOLIO TURNOVER
For reporting purposes, the Global Account's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value
of the portfolio securities owned by the Global Account during the fiscal
year. In determining such portfolio turnover, all securities whose
maturities at the time of acquisition were one year or less are excluded. A
100% portfolio turnover rate would occur, for example, if all the securities
in the portfolio (other than short-term securities) were replaced once during
the fiscal year.
INDEX OF INVESTMENT EXPERIENCE
The calculation of the Index of Investment Experience ("IIE") is discussed
in the prospectus for the Contracts under Measurement of Investment
Experience. The following illustrations show a calculation of a new IIE and
the purchase of Units (using hypothetical examples):
5
<PAGE>
ILLUSTRATION OF CALCULATION OF IIE
EXAMPLE 1.
1. IIE, beginning of period...........................$1.80000000
2. Value of securities, beginning of period... $21.20
3. Change in value of securities.............................$.50
4. Gross investment return (3) divided by (2)......... .02358491
5. Less daily mortality and expense charge............ .00002477
6. Less asset based administrative charge............. .00000276
7. Net investment return (4) minus (5) minus (6)...... .02355738
8. Net investment factor (1.000000) plus (7).......... 1.02355738
9. IIE, end of period (1) multiplied by (8)...........$1.84240328
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX)
EXAMPLE 2.
1. Initial Premium Payment................................$100.00
2. IIE on effective date of purchase (see Example 1)..............$1.8000000
3. Number of Units purchased [(1) divided by (2)]...... .55.55556
4. IIE for valuation date following purchase (see Example
1).......................................$1.84240328
5. Accumulation Value in account for valuation date following purchase
[(3) multiplied by (4)]................................$102.36
IRA PARTIAL WITHDRAWAL OPTION
If the contract owner has an IRA contract and will attain age 70 1/2 in
the current calendar year, distributions will be made to you in accordance
with the requirements of Federal tax law. This option is available to assure
that the required minimum distributions from qualified plans under the
Internal Revenue Code (the "Code") are made. Under the Code, distributions
must begin no later than April 1st of the calendar year following the
calendar year in which the contract owner attains age 70 1/2. If the
required minimum distribution is not withdrawn, there may be a penalty tax in
an amount equal to 50% of the difference between the amount required to be
withdrawn and the amount actually withdrawn. Even if the IRA Partial
Withdrawal Option is not elected, distributions must nonetheless be made in
accordance with the requirements of Federal tax law.
Golden American notifies the contract owner of these regulations with a
letter mailed on January 1st of the calendar year in which the contract owner
reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and
supplies an election form. If the contract owner chooses to elect this
option, he or she specifies whether the withdrawal amount will be based on a
life expectancy calculated on a single life basis (contract owner's life
only) or, if the contract owner is married, on a joint life basis (contract
owner's and spouse's life combined). The contract owner selects the payment
mode on a monthly, quarterly or annual basis. If the payment mode selected
on the election form is more frequent than annually, the payments in the
first calendar year in which the option is in effect will be based on the
amount of payment modes remaining when Golden American receives the completed
election form.
Golden American calculates the IRA Partial Withdrawal amount each year
based on the minimum distribution rules. We do this by dividing the
accumulation value by the life expectancy. In the first year withdrawals
begin, we use the accumulation value as of the date of the first payment.
Thereafter, we use the accumulation value on December 31st of each year. The
life expectancy is recalculated each year. Certain minimum distribution
rules govern payouts if the designated beneficiary is other than the contract
owner's spouse and the beneficiary is more than ten years younger than the
contract owner.
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OTHER INFORMATION
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of
the information set forth in the registration statements, amendments and
exhibits thereto has been included in this Statement of Additional
Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal
instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed
with the Securities and Exchange Commission.
PART II
SECURITIES AND INVESTMENT TECHNIQUES
This description of the Global Account of Account D securities and
investment techniques is not comprehensive and is intended to supplement the
discussion contained in Part II of the prospectus under "Securities and
Investment Techniques."
U.S. GOVERNMENT SECURITIES
The Global Account may invest in U.S. Government securities. U.S.
Government securities are obligations of, or are guaranteed by, the U.S.
Government, its agencies or instrumentalities. Treasury bills, notes, and
bonds are direct obligations of the U.S. Treasury supported by the full faith
and credit of the United States. Securities guaranteed by the U.S.
Government include Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates and Federal Housing
Administration debentures). In guaranteed securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are generally of the highest credit quality. Such direct
obligations or guaranteed securities are subject to variations in market
value due to fluctuations in interest rates, but, if held to maturity, the
U.S. Government is obligated to or guarantees to pay them in full.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve Federal sponsorship in one way or another: some are
backed by specific types of collateral; some are supported by the issuer's
right to borrow from the Treasury; some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer;
others are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Student Loan Mortgage Association, Central Bank for Cooperatives,
Federal Intermediate Credit Banks, and Federal Home Loan Banks.
The Global Account may also purchase obligations of the International Bank
for Reconstruction and Development ("IBRD"), which, while technically not a
U.S. Government Agency or instrumentality has the right to borrow from IBRD
participating countries, including the United States.
DEBT SECURITIES
The Global Account may invest in debt securities of domestic and foreign
issuers including bonds, debentures, asset-backed securities, and notes which
meet the minimum ratings criteria set forth for the Global Account, or, if
unrated, are, in the Portfolio Manager's determination, comparable in quality
to corporate debt securities in which the Global Account may invest.
The investment return on a debt security reflects interest earnings and
changes in the market value of the security. The market value of debt
obligations may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or principal payments at
the time called for by an instrument. Any bond may be susceptible to
changing
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conditions, particularly to economic downturns, which could lead to
a weakened capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-issued
or firm-commitment basis; that is, the payment obligation and the interest
rate are fixed at the time the buyer enters into the commitment, but delivery
and payment for the securities normally takes place after the customary
settlement time. The value of when-issued securities or securities purchased
on a firm-commitment basis may vary prior to and after delivery depending on
market conditions and changes in interest rate levels. However, the Global
Account will not accrue any income on these securities prior to delivery.
The Global Account will maintain in a segregated account with its custodian
an amount of cash or high-quality debt securities equal (on a daily
mark-to-market basis) in the amount of its commitment to purchase the
when-issued securities or securities purchased on a firm-commitment basis.
Many debt securities of foreign issuers are not rated by Moody's Investors
Services, Inc. ("Moody's") or Standard and Poor's Corporation ("Standard &
Poor's"); therefore, the selection of such issuers depends, to a large
extent, on the credit analysis performed or used by the Portfolio Manager.
SHORT SALES AGAINST THE BOX
The Global Account may make short sales "against the box." A short sale
"against the box" is a short sale where, at time of the short sale, the
Global Account owns or has the immediate and unconditional right, at no added
cost, to obtain the identical security. The Global Account would enter into
such a transaction to defer a gain or loss for Federal income tax purposes on
the security owned by the Global Account. Short sales against the box are
not subject to the percentage limitations on short sales as described in the
prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts. A futures contract provides
for the future sale by one party and purchase by another party of a specified
amount of a particular financial instrument (debt security), or currency for
a specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for
financial instruments or currencies, futures contracts are usually closed out
before the delivery date. Closing out an open futures contract position is
effected by entering into an offsetting sale or purchase, respectively, for
the same aggregate amount of the same financial instrument and the same
delivery date. Where the Global Account has sold a futures contract, if the
offsetting purchase price is less than the original futures contract sale
price, the Global Account realizes a gain; if it is more, the Global Account
realizes a loss. Where the Global Account has purchased a futures contract,
if the offsetting price is more than the original futures contract purchase
price, the Global Account realizes a gain; if it is less, the Global Account
realizes a loss. The transaction costs must also be included in these
calculations.
Using futures to effect a particular strategy instead of using the
underlying or related security or index or currency will frequently result in
lower transaction costs being incurred. The Global Account's use of futures
contracts and futures options may include hedging transactions. For example,
the Global Account might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Global Account's securities or the price of the securities which the Global
Account intends to purchase. The Global Account's hedging may include sales
of futures contracts as an offset against the effect of expected increases in
interest rates and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques
could be used to reduce the Global Account's exposure to interest rate
fluctuations, the Global Account may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures contracts and
futures options.
The Global Account may sell stock index futures to protect against a
market decline in an attempt to offset partially or wholly a decrease in the
market value of securities that the Global Account intends to sell.
Similarly, to protect against a market advance when the Global Account is not
fully invested in the securities market, the Global Account may purchase
stock index futures that may partly or entirely offset increases in the cost of
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securities that the Global Account intends to purchase. A stock index is
a method of reflecting in a single number the market values of many different
stocks, or, in the case of capitalization weighted indices that take into
account both stock prices and the number of shares outstanding, of many
different companies. An index fluctuates generally with changes in the
market values of the common stocks so included. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take
or make delivery of an amount of cash equal to a specified dollar amount
multiplied by the difference between the stock index value at the close of
the last trading day of the contract and the price at which the futures
contract is originally purchased or sold. No physical delivery of the
underlying stocks in the index is made.
If a purchase or sale of a futures contract is made by the Global Account,
the Global Account is required to deposit with its custodian a specified
amount of cash or U.S. Government securities ("initial margin"). Generally,
the margin required for a futures contract is set by the exchange or board of
trade on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or
good faith deposit on the futures contract which is returned to the Global
Account upon termination of the contract, assuming all contractual
obligations have been satisfied. The Global Account expects to earn interest
income on its initial margin deposits. A futures contract held by the Global
Account is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Global Account pays or receives cash,
called "variation margin" equal to the daily change in value of the futures
contract. This process is known as "marking-to-market". The payment or
receipt of the variation margin does not represent a borrowing or loan by the
Global Account but is settlement between the Global Account and the broker of
the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each fund will mark-to-market its open
futures positions.
The Global Account is also required to deposit and maintain margin with
respect to put and call options on futures contracts it writes. Such margin
deposits will vary depending on the nature of the underlying futures contract
(including the related initial margin requirements), the current market value
of the option, and other futures positions held by the Global Account.
When purchasing a futures contract or selling a put option on a futures
contract, the Global Account is required to maintain with its custodian
high-quality liquid debt securities, cash, or cash equivalents (including any
margin) equal to the purchase price of such contract or option to
collateralize the position, or to otherwise cover the position. When selling
a futures contract or selling a call option on a futures contract, the Global
Account is required to maintain with its custodian high-quality liquid debt
securities, cash, or cash equivalents (including any margin) equal to the
market value of such contract or option, or to otherwise cover the position.
In compliance with the requirements of the Commodity Futures Trading
Commission ("CFTC") under which an investment company may engage in futures
transactions, the Global Account will comply with certain regulations of the
CFTC to qualify for an exclusion from being a "commodity pool." The
regulations require that the Global Account enter into futures and option
(1) for "bona fide hedging" purposes, without regard to the percentage of
assets committed to initial margin and options premiums, or (2) for other
strategies, provided that the aggregate initial margin and premiums required
to establish such positions do not exceed 5% of the liquidation value of the
Global Account's portfolio, after taking into account unrealized profits and
unrealized gains on any such contracts entered into.
OPTIONS ON SECURITIES
In pursuing its investment objective, the Global Account may engage in
transactions on options on securities. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option.
One reason the Global Account may purchase put options on securities is to
protect holdings in an underlying or related security against a substantial
decline in market value. Securities are considered related if their price
movements generally correlate to one another. For example, the purchase of
put options on debt securities held by the Global Account would enable the
Global Account to protect, at least partially, an unrealized gain in an
appreciated security without actually selling the security. In addition, the
Global Account would continue to receive interest income on such security.
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The Global Account may purchase call options on securities in furtherance
of its investment objective, which may include a call option to protect
against substantial increases in prices of securities the Global Account
intends to purchase pending its ability to invest in such securities in an
orderly manner. The Global Account may sell put or call options it has
previously purchased, which could result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the premium and
other transactional costs paid on the put or call option which is sold.
In order to earn additional income on its portfolio securities or to
protect partially against declines in the value of such securities, the
Global Account may write covered call options. The exercise price of a call
option may be below, equal to, or above the current market value of the
underlying security at the time the option is written. During the option
period, a covered call option writer may be assigned an exercise notice by
the broker-dealer through whom such call option was sold requiring the writer
to deliver the underlying security against payment of the exercise price.
This obligation is terminated upon the expiration of the option period or at
such earlier time in which the writer effects a closing purchase transaction.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Global Account to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to facilitate its ability to
purchase a security at a price lower than the current market price of such
security, the Global Account may write secured put options. During the
option period, the writer of a put option may be assigned an exercise notice
by the broker-dealer through whom the option was sold requiring the writer to
purchase the underlying security at the exercise price.
The Global Account may write a call or put option only if the option is
"covered" or "secured". This means that so long as the Global Account is
obligated as the writer of a call option, it will own the underlying
securities subject to the option or if the Global Account holds a call at the
same exercise price, for the same exercise period, and on the same securities
as the written call. Alternatively, the Global Account may maintain, in a
segregated account with Account D's custodian, cash, cash equivalents, or
high-quality liquid debt securities with a value sufficient to meet its
obligation as writer of the option. A put is secured if the Global Account
maintains cash, cash equivalents, or high-quality debt securities with a
value equal to the exercise price in a segregated account, or holds a put on
the same underlying security at an equal or greater exercise price. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase
or sale of an option of the same series.
Unless otherwise indicated above, the Global Account will enter only into
options which are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
OPTIONS ON SECURITIES INDEXES
Call and put options on securities indexes also may be purchased or sold
by the Global Account in furtherance of its investment objective. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not
involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations
in a single security. When such options are written, the Global Account is
required to maintain a segregated account consisting of cash, cash
equivalents or high grade obligations with a value equal to the exercise
price or the Global Account must purchase a like option of greater value that
will expire no earlier than the option sold. Purchased options may not
enable the Global Account to hedge effectively against stock market risk if
they are not highly correlated with the value of the Global Account's
securities. Moreover, the ability to hedge effectively depends upon the
ability to predict movements in the stock market.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts, currency
exchange transactions on a spot (i.e. cash) basis and options on currencies.
A forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Global Account
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may either accept or make delivery of the currency at the maturity of the
forward contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. The Global Account
will engage in forward currency transactions in furtherance of its investment
objective, which may include hedging purposes such as transactions in
anticipation of or to protect the Global Account against fluctuations in
currency exchange rates. The Global Account might sell a particular currency
forward, for example, when it wanted to hold bonds or bank obligations
denominated in that currency but anticipated or wished to be protected
against a decline in the currency against the dollar.
The Global Account may enter into a long position in a forward currency
contract for a fixed amount of foreign currency in anticipation of an
increase in the value of that currency. The Global Account may enter into
forward foreign currency contracts in other circumstances, as described in
Part II of the prospectus under Investment Objective and Policies of the
Global Account. When the Global Account enters into a contract for the
purchase or sale of a security denominated in a foreign currency, the Global
Account may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Global Account will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency during the period between the date
on which the security is purchased or sold and the date on which payment is
made or received.
Also, when the Portfolio Manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars to
sell the amount of foreign currency approximating the value of some or all of
the Global Account's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
At the maturity of a forward contract, the Global Account may either sell
the security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. It is impossible to forecast the market value of a
particular security at the expiration of the contract. Accordingly, if a
decision is made to sell the security and make delivery of the foreign
currency, it may be necessary for the Global Account to purchase additional
foreign currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of foreign
currency that the Global Account is obligated to deliver.
If the Global Account retains the security and engages in an offsetting
transaction, the Global Account will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Global Account's
entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Global Account will realize a gain to the extent that the price
of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Global Account
will suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
When entering into a long position on a forward currency contract or
selling a put option on a forward currency contract, the Global Account is
required to maintain with its custodian high-quality liquid debt securities,
cash, or cash equivalents (including any margin) equal to the purchase price
of such contract or option to collateralize the position or to otherwise
cover the position. When entering into a short position in a forward
currency contract or selling a call option on a forward currency contract,
the Global Account is required to maintain with its custodian high-quality
liquid debt securities, cash, or cash equivalents (including any margin)
equal to the market value of such contract or option or to otherwise cover
the position.
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Forward contracts are not traded on regulated commodities exchanges.
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out a forward currency position, and in such an event,
the Global Account might not be able to effect a closing purchase transaction
at any particular time. In addition, the Global Account entering into a
forward foreign currency contract incurs the risk of default by the counter
party to the transaction. The CFTC has indicated that it may in the future
assert jurisdiction over certain types of forward contracts in foreign
currencies and attempt to prohibit certain entities from engaging in such
foreign currency forward transactions.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may write and purchase call and put options on foreign
currencies. Such strategies may be employed for purposes of exposing the
Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another or to function as a
hedge against changes in the value of the U.S. dollar (or another currency)
in relation to a foreign currency in which securities of the Global Account
may be denominated. A call option on a foreign currency gives the buyer the
right to buy, and a put option gives the buyer the right to sell, a certain
amount of foreign currency at a specified price during a fixed period of
time. The Global Account may enter into closing sale transactions with
respect to such options, exercise them, or permit them to expire.
The Global Account may enter into an option on a currency before the
Global Account purchases a foreign security denominated in the currency the
Global Account anticipates acquiring, during the period the Global Account
holds the foreign security, or between the date the foreign security is
purchased or sold and the date on which payment therefor is made or received.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which a hedge is desired, the hedge may be obtained by purchasing or selling
an option on a "surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two currencies.
A surrogate currency is a currency that can act, for hedging purposes, as a
substitute for a particular currency because the surrogate currency's
exchange rate movements parallel that of the primary currency. Surrogate
currencies are used to hedge an illiquid currency risk, when no liquid hedge
instruments exist in world currency markets for the primary currency.
REPURCHASE AGREEMENTS
The Global Account may invest in repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security commits itself
at the time of the sale to repurchase that security from the buyer at a
mutually agreed upon time and price. These agreements may be considered to
be loans by the purchaser collateralized by the underlying securities. The
term of such an agreement is generally quite short, possibly overnight or for
a few days, although it may extend over a number of months (up to one year)
from the date of delivery. The resale price is in excess of the purchase
price by an amount which reflects an agreed upon market rate of return,
effective for the period of time the Global Account is invested in the
security. This results in a fixed rate of return protected from market
fluctuations during the period of the agreement. This rate is not tied to
the coupon rate on the security subject to the repurchase agreement.
The Global Account may engage in repurchase transactions in accordance
with guidelines approved by the Board of Governors of Account D, which
include monitoring the creditworthiness of the parties with which the Global
Account engages in repurchase transactions, obtaining collateral at least
equal in value to the repurchase obligation, and marking the collateral to
market on a daily basis. The Global Account may not enter into a repurchase
agreement having more than seven days remaining to maturity if, as a result,
such agreements, together with any other securities that are not readily
marketable, would exceed 15% of the net assets of the Global Account. If the
seller should become bankrupt or default on its obligations to repurchase
the securities, the Global Account may experience delays or difficulties in
exercising its rights to the securities held as collateral and might incur a
loss if the value of the securities should decline. The Global Account also
might incur disposition costs in connection with liquidating the securities.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
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The Global Account may invest in (i) certificates of deposit, time
deposits, bankers' acceptances, and other short-term debt obligations issued
by commercial banks and in (ii) certificates of deposit, time deposits, and
other short-term obligations issued by savings and loan or other depository
associations ("S&L").
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument
on maturity. Fixed-time deposits are bank obligations payable at a stated
maturity date and bearing interest at a fixed rate. Fixed-time deposits may
be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions
on the right to transfer a beneficial interest in a fixed-time deposit to a
third party, because there is no market for such deposits. The Global
Account will not invest in fixed-time deposits (i) which are not subject to
prepayment or (ii) which provide for withdrawal penalties upon prepayment
(other than overnight deposits), if, in the aggregate, more than 15% of its
assets would be invested in such deposits, in repurchase agreements maturing
in more than seven days, and in other illiquid assets.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, which include: (i) the
possibility that their liquidity could be impaired because of future
political and economic developments; (ii) their obligations may be less
marketable than comparable obligations of U.S. banks; (iii) a foreign
jurisdiction might impose withholding taxes on interest income payable on
those obligations; (iv) foreign deposits may be seized or nationalized; (v)
foreign governmental restrictions, such as exchange controls, may be adopted
which might adversely affect the payment of principal and interest on those
obligations; and (vi) the selection of those obligations may be more
difficult because there may be less publicly available information concerning
foreign banks and/or because the accounting, auditing, and financial
reporting standards, practices and requirements applicable to foreign banks
may differ from those applicable to U.S. banks. Foreign banks are not
generally subject to examination by any U.S. Government agency or
instrumentality.
The Global Account will not invest in obligations issued by a U.S. or
foreign commercial bank or S&L unless:
(i) the bank or S&L has total assets of at least $10 billion (U.S.), or the
equivalent in other currencies, and the institution has outstanding
securities rated A or better by Moody's or Standard & Poor's, or, if the
institution has no outstanding securities rated by Moody's or Standard &
Poor's, it has, in the determination of the Portfolio Manager, similar
creditworthiness to institutions having outstanding securities so rated;
and
(ii) in the case of a U.S. bank or S&L, its deposits are insured by the FDIC
or the Savings Association Insurance Fund ("SAIF"), as the case may be.
COMMERCIAL PAPER
The Global Account may invest in commercial paper (including variable
amount master demand notes), denominated in U.S. dollars, issued by U.S.
corporations or foreign corporations. The Global Account may invest in
commercial paper (i) rated, at the date of investment, P-2 or better by
Moody's or A-2 or better by Standard & Poor's; (ii) if not rated by either
Moody's or Standard & Poor's, issued by a corporation having an outstanding
debt issue rated A or better by Moody's or A or better by Standard & Poor's;
or (iii) if not rated, are determined to be of an investment quality
comparable to rated commercial paper in which the Global Account may invest.
Generally, commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations, and finance
companies.
Commercial paper obligations may include variable amount master demand
notes. These notes are obligations that permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between
the Global Account, as lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The lender has the right to increase or to
decrease the amount under the note at any time up to the full amount provided
by the note agreement; and the borrower may prepay up to the full amount of
the note without penalty. Because variable amount master demand notes are
direct lending arrangements between the
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lender and borrower, and because no secondary market exists for those notes,
such instruments will probably not be traded. However, the notes are
redeemable (and thus immediately repayable by the borrower) at face value,
plus accrued interest, at any time. In connection with master demand note
arrangements, the Portfolio Manager will monitor, on an ongoing basis, the
earning power, cash flow, and other liquidity ratios of the borrower and its
ability to pay principal and interest on demand. The Portfolio Manager also
will consider the extent to which the variable amount master demand notes are
backed by bank letters of credit. These notes generally are not rated by
Moody's or Standard & Poor's; the Global Account may invest in them only if
the Portfolio Manager believes that at the time of investment the notes are
of comparable quality to the other commercial paper in which the Global
Account may invest. Master demand notes are considered by the Global Account
to have a maturity of one day, unless the Portfolio Manager has reason to
believe that the borrower could not make immediate repayment upon demand.
See the Appendix for a description of Moody's and Standard & Poor's ratings
applicable to commercial paper.
WHEN ISSUED OR DELAYED DELIVERY SECURITIES
The Global Account may purchase
securities on a when-issued or delayed delivery basis if the Global Account
holds, and maintains until the settlement date in a segregated account, cash,
U.S. Government securities, or high-grade liquid debt obligations in an
amount sufficient to meet the purchase price, or if the Global Account enters
into offsetting contracts for the forward sale of other securities it owns.
Purchasing securities on a when-issued or delayed delivery basis involves a
risk of loss if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of decline in
value of the Global Account's other assets. Although the Global Account
would generally purchase securities on a when-issued basis or enter into
forward commitments with the intention of acquiring securities, the Global
Account may dispose of a when-issued or delayed delivery security prior to
settlement if the Portfolio Manager deems it appropriate to do so. The
Global Account may realize short-term profits or losses upon such sales.
INVESTMENT RESTRICTIONS
The Global Account's investment objective as set forth under "Investment
Objective and Policies" in Part II of the prospectus, together with the
investment restrictions set forth below are, unless otherwise noted,
fundamental policies of the Global Account and may not be changed without the
approval of a majority of the outstanding voting interests of the Global
Account. The vote of a majority of the outstanding voting interests of the
Global Account means the vote, at an annual or special meeting, of the lesser
of: (a) 67% or more of the voting interest present at such meeting, if the
holders of more than 50% of the outstanding voting interests of the Global
Account are present or represented by proxy; or (b) more than 50% of the
outstanding voting interest of the Global Account. In accordance with its
investment restrictions, the Global Account will not:
(1) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements
with respect thereto) or securities issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies or
instrumentalities (or repurchase agreements with respect thereto):
(2) Purchase or sell real estate, except that the Global Account may invest
in securities secured by real estate or real estate interests or issued
by companies in the real estate industry or which invest in real estate
or real estate interests;
(3) Purchase securities on margin (except for use of short-term credit
necessary for clearance of purchases and sales of securities), except
that to the extent the Global Account engages in transactions in options,
futures, and options on futures, the Global Account may make margin
deposits in connection with those transactions and except that effecting
short sales will be deemed not to constitute a margin purchase for
purposes of this restriction;
(4) Lend any funds or other assets, except that the Global Account may,
consistent with its investment objective and policies:
14
<PAGE>
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission and any guidelines established by Account D's
Board of Governors;
(5) Issue senior securities, except insofar as the Global Account may be
deemed to have issued a senior security by reason of borrowing money in
accordance with the Global Account's borrowing policies, or in connection
with any repurchase agreement, and except, for purposes of this
investment restriction, collateral or escrow arrangements with respect to
the making of short sales, purchase or sale of futures contracts or
related options, purchase or sale of forward currency contracts, writing
of stock options, and collateral arrangements with respect to margin or
other deposits respecting futures contracts, related options, and forward
currency contracts are not deemed to be an issuance of a senior security;
(6) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, the Global
Account may be deemed to be an underwriter under Federal securities laws;
(7) Borrow money or pledge, mortgage, or hypothecate its assets, except
that the Global Account may: (a) borrow from banks but only if
immediately after each borrowing and continuing thereafter, there is
asset coverage of 300%; and (b) enter into reverse repurchase agreements
and transactions in options, futures, options on futures, and forward
currency contracts as described in the prospectus and in this Statement
of Additional Information. (The deposit of assets in escrow in
connection with the writing of covered put and call options and the
purchase of securities on a "when-issued" or delayed delivery basis and
collateral arrangements with respect to initial or variation margin and
other deposits for futures contracts, options on futures contracts, and
forward currency contracts will not be deemed to be pledges of the Global
Account's assets for purposes of this restriction.)
The Global Account is also subject to the following restrictions and
policies that are not fundamental and may, therefore, be changed by the Board
of Governors (without contract owner approval) relating to the investment of
its assets and activities. Unless otherwise indicated, the Global Account
may not:
(1) Invest in securities that are illiquid because they are subject to
legal or contractual restrictions on resale, in repurchase agreements
maturing in more than seven days, or other securities which in the
determination of the Portfolio Manager are illiquid if, as a result of
such investment, more than 15% of the total assets of the Global Account
(taken at market value at the time of such investment) would be invested
in such securities; and
(2) Purchase or sell commodities or commodities contracts (which, for
the purpose of this restriction, shall not include foreign currency or
forward foreign currency contracts or futures contracts on currencies),
except that the Global Account may engage in interest rate futures
contracts, stock index futures contracts, futures contracts based on
other financial instruments, and in options on such futures contracts.
MANAGEMENT OF SEPARATE ACCOUNT D
BOARD OF GOVERNORS
The business and affairs of Account D are managed under the direction of a
Board of Governors, which consists of four members. The Board of Governors
has responsibility for matters relating to the portfolio of
15
<PAGE>
Account D and matters arising under the Investment Company Act of 1940.
The Board of Governors does not have responsibility for the payment of
obligations under the Contracts and administration of the Contracts. These
matters are Golden American's responsibility. The business and affairs of
Account D are governed under a set of rules adopted by the Board of Governors
called "Rules and Regulations of Separate Account D".
16
<PAGE>
The members of the Board of Governors and principal officers, their business
addresses, and principal occupation(s) during the past five years are as
follows:
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS ACCOUNT D DURING PAST FIVE YEARS
<S> <C> <C>
Terry L. Kendall* Chairman and President Chairman, President and Chief Executive
Golden American Life Insurance Co. Officer, Golden American Life Insurance
1001 Jefferson Street Company, October 1993 to present; Chairman,
Wilmington, DE 19801 President and Chief Executive Officer, BT
Variable, Inc. October 1993 to present;
Chairman and Chief Executive Officer, Directed
Services, Inc., October 1993 to present;
President and Chief Executive Officer, United
Pacific Life Insurance Company, September 1982
to September 1993.
Bernard R. Beckerlegge Secretary Secretary and General Counsel, Directed
Golden American Life Insurance Co. Services, Inc. March 1988 to present;
1001 Jefferson Street Secretary and General Counsel, Golden American
Wilmington, DE 19801 Life Insurance Company, March 1988 to present;
Secretary, BT Variable, Inc., October 1992 to
present; Vice President and General Counsel,
MBL Variable, Inc., February 1991 to September
1992; General Counsel, The Golden Financial
Group, Inc., March 1988 to October 1990.
Robert A. Grayson Member Co-founder, Grayson Associates, Inc.; Adjunct
Grayson Associates Professor of Marketing, New York University School
108 Loma Media Road of Business Administration; Former Director, The
Santa Barbara, CA 93103 Golden Financial Group, Inc.; Former Senior
Vice President, David & Charles Advertising
Barnett Chernow Executive Vice President Executive Vice President, BT Variable and
Golden American Life Insurance Co. and Principal Financial Directed Services, Inc., October 1993 to
1001 Jefferson Street Officer present; From 1977 through 1993, various
Wilmington, DE 19801 positions with Reliance Insurance Companies,
and Senior vice President and Chief Financial
Officer of United Pacific Life Insurance
Company from 1984 through 1993.
Stephen J. Preston Comptroller Senior Vice President, BT Variable and Directed
Golden American Life Insurance Co. Services, Inc., December 1993 to present; From
1001 Jefferson Street September 1993 through November 1993, Senior
Wilmington, DE 19801 Vice President and Actuary for Mutual of
America Insurance Company; From July 1987
through August 1993, various positions with
United Pacific Life Insurance Company and was
Vice president and Actuary upon leaving.
17
<PAGE>
M. Norvel Young Member Chancellor Emeritus and Board of Regents,
Pepperdine University Pepperdine University; Director, Imperial
Malibu, CA 90263 Bancorp, Imperial Bank and Imperial Trust
Company and 20th Century Christian Publishing
Company
Roger B. Vincent Member President, Springwell Corporation; Director,
230 Park Avenue Petralone, Inc; formerly, Managing Director,
New York, NY 10169 Bankers Trust Company
____________________________
<FN>
*Mr. Kendall is an "interested person" of Account D (as that term is defined in
the Investment Company Act of 1940) by reason of his affiliation with Directed
Services, Inc..
</TABLE>
THE MANAGER
DSI also serves as the manager (the "Manager") to Account D pursuant to a
management agreement effective October 2, 1992. The Manager is a New York
corporation. Its address is 280 Park Avenue, New York, New York 10017. DSI
is a wholly owned indirect subsidiary of Bankers Trust Company, which in
turn, is a wholly owned subsidiary of Bankers Trust New York Corporation.
DSI's business activities include those of a distributor and underwriter of
variable insurance products, broker-dealer and investment manager. DSI is
registered with the SEC as a broker-dealer and investment advisor and is a
member of the National Association of Securities Dealers, Inc. ("NASD"). It
is also registered as a broker-dealer and/or investment advisor in various
states.
Under the management agreement, the Manager, subject to the direction of
the Board of Governors, is responsible for providing all supervisory and
management services reasonably necessary for the operation of Account D,
including the Global Account, other than the investment advisory services
performed by the Portfolio Manager. These services include, but are not
limited to, (i) coordinating all matters relating to the functions of the
Portfolio Manager, Custodian, Recordkeeping Agent (including pricing and
valuation of the Global Account), accountants, attorneys, and other parties
performing services or operational functions for Account D; (ii) providing
Account D and the Global Account, at the Manager's expense, with the services
of a sufficient number of persons competent to perform such administrative
and clerical functions as are necessary to provide effective supervision and
administration of Account D; (iii) maintaining or supervising the maintenance
by the Portfolio Manager or third parties approved by Account D of such books
and records of Account D and the Global Account as may be required by
applicable Federal or state law; (iv) preparing or supervising the
preparation by third parties approved by Account D of all Federal, state and
local tax returns and reports of Account D required by applicable law; (v)
preparing and filing and arranging for the distribution of proxy materials
and periodic reports to contract owners of Account D as required by
applicable law; (vi) preparing and arranging for the filing of such
registration statements and other documents with the Securities and Exchange
Commission and other Federal and state regulatory authorities as may be
required by applicable law; (vii) taking such other action with respect to
Account D as may be required by applicable law, including without limitation
the rules and regulations of the SEC and other regulatory agencies; and
(viii) providing Account D at the Manager's expense, with adequate personnel,
office space, communications facilities, and other facilities necessary for
its operations as contemplated in the Management Agreement. Other
responsibilities of the Manager are described in the prospectus.
The Manager shall make its officers and employees available to the Board
of Governors and Officers of Account D for consultation and discussions
regarding the supervision and administration of the Global Account.
Pursuant to the Management Agreement, the Manager is authorized to
exercise full investment discretion and make all determinations with respect
to the investment of Global Account's assets and the purchase and sale of
securities in the event that at any time no portfolio manager is engaged to
manage the assets of the Global Account.
18
<PAGE>
The Management Agreement was continued by the Board of Governors in
September, 1994 and shall continue in effect until October 2, 1995, and from
year to year thereafter, provided such continuance is approved annually by a
majority of the Board of Governors who are not parties to such Management
Agreement or "interested persons" (as defined in the Investment Company Act
of 1940, the "1940 Act") of any such party. The Management Agreement may be
terminated without penalty by vote of the Board of Governors or the contract
owners of the Global Account, or by the Manager, on 60 days' written notice
by the Board or the Manager and will terminate automatically if assigned as
that term is described in the 1940 Act.
The Global Account pays the Manager a monthly fee based upon the following
annual percentages of the Global Account's average daily net assets: 0.40%
of the first $500 million and 0.30% of the amount over $500 million.
The initial organizational expenses of the Global Account will be
amortized by Account D for accounting purposes on a straight line basis over
a period of five years from the date that the Global Account commences
operations.
PORTFOLIO MANAGER
The Global Account and Warburg, Pincus Counsellors, Inc. entered into a
Portfolio Management Agreement dated June 9, 1994. The Portfolio Management
Agreement, which became effective July 1, 1994, provides that, subject to the
supervision of Account D's Board of Governors and the Manager, the Portfolio
Manager will provide a continuous investment program for the Global Account
and will determine the composition of the assets of the Global Account,
including determination of the purchase, retention, or sale of the
securities, cash, and other investments contained in the portfolio. The
Portfolio Manager is required to provide investment research and conduct a
continuous program of evaluation, investment, sales, and reinvestment of the
Global Account's assets. The Portfolio Management Agreement may be
terminated without penalty by the vote of the Board of Governors or the
contract owners of the Global Account, by the Portfolio Manager, or by the
Manager, on 60 days' written notice by any party to the Portfolio Management
Agreement and will terminate automatically if assigned as that term is
described in the 1940 Act.
Pursuant to the Portfolio Management Agreement, the Global Account pays
the Portfolio Manager a monthly fee equal to an annual rate based upon the
following percentages of the Global Account's average daily net assets:
0.60% of the first $500 million and 0.50% of the amount over $500 million.
CUSTODIAN AND PORTFOLIO ACCOUNTING AGENT
The Custodian for Account D is Bankers Trust Company, 280 Park Avenue, New
York, New York 10017. DSI provides portfolio accounting services for the
Global Account.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for the Global Account are made by the Portfolio
Manager which has investment advisory clients other than the Global Account.
A particular security may be bought or sold by the Portfolio Manager for
certain clients even though it could have been bought or sold for other
clients at the same time. Two or more clients also may simultaneously
purchase or sell the same security, in which event each day's transactions in
such security are, insofar as possible, allocated between such clients in a
manner deemed fair and reasonable by the Portfolio Manager. Although there
is no specified formula for allocating such transactions, the various
allocation methods used by the Portfolio Manager, and the results of such
allocations, are subject to periodic review by Account D's Manager and Board
of Governors. There may be circumstances when purchases or sales of
securities for one or more clients will have an adverse effect on other
clients.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager places all orders for the purchase and sale of
securities, options, and futures contracts for the Global Account through a
substantial number of brokers and dealers or futures commission merchants.
In
19
<PAGE>
executing transactions, the Portfolio Manager will attempt to obtain the best
execution for the Global Account taking into account such factors as price
(including the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of the
transaction, the reputation, experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of
execution and operational facilities of the firms involved, and the firm's
risk in positioning a block of securities. In transactions on stock
exchanges in the United States, payments of brokerage commissions are
negotiated. In effecting purchases and sales of securities in transactions
on U.S. stock exchanges for the Global Account, the Portfolio Manager may pay
higher commission rates than the lowest available when the Portfolio Manager
believes it is reasonable to do so in light of the value of the brokerage and
research services provided by the broker effecting the transaction, as
described below. In the case of securities traded on some foreign stock
exchanges, brokerage commissions may be fixed and the Portfolio Manager may
be unable to negotiate commission rates for these transactions. In the case
of securities traded on the over-the-counter markets, there is generally no
stated commission, but the price includes an undisclosed commission or markup.
There is generally no stated commission in the case of fixed-income
securities, which are generally traded in the over-the-counter markets, but
the price paid by the Global Account usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Global Account includes a disclosed, fixed commission or discount retained by
the underwriter or dealer. Transactions on U.S. stock exchanges and other
agency transactions involve the payment by the Global Account of negotiated
brokerage commission. Such commissions vary among different brokers. Also,
a particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction.
It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional
investors to receive research services from broker-dealers which execute
portfolio transactions for the clients of such advisors. Consistent with
this practice, the Portfolio Manager for the Global Account may receive
research services from many broker-dealers with which the Portfolio Manager
places the Global Account's portfolio transactions. These services, which in
some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Portfolio Manager
and its affiliates in advising its various clients (including the Global
Account), although not all of these services are necessarily useful and of
value in managing the Global Account. The advisory fee paid by the Global
Account to the Portfolio Manager is not reduced because the Portfolio Manager
and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager may cause the Global Account to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the 1934 Act) to
the Portfolio Manager, a disclosed commission for effecting a securities
transaction for the Global Account in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
A Portfolio Manager may place orders for the purchase and sale of
exchange-listed portfolio securities with a broker-dealer that is an
affiliate of the Portfolio Manager where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and is an affiliate of the Portfolio Manager.
Pursuant to rules of the Securities and Exchange Commission, a
broker-dealer that is an affiliate of the Manager or Portfolio Manager or, if
it is also a broker-dealer, the Portfolio Manager may receive and retain
compensation for effecting portfolio transactions for the Global Account on a
national securities exchange of which the broker-dealer is a member if the
transaction is "executed" on the floor of the exchange by another broker
which is not an "associated person" of the affiliated broker-dealer or
Portfolio Manager, and if there is in effect a written contract between the
Portfolio Manager and the Global Account expressly permitting the affiliated
broker-dealer or Portfolio Manager to receive and retain such compensation.
The Portfolio Management Agreement provides that the Portfolio Manager may
retain compensation on transactions effected for the Global Account in
accordance with the terms of these rules.
Securities and Exchange Commission rules further require that commissions
paid to such an affiliated broker-dealer or Portfolio Manager by the Global
Account on exchange transactions not exceed "usual and customary
20
<PAGE>
brokerage
commission." The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Board
of Governors has adopted procedures for evaluating the reasonableness of
commissions paid to broker-dealers that are affiliated with the Portfolio
Manager and will review these procedures periodically.
PURCHASE AND PRICING OF THE GLOBAL ACCOUNT
The valuation of the Global Account's assets is determined once each
business day, Monday through Friday, exclusive of Federal holidays, at 4:00
p.m., New York City time, on each day that the New York Stock Exchange is
open for trading. In general, valuation of the Global Account's assets is
based on actual or estimated market value, with special provisions for assets
not having readily available market quotations and short-term debt
securities. The value of the Global Account will fluctuate in response to
changes in market conditions and other factors.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are
valued at their fair value as determined in good faith by the Board of
Governors, although the actual calculations will be made by persons acting
under the direction of the Board of Governors and subject to the Board of
Governor's review.
Money market instruments are valued at market value, except that
instruments maturing in sixty days or less may be valued using the amortized
cost method of valuation. The value of a foreign security is determined in
its national currency based upon the price on the pertinent foreign exchange
as of its close of business immediately preceding the time of valuation.
Securities traded in over-the-counter markets outside the United States are
valued at the last available price in the over-the-counter market prior to
the time of valuation.
Other debt securities, including those to be purchased under firm
commitment agreements (other than obligations having a maturity date sixty
days or less after their date of acquisition, valued under the amortized cost
method), are normally valued on the basis of quotes obtained from brokers and
dealers or pricing services, which take into account appropriate factors such
as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics, and
other market data. Debt obligations having a maturity of sixty days or less
may be valued at amortized cost, unless the Portfolio Manager believes that
amortized cost does not approximate market value.
When the Global Account writes a put or call option, the amount of the
premium is included in the Global Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the
current market value of the option. The premium paid for an option purchased
by the Global Account is recorded as an asset and subsequently adjusted to
market value.
21
<PAGE>
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B
The audited financial statements of Separate Account B are listed below and are
included in this Statement of Additional Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Combined Statement of Operations for the Year ended December 31, 1994
Combined Statements of Changes in Net Assets for the Years ended
December 31, 1994 and 1993
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
The audited financial statements of The Managed Global Account of Separate
Account D are listed below and are included in this Statement of Additional
Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the Year ended December 31, 1994
Statements of Changes in Net Assets for the Years ended December 31,
1994 and 1993
Statement of Investments as of December 31, 1994
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
The audited financial statements of Golden American Life Insurance Company
prepared in accordance with statutory accounting practices ("Statutory") and
generally accepted accounting principles ("GAAP") are listed below and are
included in this Statement of Additional Information:
STATUTORY BASIS
Report of Independent Auditors
Financial Statements -- Statutory
Balance Sheets (Statutory) as of December 31, 1994 and 1993
Statements of Operations (Statutory) for the Years ended December 31,
1994 and 1993
Statements of Capital and Surplus (Statutory) for the Years ended
December 31, 1994 and 1993
Statements of Cash Flow (Statutory) for the Years ended December 31,
1994 and 1993
Notes to Audited Financial Statements
GAAP BASIS
Report of Independent Auditors
Financial Statements -- GAAP
Balance Sheets as of December 31, 1994 and 1993
Statements of Operations for the Years ended December 31, 1994 and 1993
and the Period September 30, 1992 to December 31, 1992
Statements of Changes in Stockholder's Equity for the Years ended
December 31, 1994 and 1993 and the Period September 30, 1992 to
December 31, 1992
Statemens of Cash Flows for the Years ended December 31, 1994 and 1993
and the Period September 30, 1992 to December 31, 1992
Notes to Audited Financial Statements
22
<PAGE>
APPENDIX: DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. ("Moody's) description of its
bond ratings:
Aaa: Judged to be the best quality; they carry the smallest degree of
investment risk.
Aa: Judged to be of high quality by all standards; together with the Aaa
group, they comprise what are generally known as high grade bonds.
A: Possess many favorable investment attributes and are to be considered
as "upper medium grade obligations."
Baa: Considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured; interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Ba: Judged to have speculative elements; their future cannot be considered
as well assured.
B: Generally lack characteristics of the desirable investment.
Caa: Are of poor standing; such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca: Speculative in a high degree; often in default.
C: Lowest rate class of bonds; regarded as having extremely poor
prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.
Excerpts from Standard & Poor's Corporation ("Standard & Poor's") description
of its bond ratings:
AAA: Highest grade obligations; capacity to pay interest and repay principal
is extremely strong.
AA: Also qualify as high grade obligations; a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small
degree.
A: Regarded as upper medium grade; they have a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB: Regarded as having an adequate capacity to pay interest and repay
principal; whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity than in higher rated categories -- this group is the
lowest which qualifies for commercial bank investment.
BB, B,
CCC,
CC: Predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with terms of the obligation: BB indicates the
lowest degree of speculation and CC the highest.
Standard & Poor's applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Variable Annuity Contractowners
SEPARATE ACCOUNT B
We have audited the accompanying statement of assets and liabilities of
Separate Account B (the "Account") as of December 31, 1994, and the related
combined statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account's 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 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. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian. 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 financial position of Separate Account B at
December 31, 1994, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 14, 1995
24
<PAGE>
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 45,387,280 shares
(Cost $45,387,280)...................................................... $ 45,387,280
Limited Maturity Bond Series, 7,174,931 shares
(Cost $76,441,934)...................................................... 71,605,813
Natural Resources Series, 2,360,675 shares
(Cost $31,960,922)...................................................... 32,766,167
All-Growth Series, 5,958,509 shares
(Cost $74,833,551)...................................................... 70,668,772
Real Estate Series, 3,273,594 shares
(Cost $37,973,481)...................................................... 36,958,871
Fully Managed Series, 8,452,554 shares
(Cost $106,998,483)..................................................... 98,894,625
Multiple Allocation Series, 26,275,715 shares
(Cost $311,456,760)..................................................... 297,702,661
Capital Appreciation Series, 7,795,369 shares
(Cost $89,125,585)...................................................... 88,399,229
Rising Dividends Series, 4,933,167 shares
(Cost $51,022,111)...................................................... 50,416,965
Emerging Markets Series, 5,932,065 shares
(Cost $69,617,468)...................................................... 59,795,219
Market Manager Series, 274,824 shares
(Cost $2,754,250)....................................................... 2,753,739
-------------
Total Invested Assets
(Cost $897,571,825)................................................... 855,349,341
LIABILITIES
Payable to Golden American for Charges and Fees -- (Note 3)................ 530,918
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
NET ASSETS
For Variable Annuity Contracts............................................. $ 810,810,446
Retained in Separate Account B by Golden American -- (Note 3).............. 44,007,977
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
</TABLE>
See notes to financial statements.
25
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
----------------------------------------------------------------------------------------------------
LIMITED NATURAL MULTIPLE
LIQUID ASSET MATURITY RESOURCES ALL-GROWTH REAL ESTATE FULLY MANAGED ALLOCATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES
------------- ------------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,443,621 $ 3,500,972 $ 286,872 $ 668,418 $ 1,862,701 $ 2,839,238 $ 10,655,655
Capital gain
distribution.......... -- -- 540,421 -- -- -- --
------------- ------------- ----------- ------------ ------------- -------------- ------------
Total investment
income.............. 1,443,621 3,500,972 827,293 668,418 1,862,701 2,839,238 10,655,655
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 361,615 736,430 282,948 613,111 348,164 1,078,655 2,955,387
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net investment
income.............. 1,082,006 2,764,542 544,345 55,307 1,514,537 1,760,583 7,700,268
------------- ------------- ----------- ------------ ------------- ------------- -------------
Realized gain on
investments
Proceeds from sales.... 40,758,078 22,640,885 7,724,804 4,427,509 9,351,495 15,241,359 28,761,003
Cost of securities
sold.................. 40,758,078 22,575,099 6,038,663 4,350,791 8,812,382 14,181,236 25,917,030
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net realized gain on
investments......... -- 65,786 1,686,141 76,718 539,113 1,060,123 2,843,973
------------- ------------- ----------- ------------ ------------- ------------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... -- (407,617) 2,953,720 3,650,218 (373,993) 4,424,678 3,296,333
End of year............ -- (4,836,121) 805,245 (4,164,779) (1,014,610) (8,103,858) (13,754,098)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. -- (4,428,504) (2,148,475) (7,814,997) (640,617) (12,528,536) (17,050,431)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,082,006 $(1,598,176) $ 82,011 $(7,682,972) $ 1,413,033 $ (9,707,830) $ (6,506,190)
------------- ------------- ----------- ------------ ------------- ------------- -------------
------------- ------------- ----------- ------------ ------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
-----------------------------------------------------------------------
CAPITAL RISING EMERGING MARKETS
APPRECIATION DIVIDENDS MARKET SERIES MANAGER
SERIES SERIES (a) (a) SERIES (b) COMBINED
-------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,777,023 $ 685,072 $ -- $ 6,199 $ 23,725,771
Capital gain
distribution.......... -- -- 2,686,591 316 3,227,328
-------------- ------------ ------------- ----------- -------------
Total investment
income.............. 1,777,023 685,072 2,686,591 6,515 26,953,099
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 909,077 367,964 560,823 -- 8,214,174
-------------- ------------ ------------- ----------- -------------
Net investment
income.............. 867,946 317,108 2,125,768 6,515 18,738,925
-------------- ------------ ------------- ----------- -------------
Realized gain on
investments
Proceeds from sales.... 11,164,715 2,770,019 6,933,220 1,334 149,774,421
Cost of securities
sold.................. 9,738,102 2,715,467 6,096,514 1,331 141,184,693
-------------- ------------ ------------- ----------- -------------
Net realized gain on
investments......... 1,426,613 54,552 836,706 3 8,589,728
-------------- ------------ ------------- ----------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... 4,004,838 220,884 3,970,717 -- 21,739,778
End of year............ (726,357) (605,146) (9,822,249) (511) (42,222,484)
-------------- ------------ ------------- ----------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. (4,731,195) (826,030) (13,792,966) (511) (63,962,262)
-------------- ------------ ------------- ----------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ (2,436,636) $ (454,370) $ (10,830,492) $ 6,007 $ (36,633,609)
-------------- ------------ ------------- ----------- -------------
-------------- ------------ ------------- ----------- -------------
<FN>
(a) Commencement of operations, October 4, 1993.
(b) Commencement of operations, November 14, 1994.
</TABLE>
See notes to financial statements.
26
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
NATURAL
LIQUID ASSET LIMITED MATURITY BOND RESOURCE
SERIES SERIES SERIES
-------------------------- -------------------------- ------------
1994 1993 1994 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 1,082,006 $ 251,524 $ 2,764,542 $ 2,344,976 $ 544,345
Net realized gain (loss) on investments.............. -- -- 65,786 677,243 1,686,141
Net change in unrealized appreciation (depreciation)
of investments...................................... -- -- (4,428,504) (434,962) (2,148,475)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 1,082,006 251,524 (1,598,176) 2,587,257 82,011
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 43,297,390 22,808,053 32,040,952 54,680,072 8,595,119
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 4,159,230 (15,604,916) (22,001,625) (19,820,224) 5,715,775
Benefits, surrenders and other withdrawals........... (18,470,294) (3,497,357) (7,603,846) (5,188,057) (2,768,491)
Contract related charges and fees.................... (1,200,931) (229,252) (886,527) (498,019) (314,191)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 27,785,395 3,476,528 1,548,954 29,173,772 11,228,212
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 28,867,401 3,728,052 (49,222) 31,761,029 11,310,223
Net Assets:
Beginning of Year.................................... 16,497,588 12,769,536 71,622,231 39,861,202 21,436,544
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 45,364,989 $ 16,497,588 $ 71,573,009 $ 71,622,231 $ 32,746,767
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
ALL-GROWTH REAL ESTATE
SERIES SERIES
---------------------------------------- --------------------------
1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 8,983 $ 55,307 $ (177,810) $ 1,514,537 $ 640,795
Net realized gain (loss) on investments.............. 426,591 76,718 476,553 539,113 513,528
Net change in unrealized appreciation (depreciation)
of investments...................................... 3,295,092 (7,814,997) 2,648,629 (640,617) (548,785)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 3,730,666 (7,682,972) 2,947,372 1,413,033 605,538
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 10,191,488 18,242,132 34,573,445 9,862,267 22,416,140
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 5,176,672 9,624,494 (2,151,633) 208,409 4,008,119
Benefits, surrenders and other withdrawals........... (465,000) (4,906,264) (2,429,632) (2,918,618) (1,716,743)
Contract related charges and fees.................... (79,699) (709,171) (302,798) (401,259) (140,619)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 14,823,461 22,251,191 29,689,382 6,750,799 24,566,897
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 18,554,127 14,568,219 32,636,754 8,163,832 25,172,435
Net Assets:
Beginning of Year.................................... 2,882,417 56,055,565 23,418,811 28,772,896 3,600,461
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 21,436,544 $ 70,623,784 $ 56,055,565 $ 36,936,728 $ 28,772,896
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
27
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------------------------------
FULLY MANAGED SERIES MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
-------------------------------- -------------------------------- ----------------------------
1994 1993 1994 1993 1994 1993
--------------- --------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 1,760,583 $ 2,384,033 $7,700,268 $ 15,125,636 $ 867,946 $565,868
Net realized gain on
investments........... 1,060,123 524,624 2,843,973 295,483 1,426,613 246,599
Net change in
unrealized
appreciation
(depreciation) of
investments........... (12,528,536) 1,699,232 (17,050,431) 672,723 (4,731,195) 2,955,304
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations.............. (9,707,830) 4,607,889 (6,506,190) 16,093,842 (2,436,636) 3,767,771
--------------- --------------- --------------- --------------- ------------- -------------
Contract related
transactions (Note 3)
Premiums............... 21,742,235 70,788,527 74,594,438 150,788,747 19,196,186 63,986,159
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (11,098,109) 108,564 (9,842,434) 5,675,110 (6,162,504) 3,402,619
Benefits, surrenders and
other withdrawals....... (9,049,892) (4,050,100) (30,149,866) (12,915,093) (7,902,148) (2,392,822)
Contract related charges
and fees................ (1,341,160) (516,502) (3,746,076) (1,609,228) (1,148,856) (331,307)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 253,074 66,330,489 30,856,062 141,939,536 3,982,678 64,664,649
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets........... (9,454,756) 70,938,378 24,349,872 158,033,378 1,546,042 68,432,420
Net Assets:
Beginning of Year...... 108,290,963 37,352,585 273,158,122 115,124,744 86,798,642 18,366,222
--------------- --------------- --------------- --------------- ------------- -------------
End of Year............ $ 98,836,207 $ 108,290,963 $297,507,994 $ 273,158,122 $ 88,344,684 $86,798,642
--------------- --------------- --------------- --------------- ------------- -------------
--------------- --------------- --------------- --------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------
MARKET
MANAGER
RISING DIVIDENDS SERIES EMERGING MARKETS SERIES SERIES COMBINED
---------------------------- ---------------------------- ------------ ---------------
1994 1993 (a) 1994 1993 (a) 1994 (b) 1994
------------- ------------- ------------- ------------- ------------ ---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $317,108 $ 4,934 $ 2,125,768 $ (24,280) $ 6,515 $ 18,738,925
Net realized gain on
investments........... 54,552 -- 836,706 -- 3 8,589,728
Net change in
unrealized
appreciation
(depreciation) of
investments........... (826,030) 220,884 (13,792,966) 3,970,717 (511) (63,962,262)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase in net
assets resulting from
operations.............. (454,370) 225,818 (10,830,492) 3,946,437 6,007 (36,633,609)
------------- ------------- ------------- ------------- ------------ ---------------
Contract related
transactions (Note 3)
Premiums............... 25,149,913 11,566,378 30,112,986 13,923,417 1,414,129 284,247,747
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. 15,544,356 2,632,922 14,777,915 12,702,200 1,334,937 2,260,444
Benefits, surrenders and
other withdrawals....... (3,843,523) (25,387) (4,285,144) (62,486) -- (91,898,086)
Contract related charges
and fees................ (398,993) (12,349) (516,806) (20,979) (2,625) (10,666,595)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 36,451,753 14,161,564 40,088,951 26,542,152 2,746,441 183,943,510
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets........... 35,997,383 14,387,382 29,258,459 30,488,589 2,752,448 147,309,901
Net Assets:
Beginning of Year...... 14,387,382 -- 30,488,589 -- -- 707,508,522
------------- ------------- ------------- ------------- ------------ ---------------
End of Year............ $50,384,765 $ 14,387,382 $ 59,747,048 $ 30,488,589 $ 2,752,448 $ 854,818,423
------------- ------------- ------------- ------------- ------------ ---------------
------------- ------------- ------------- ------------- ------------ ---------------
<CAPTION>
1993
---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 21,124,659
Net realized gain on
investments........... 3,160,621
Net change in
unrealized
appreciation
(depreciation) of
investments........... 14,478,834
---------------
Net increase in net
assets resulting from
operations.............. 38,764,114
---------------
Contract related
transactions (Note 3)
Premiums............... 455,722,426
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (3,870,567)
Benefits, surrenders and
other withdrawals....... (32,742,677)
Contract related charges
and fees................ (3,740,752)
---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 415,368,430
---------------
Net increase (decrease)
in net assets........... 454,132,544
Net Assets:
Beginning of Year...... 253,375,978
---------------
End of Year............ $ 707,508,522
---------------
---------------
<FN>
(a) Commencement of Operations, October 4, 1990.
(b) Commencement of Operations, November 14, 1994.
</TABLE>
See notes to financial statements.
28
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account B (the "Account") was established on June 14, 1988, by
Golden American Life Insurance Company ("Golden American"), under Minnesota
insurance law to support the operations of variable annuity contracts
("Contracts"). Effective September 30, 1992, Golden American became a
wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned
subsidiary of Bankers Trust Company ("Bankers Trust"). Previously, Golden
American was owned by Mutual Benefit Life Insurance Company in Rehabilitation
("Mutual Benefit"). Golden American is primarily engaged in the issuance of
variable insurance products and is licensed as a life insurance company in the
District of Columbia and all states except New York. Effective December 30,
1993, Golden American was redomesticated from the State of Minnesota to the
State of Delaware.
Operations of the Account commenced on January 25, 1989. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to one or more divisions within the Account or to the
Golden American Guaranteed Interest Division and the Managed Global Division of
Separate Account D, which are not part of the Account, as elected by the
Contractowners. The assets of the Account are owned by Golden American. The
portion of the Account's assets applicable to Contracts will not be chargeable
with liabilities arising out of any other business Golden American may conduct,
but obligations of the Account, including the promise to make benefit payments,
are obligations of Golden American.
The Account makes available, under GoldenSelect Contracts, eleven investment
divisions: the Liquid Asset, the Limited Maturity Bond, the Natural Resources,
the All-Growth, the Real Estate, the Fully Managed, the Multiple Allocation, the
Capital Appreciation (commenced operations on May 4, 1992), the Rising Dividends
(commenced operations October 4, 1993), the Emerging Markets (commenced
operations on October 4, 1993) and the Market Manager (commenced operations
November 14, 1994) Divisions ("Divisions"). The assets in each Division are
invested in shares of a designated series ("Series") of a mutual fund, The GCG
Trust (the "Trust"). The account also includes The Fund For Life Division, which
is not included in the accompanying financial statements, and which, ceased to
accept new contracts effective December 31, 1994.
The Account is a unit investment trust and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the amount required under state law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
Contract benefits. Additional assets are held in Golden American's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risk under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The transaction had no effect on the
accompanying financial statements of the Account.
29
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS: Investments are made in shares of a Series of the Trust and
are valued at the net asset value per share of the respective Series of the
Trust.
Investment transactions in each Series of the Trust are recorded on the
trade date. Distributions of net investment income and capital gains of each
Series of the Trust are recognized on the ex-distribution date. Realized gains
and losses on redemptions of the shares of the Series of the Trust are
determined on the identified cost basis.
For the years ended December 31, 1994 and 1993, the cost of purchases of
shares of the Trust aggregated $352,604,679 and $483,230,191, respectively and
the proceeds from sales of shares of the Trust aggregated $149,774,421 and
$46,471,631, respectively.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. Following is a summary of these charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.25% of the assets attributable
to Contracts to cover these risks.
ADMINISTRATIVE CHARGE: An administrative charge of $40 per Contract year is
deducted from accumulation value of Deferred Annuity Contracts to cover ongoing
administrative expenses. The charge is deducted on the Contract processing date
at the end of the Contract processing period. This charge has been waived for
certain offerings of the Contract. For certain Contracts, a daily charge at an
annual rate of .10% is deducted from assets attributable to such Contracts.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: For certain Contracts, a minimum
death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death
benefit per Contract year is deducted from the accumulation value of Deferred
Annuity Contracts on each Contract processing date.
PREMIUM TAXES: For certain contracts, premium taxes are deducted, where
applicable, from the accumulation value of each Contract. The amount and timing
of the deduction depend on the annuitant's state of residence and currently
ranges up to 3.5% of premiums.
OTHER CHARGES: Five free investment re-allocations among Divisions per
Contract are allowed each Contract year. For each additional investment
re-allocation, a $25 charge is deducted from the amount transferred from each
Division.
CONTRACT SALES LOAD AND PREMIUM TAXES: A sales load of up to 7 1/2% is
applicable to each premium payment for sales related expenses as specified in
the Contracts (see Note 4), as is an amount equal to the premium tax applicable
to certain Contracts. Although this sales load and the premium tax are
chargeable to each premium when it is received by Golden American, the amount of
such
30
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. CHARGES AND FEES (CONTINUED)
charges is initially advanced by Golden American to Contractowners and included
in the accumulation value and then deducted in equal installments on each
contract processing date over a period specified in the Contract. For Deferred
Annuity Contracts, the charges are recovered over a period which is the lesser
of either six or ten years or the amount of time between the contract date and
the annuity commencement date. For Annuity Certain Contracts, the charges are
recovered over a period which is the lesser of either six or ten years or the
length of the "certain" period, as defined in each Contract. Upon surrender of
the Contract, the unamortized deferred sales load and premium taxes are deducted
from the accumulation value by Golden American. The net assets retained in the
Account by Golden American in the accompanying financial statements represent
the unamortized deferred sales load and premium taxes.
Net assets retained in the Account by Golden American:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Balance at January 1.......................................................... $ 37,363,830 $ 13,024,324
Sales load advanced........................................................... 16,137,638 27,069,471
Premium tax advanced.......................................................... 73,178 206,633
Net transfer from Guaranteed Interest Division and Separate Account D......... 665,964 359,229
Amortization of deferred sales load and premium tax........................... (10,232,633) (3,295,827)
-------------- --------------
Balance at December 31........................................................ $ 44,007,977 $ 37,363,830
-------------- --------------
-------------- --------------
</TABLE>
4. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer,acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For 1994
and 1993, fees paid by Golden American to DSI aggregated $15,939,331 and
$30,495,805, respectively.
Under the terms of an expense limitation agreement ("Expense Agreement")
between DSI and the Trust, DSI paid the Trust for ordinary expenses which
exceeded certain prescribed limits. For the year ended December 31, 1993, DSI
paid the Trust $255,476 relating to the Expense Agreement. The Expense Agreement
was terminated effective September 30, 1993, and was replaced by a unified fee
payable by the Trust to DSI, covering all expenses of the Trust, except trustee
fees which are borne by the Trust.
31
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 0.83 0.82 0.83 0.85 0.87 0.79 0.85 0.84 0.89 0.87 0.82 1.20 0.72 0.83 0.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.87% 1.82% 2.30% 4.81% 6.88% (1.98)% 5.35% 4.00% 10.38% 7.00% 1.71% 48.73% (10.53)% 3.87% (14.53)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 0.71 0.86 0.78 1.09 0.75 0.85 0.94 0.91 1.07 0.64 0.74 0.86 0.85 1.04 0.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.49)% 5.70% (3.37)% 35.39% (8.09)% 5.49% 16.33% 12.96% 32.99% (21.42)% (8.01)% 6.73% 5.38% 27.89% (3.96)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 0.78 0.89 0.82 0.95 0.84 0.79 0.87 0.59 0.80 0.20 0.67 0.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (1.96)% 10.24% 1.06% 19.07% 3.90% (2.38)% 7.44% 10.28% (0.21)% 2.94% (15.85)% 24.16%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent the mortality and expense risk charges at an
annual rate of .80% of the assets of the Account.
</TABLE>
32
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(d)... 1.04 1.03 1.04 1.06 1.08 0.98 1.06 1.05 1.11 1.08 1.02 1.50 0.90 1.04 0.86
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.66% 1.61% 2.09% 4.60% 6.67% (2.17)% 5.14% 3.79% 10.16% 6.79% 1.51% 48.43% (10.71)% 3.66% (14.70)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(d)... 0.89 1.07 0.98 1.36 0.94 1.06 1.17 1.14 1.34 0.80 0.93 1.08 1.07 1.29 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.67)% 5.49% (3.57)% 35.12% (8.28)% 5.28% 16.10% 12.73% 32.72% (21.58)% (8.20)% 6.51% 5.16% 27.64% (4.15)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING MARKET
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS MANAGER
-------------------------------------- ---------------------- -------------- -------------- -------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b) 1994 (c)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --% 0.24%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40 0.44
Expense
charges
(d)... 0.98 1.11 1.02 1.19 1.06 0.98 1.09 0.74 1.00 0.25 0.84 0.30 0(e)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (2.16)% 10.02% 0.86% 18.83% 3.68% (2.57)% 7.22% 10.13% (0.41)% 2.89% (16.02)% 24.10% 0.44%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Commencement of operations November 14, 1994. Net return is not annualized
(d) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.00% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.00% had been in effect
since January 1, 1990.
(e) During the period November 14, 1994 through December 31, 1994, all fund
operative expense and mortality and expense risk charges were waived. Such
expenses would have aggregated 0.26% of average assets.
</TABLE>
33
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 1.40 1.39 1.40 1.43 1.46 1.33 1.43 1.42 1.50 1.46 1.38 2.03 1.22 1.41 1.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.30% 1.25% 1.73% 4.23% 6.29% (2.52)% 4.77% 3.42% 9.77% 6.41% 1.15% 47.90% (11.03)% 3.29% (15.01)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 1.20 1.44 1.32 1.84 1.26 1.43 1.58 1.54 1.80 1.07 1.25 1.46 1.44 1.74 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.98)% 5.12% (3.91)% 34.64% (8.60)% 4.91% 15.69% 12.33% 32.26% (21.85)% (8.52)% 6.13% 4.79% 27.19% (4.49)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 1.33 1.50 1.38 1.61 1.42 1.33 1.46 1.00 1.35 0.34 1.14 0.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (2.51)% 9.63% 0.50% 18.41% 3.32% (2.92)% 6.85% 9.87% (0.76)% 2.80% (16.32)% 23.99%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.35% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.35% had been in effect
since January 1, 1990.
</TABLE>
34
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners and Board of Governors
THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
We have audited the accompanying statement of assets and liabilities of The
Managed Global Account of Separate Account D, including the statement of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Account's 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. Our procedures included
verification by examination of securities held by the custodian as of December
31, 1994 and confirmation of securities not held by the custodian by
correspondence with others. 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 financial position of The Managed Global Account
of Separate Account D at December 31, 1994, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 10, 1995
35
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $90,208,934).................................... $85,946,412
Cash........................................................................ 278,515
Dividends and interest receivable........................................... 98,042
Prepaid expenses and other assets........................................... 7,918
-----------
Total Assets............................................................ 86,330,887
-----------
LIABILITIES
Payable to Golden American for contract related expenses.................... 46,106
Accrued expenses............................................................ 76,226
-----------
Total Liabilities....................................................... 122,332
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
NET ASSETS
For variable annuity contracts.............................................. $81,674,591
Retained in The Managed Global Account of Separate Account D by Golden
American................................................................... 4,533,964
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
</TABLE>
See notes to financial statements.
36
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of $53,740 foreign taxes withheld)........................... $ 457,838
Interest (Net of $1,330 foreign taxes withheld)............................. 1,211,036
------------
Total investment income................................................. 1,668,874
EXPENSES:
Management and advisory fees................................................ 834,367
Mortality and expense risk and administrative charges....................... 831,890
Custodian fees.............................................................. 84,877
Fund accounting fees........................................................ 68,428
Amortization of organizational expenses..................................... 29,200
Legal fees.................................................................. 28,916
Auditing fees............................................................... 25,536
Interest.................................................................... 23,218
Insurance premiums for fidelity bond........................................ 22,535
Proxy....................................................................... 19,368
Printing and mailing........................................................ 12,445
Registration fees........................................................... 3,463
Directors' fees and expenses................................................ 3,289
Other....................................................................... 12,284
------------
Total expenses.......................................................... 1,999,816
Less amounts paid by the investment manager pursuant to expense limitation
agreement.................................................................. (71,175)
------------
Net expenses............................................................ 1,928,641
------------
NET INVESTMENT LOSS........................................................... (259,767)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments............................................................... 357,057
Options................................................................... (14,024)
Futures................................................................... (100,164)
Foreign currency transactions............................................. (1,606,427)
------------
(1,363,558)
------------
Net change in unrealized appreciation (depreciation) of:
Investments............................................................... (10,287,249)
Futures and options....................................................... (1,063,664)
Foreign currency transactions............................................. (161,039)
------------
(11,511,952)
------------
Net realized and unrealized loss............................................ (12,875,510)
------------
Net decrease in net assets resulting from operations...................... (13,135,277)
------------
------------
</TABLE>
See notes to financial statements.
37
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss............................................................ $ (259,767) $ (269,919)
Net realized loss from investment and foreign currency transactions............ (1,363,558) (3,529,193)
Net unrealized (depreciation) appreciation of investment and foreign currency
transactions.................................................................. (11,511,952) 7,269,059
-------------- --------------
Net (decrease) increase in net assets resulting from operations................ (13,135,277) 3,469,947
-------------- --------------
CONTRACT RELATED TRANSACTIONS:
Premiums....................................................................... 22,680,207 45,381,393
Benefits, surrenders and other withdrawals..................................... (8,496,158) (3,073,207)
Net transfers (to) from Separate Account B and Guaranteed Interest Division of
Golden American............................................................... (2,244,552) 4,544,018
Contract related charges and fees.............................................. (1,073,158) (544,060)
-------------- --------------
Net increase in net assets resulting from contract related transactions........ 10,866,339 46,308,144
-------------- --------------
Net (decrease) increase in net assets.......................................... (2,268,938) 49,778,091
NET ASSETS:
Beginning of year.............................................................. 88,477,493 38,699,402
-------------- --------------
End of year.................................................................... $ 86,208,555 $ 88,477,493
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
38
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT
OF NET PRINCIPAL
ASSETS AMOUNT VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 5.8% $ 4,966,000 PNC Securities, 5.50%, dated 12/30/94,
due 01/03/95, collateralized by
$5,055,000 in principal amount of U.S.
Treasury Notes 5.875%, due 05/31/96
(Cost $4,966,000)...................... $ 4,966,000
-----------
CONVERTIBLE BONDS 6.0% $ 920,000 United Micro Electronics Conv. Bonds,
1.25%, 6/8/04 (Taiwan)................. 1,423,700
AUD 33,000 BTR Nylex LTD, 9% Conv. Notes 11/30/49,
(Australia)............................ 258,307
Y111,000,000 Matsushita Electric Works Conv. Bonds,
2.70%, 5/31/02 (Japan)................. 1,193,788
$ 800,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan) (c)................... 916,000
90,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan)....................... 103,050
FF 7,512,750 SCOR SA 3%, Conv. Bonds, 1/1/01
(France)............................... 1,299,230
-----------
Total Convertible Bonds
(Cost $5,275,355)...................... 5,194,075
-----------
COMMON STOCKS 85.2% SHARES
-------------
BANKS 3.2% 16,000 Arab Malaysian Merchant Bank BHD
(Malaysia)............................. 151,665
4,000 Banco Frances Rio Plata ADR
(Argentina)............................ 85,500
18,300 Banco Frances Del Rio Plata
(Argentina)............................ 121,022
119,000 Development Bank of Singapore
(Singapore)............................ 1,224,280
422,000 Foereningsbanken AB Serjes A (a)
(Sweden)............................... 824,219
79,500 Thailand Military Bank LTD (Thailand)... 335,737
-----------
2,742,423
-----------
BEVERAGES 1.7% 764,500 Lion Nathan LTD (New Zealand)........... 1,455,776
-----------
BUILDING & CONSTRUCTION 5.1% 113,400 Cementos De Mexico SA ADR (a)
(Mexico)............................... 1,151,237
5,000 Grupo Mexicand De Desarollo (Mexico).... 38,125
47,100 Grupo Tribasa SA ADR (a) (Mexico)....... 783,038
2,400 Maculan Holdings AG (Austria)........... 198,165
23,800 Tsuchiya Home (Japan)................... 586,089
100,000 United Construction (a) (Australia)..... 73,625
15,500 VA Technologie (a) (Australia).......... 1,561,376
-----------
4,391,655
-----------
CHEMICALS 6.1% 43,700 Norsk Hydro AS ADR (Norway)............. 1,709,763
20,600 PT TriPolyta Indonesia ADR (a)
(Indonesia)............................ 499,550
51,200 Reliance Industries GDS (a) (India)..... 1,011,200
98,000 Shin - Etsu Chemical (Japan)............ 1,950,347
-----------
5,170,860
-----------
COSMETICS 3.2% 164,000 KAO Corp. (Japan)....................... 1,862,700
79,000 NEC Corp. (Japan)....................... 905,217
-----------
2,767,917
-----------
DIVERSIFIED 1.9% 676,000 BTR Nylex LTD (Australia)............... 1,257,360
64,000 Westmont Berhad (Malaysia).............. 398,590
-----------
1,655,950
-----------
DRUGS 1.5% 50,200 Astra AB (Sweden)....................... 1,284,752
-----------
</TABLE>
39
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
COMMON STOCKS -- CONTINUED
<S> <C> <C> <C> <C>
ELECTRONICS 9.6% 4,400 Austria Mikro System (Austria).......... $ 331,817
1,465 BBC Brown Boveri (Switzerland).......... 1,261,310
80,000 Hitachi LTD (Japan)..................... 795,256
464,000 IPC LTD (Singapore)..................... 316,653
9,500 Sony ADR (Japan)........................ 533,187
44,000 Sony (Japan)............................ 2,498,744
53,000 TDK Corp. (Japan)....................... 2,573,022
-----------
8,309,989
-----------
ENTERTAINMENT 3.3% 77,200 Thorn EMI PLC (United Kingdom).......... 1,250,466
9,100 TOHO (Japan)............................ 1,600,664
-----------
2,851,130
-----------
FINANCIAL SERVICES 14.2% 75,000 Ampal American Israel Cl. A (a)
(Israel)............................... 496,875
35,900 Anglovaal LTD (South Africa)............ 1,101,227
3,565 Banco DeGalica Buenos Aires SA ADR
(Argentina)............................ 61,496
58,100 Banco Santander SA ADR (Spain).......... 2,222,325
38,732 Banesto SA ADS (a) (Spain).............. 115,094
2,583,854 Brierley Investment LTD (New Zealand)... 1,865,723
2,640 Cetelem (France)........................ 472,400
50,000 Goven & Company PLC (United Kingdom).... 278,570
71,200 Grupo Financiero Bancomer SA ADR (a)
(Mexico)............................... 844,218
466,800 Industrial Finance Corporation of
Thailand (Thailand).................... 994,972
65,000 Japan Securities Finance (Japan)........ 1,077,998
630,000 Singer & Friedlander Group (United
Kingdom)............................... 847,917
88,200 YPF SA ADR (Argentina).................. 1,885,275
-----------
12,264,090
-----------
HOSPITAL MANAGEMENT 1.2% 295,400 Takare PLC (United Kingdom)............. 1,017,062
-----------
INDUSTRIAL 2.2% 32,100 Celsius Industries Cl. B (Sweden)....... 713,429
31,900 Murata Manufacturing LTD (Japan)........ 1,234,446
-----------
1,947,875
-----------
INSURANCE 0.3% 10,080 SCOR SA (France)........................ 224,755
-----------
LEISURE RELATED 0.3% 4,000 Sankyo Company, LTD (Japan)............. 269,374
-----------
METALS & MINING 2.6% 49,000 Hindalco Industries GDR (a) (India)..... 1,641,500
79,100 Niugini Mining (a) (Australia).......... 242,145
287,000 Pasminco LTD (a) (Australia)............ 400,365
-----------
2,284,010
-----------
OFFICE EQUIPMENT 3.2% 2,900 Canon ADR (Japan)....................... 246,500
149,000 Canon (Japan)........................... 2,531,008
-----------
2,777,508
-----------
OIL & GAS 5.6% 51,000 Elf Aquitaine ADR (France).............. 1,797,750
19,200 Francaise de Petroleum Total (France)... 1,115,953
516,900 Woodside Petroleum LTD (Australia)...... 1,898,832
-----------
4,812,535
-----------
PAPER 3.0% 420,000 Fletcher Challenge LTD (New Zealand).... 984,955
36,650 Metsa Serla B (Finland)................. 1,608,609
-----------
2,593,564
-----------
</TABLE>
40
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
PHOTO & OPTICAL 0.6% 114,000 Pt Modern Photo Film Company
(Indonesia)............................ $ 482,128
-----------
PRINTING & PUBLISHING 1.2% 253,734 News Corporation LTD (Australia)........ 993,051
-----------
RETAIL 1.7% 33,600 York--Benimaru (Japan).................. 1,475,847
-----------
TELECOMMUNICATIONS 3.4% 46,000 Lagardere Groupe (France)............... 1,068,765
61 Nippon Telegraph & Telephone (Japan).... 540,165
31,600 Telefonos de Mexico Cl. L ADR
(Mexico)............................... 1,295,600
-----------
2,904,530
-----------
TEXTILES 0.9% 58,700 Tuntex Distinct GDS (Taiwan)............ 763,100
-----------
TRANSPORTATION 5.7% 188,000 British Airport Authority (United
Kingdom)............................... 1,391,661
150 Danzas Holding AG (Switzerland)......... 135,218
682 East Japan Railway (Japan).............. 3,413,770
-----------
4,940,649
-----------
UTILITIES 3.5% 8,100 ASEA AB (Sweden)........................ 586,988
71,900 Capex SA GDR (a) (c) (Argentina)........ 1,213,313
3,000 Capex SA GDR (a) (Argentina)............ 50,625
140 DDI (Japan)............................. 1,210,172
-----------
3,061,098
-----------
Total Common Stocks (Cost $77,338,313) 73,441,628
-----------
CONVERTIBLE PREFERRED STOCKS 1.2%
BUILDING & CONSTRUCTION 0.7% 6,800 Maclun Holdings AG (Australia).......... 561,468
PRINTING & PUBLISHING 0.5% 126,867 News Corporation Ltd Preferred
(Australia)............................ 437,533
-----------
Total Convertible Preferred Stocks
(Cost $1,154,019)....................... 999,001
-----------
WARRANTS AND OPTIONS 1.5% 40,250 Korean Stock Index Option, Expires
7/1/95 at 100,000 Won (Korea) (b)...... 1,343,302
600 Danza Holding AG., Expires 08/26/96
(Switzerland).......................... 2,406
-----------
Total Warrants and Options (Cost
$1,475,247)............................ 1,345,708
-----------
99.7% Total Investments (Cost $90,208,934).... 85,946,412
0.4% Total Other Assets...................... 384,475
(0.1%) Liabilities............................. (122,332)
-----------
100.0% Total Net Assets........................ $86,208,555
-----------
-----------
<FN>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of Notes to Financial Statements.
(a) Non-income producing security.
(b) Security is illiquid. Investments in illiquid securities with an aggregate
market value of $1,343,302 represent approximately 1.5% of net assets. The
valuation of this investment has been determined under the direction of the
Board of Governors:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION
ISSUE ISSUER DATE PURCHASE PRICE VALUATION
- ------------------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Korean Stock Index Peninsula Trust 7/26/94 $ 36.14 $ 33.37
<FN>
(c) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At December 31,
1994, the value of these securities amounted to $3,263,457 or 3.8% of net
assets.
</TABLE>
See notes to financial statements.
41
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Managed Global Account of Separate Account D (the "Account") was
established on April 18, 1990, by Golden American Life Insurance Company
("Golden American"), under Minnesota insurance law to support the operations of
variable annuity contracts ("Contracts"). Golden American is a wholly-owned
subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned subsidiary of
Bankers Trust Company ("Bankers Trust"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
Operations of the Account commenced on October 21, 1992. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to the Account. The assets of the Account are owned by
Golden American. The portion of the Account's assets applicable to Contracts
will not be chargeable with liabilities arising out of any other business Golden
American may conduct, but obligations of the Account, including the promise to
make benefit payments, are obligations of Golden American.
The Account is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, as a non-diversified open-end
investment company.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the reserves and other contract liabilities with respect to the
Account. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risks under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS VALUATION: The valuation of the Account's assets is determined
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price at which domestic and foreign securities are traded, or, if no sales
are reported, the mean between representative bid and ask quotations obtained
from a quotation reporting system or from established market makers. In other
cases, securities are valued at their fair value as determined in good faith
under the direction of the Board of Governors. The value of a foreign security
is determined in its national currency based upon the price on the pertinent
foreign exchange as of its close of business immediately preceding the time of
valuation. Domestic and foreign denominated debt securities, including those to
be purchased under firm commitment agreements, are normally valued on the basis
of quotes obtained from brokers and dealers or pricing services. Debt
obligations having a maturity of sixty days or less may be valued at amortized
cost unless the Portfolio Manager believes that amortized cost does not
approximate market value.
CURRENCY TRANSLATION: Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency exchange contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar as of the close of business
42
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
immediately preceding the time of valuation. Purchases and sales of portfolio
securities are translated at the rates of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates of
exchange prevailing when accrued. Net realized and unrealized losses on foreign
currency transactions of $1,606,427 and $161,039, respectively, represent
foreign exchange gains and losses from holdings of foreign currencies, options
on foreign currencies, exchange gains and losses realized between the trade and
settlement date on security transactions, and the difference between the amounts
of interest and dividends and expenses recorded on the Account's books and the
U.S. dollar equivalent amounts actually received or paid. The Account does not
separate that portion of the realized and unrealized gains and losses resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of investments.
INVESTMENT INCOME AND SECURITY TRANSACTIONS: Investment transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
Interest income, including the amortization of premiums and discounts, and
estimated expenses are accrued daily. Realized gains and losses from investment
transactions are recorded on an identified cost basis which is the same basis
used for federal income tax purposes.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American, which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. SECURITIES TRANSACTIONS
(a) Purchases and sales of investment securities, excluding short-term
securities and options transactions, during the year ended December 31, 1994,
were $116,075,263 and $83,822,618, respectively.
(b) The Account may enter into repurchase agreements in accordance with
guidelines approved by the Board of Governors. The account bears a risk of loss
in the event that the counterparty to a repurchase agreement defaults on its
obligations and the Account is delayed or prevented from exercising its right to
dispose of the underlying securities collateralizing the repurchase agreement,
including the risk of a possible decline in the value of the underlying
securities during the period while the Series seeks to assure its rights. The
Account takes possession of the collateral, and reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Account enters into repurchase agreements to evaluate potential risks. The
market value of the underlying securities received as collateral must be at
least equal to the total amount of the repurchase obligation. In the event of
counterparty default, the Account has the right to use the underlying securities
to offset the loss.
(c) The Account may write exchange-listed and over-the-counter call and put
options on securities, currencies and other financial investments to enhance
investment performance. When the Account writes a put or call option, the amount
of received premium is included in the Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the current
market value of the option. Premiums received from writing options which expire
unexercised are treated by the Account on the expiration date as realized gains.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security in determining whether the Account has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Account. In writing an option, the Account
bears the market risk of
43
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
unfavorable changes in the price of the security or currency underlying the
written option. Exercise of an option written by the Account could result in the
Account selling or buying a security or currency at a price different from the
current market value.
The Account realized losses on written options of $232,104 for the year
ended December 31, 1994. Transactions in call and put options written for the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
------------ --------------
<S> <C> <C>
CALL OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 276 1,211,700
Options terminated in closing purchase transactions............... (276) (1,211,700)
------------ --------------
Options outstanding at end of period.............................. 0 0
------------ --------------
------------ --------------
PUT OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 181 809,540
Options terminated in closing purchase transactions............... (181) (809,540)
------------ --------------
Options outstanding at end of period.............................. 0 $ 0
------------ --------------
------------ --------------
</TABLE>
In addition, the Account may purchase exchange-traded and over-the-counter
call and put options on securities, currencies and securities indices. The risk
in buying an option is that the Account pays for a premium whether or not the
option is exercised. The Account also has the additional risk of not being able
to enter into a transaction if a liquid secondary market does not exist.
Additionally, the account bears the risk of loss should the counterparty not
perform under the contract.
(d) The Account enters into forward foreign exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward foreign exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the cost of the
original contracts and the amount realized upon the closing of such contracts is
included in realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward foreign currency exchange contracts held
are recorded for financial reporting purposes as unrealized gains or losses by
the Account on a daily basis. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar. At December 31,
1994, the Account had no forward foreign currency exchange contracts
outstanding.
(e) The Account may engage in trading financial futures contracts to hedge
its portfolio holdings or to enhance investment performance. Consequently, the
Account is exposed to market risk as a result of changes in the value of the
underlying financial instruments. Investments in financial futures require the
Account to "mark to market" on a daily basis, which reflects the change in the
market value of the contract at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized gains
or losses. When the contracts are closed, the Account recognizes a realized gain
or loss. These investments require initial margin deposits
44
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
which consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the exchange or
the board of trade on which the contract is traded and is subject to change. At
December 31, 1994, the Account had no open futures contracts.
4. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. The following is a summary of these
charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.35% of the assets attributable
to Contracts to cover these risks.
ASSET BASED ADMINISTRATIVE CHARGE: To compensate Golden American for the
administrative expenses under the Contract, a daily charge at an annual rate of
0.10% is deducted from assets attributable to the Contracts.
PARTIAL WITHDRAWAL CHARGE: A partial withdrawal charge of the lower of 2%
of the withdrawal or $25 is deducted from the accumulation value for each
additional partial withdrawal after the first partial withdrawal in a contract
year.
DEFERRED SALES LOAD: A sales load of 6% is applicable to each premium
payment for sales related expenses as specified in the Contracts. Although the
sales load is chargeable to each premium when it is received by Golden American,
the amount of such charge is initially advanced by Golden American to
Contractowners and included in the accumulation value and then deducted in equal
installments on each Contract processing date over a period of six years. For
the year ended December 31, 1994, contract sales loads of $1,039,651 initially
advanced by Golden American to the Account were deducted from contractowners'
accumulation value. Upon surrender of the Contract, the unamortized deferred
sales load is deducted from the accumulation value by Golden American. In
addition, when partial withdrawal limits are exceeded, a portion of the
unamortized deferred sales load is deducted.
The net assets retained in the Account by Golden American in the
accompanying financial statements represent the unamortized deferred sales load
and premium taxes advanced by Golden American, noted above.
Net Assets Retained in the Account by Golden American are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------- -------------
<S> <C> <C>
Balance at beginning of year........................................................ $ 4,668,658 $ 2,313,333
Sales load advanced................................................................. 1,338,526 2,671,408
Premium tax advanced................................................................ 6,823 5,997
Net transfer (to) from Separate Account B and the Guaranteed Interest Division...... (427,829) 197,052
Amortization of deferred sales load................................................. (1,052,214) (519,132)
------------- -------------
$ 4,533,964 $ 4,668,658
------------- -------------
------------- -------------
</TABLE>
45
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHARGES AND FEES (CONTINUED)
PREMIUM TAXES: Premium taxes are deducted, where applicable, from the
accumulation value of each Contract. The amount and timing of the deduction
depend on the annuitant's state of residence and currently ranges up to 3.5% of
premiums. Premium taxes are generally incurred on the annuity commencement date
and a charge for such premium taxes is then deducted from the accumulation value
on such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity commencement
date. In those states, Golden American advances the amount of the charge for
premium taxes to Contractowners and then deducts it from the accumulation value
in equal installments on each contract processing date over a six year period.
During the year ended December 31, 1994, premium taxes of $6,823 were advanced
by Golden American to Contractowners. Golden American is currently waiving the
deduction of the applicable installments of the charge for premium taxes
previously advanced by Golden American to Contractowners. Golden American
reserves the right to deduct the total amount of the charge for premium taxes
previously waived and unrecovered on the annuity commencement date or upon
surrender of the Contract.
OPERATING EXPENSES: The Account is charged for management expenses by DSI,
the Manager of the Account, based upon the following annual percentage of the
Account's average daily net assets: 0.40% of the first $500 million and 0.30% of
the amount over $500 million. In addition, Zulauf Asset Management AG, the
Account's Portfolio Manager, was paid a monthly advisory fee equal to an annual
rate based upon the following percentages of the Account's average daily net
assets: 0.60% of the first $500 million and 0.50% of the amount over $500
million. The Board of Governors of the Account terminated, effective June 30,
1994, the Portfolio Management Agreement between Zulauf Asset Management AG and
the Account. Effective July 1, 1994, the Board of Governors appointed Warburg
Pincus Counsellors, Inc. ("Warburg") as the new portfolio manager of the
Account. The Account pays Warburg an advisory fee, payable monthly, based on the
average daily net assets of the Account at an annual rate of 0.60% of the first
$500 million and 0.50% on the excess thereof. For the year ended December 31,
1994, the Account incurred management and advisory fees of $333,747 and
$500,620, respectively.
The Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, legal and auditing services, registration fees and other
related operating expenses. Bankers Trust is the custodian of the assets in the
Account. For the year ended December 31, 1994, the Account incurred $84,877 for
custodian fees.
ORGANIZATION EXPENSES: The initial organizational expenses of the Account
of approximately $150,000 were paid by Golden American. The Account reimburses
Golden American for such expenses over a period of five years from the date of
the Account's commencement of operations. At December 31, 1994, the unamortized
balance of such expenses was $94,382.
EXPENSE LIMITATION: The Account and DSI entered into an agreement to limit
the total expenses of the Account, excluding mortality and expense risk charges,
interest expense, and other contractual charges, through December 31, 1994, so
that such expenses do not exceed on an annual basis: 1.25% of the first $500
million of the average daily net assets 1.05% of the excess over $500 million.
For the year ended December 31, 1994, $71,175 was reimbursed by DSI to the
Account pursuant to this limitation. Such agreement was extended under the same
terms through December 31, 1995.
46
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer, acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For the
years ended December 31, 1994 and 1993, fees paid by Golden American to DSI in
connection with sales of the contracts aggregated approximately $1,343,000 and
$3,070,000, respectively.
6. NET RETURN
The following table shows the net return as a percentage of average net
assets with respect to the Account for the years ended December 31, 1994 and
1993, and the period October 21, 1992 (commencement of operations) to December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992*
--------- --------- ---------
<S> <C> <C> <C>
Investment income................................................................... 2.00% 1.97% 0.62%
Expense charges..................................................................... 2.31 2.42 0.36
--------- --------- ---------
Net investment income (loss)........................................................ (0.31) (0.45) 0.26
Net realized and unrealized (loss) gain on investments.............................. (13.26) 6.19 (.18)
--------- --------- ---------
Net return.......................................................................... (13.57)% 5.74% 0.08%
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
*Not annualized.
</TABLE>
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Golden
American Life Insurance Company (the "Company") as of December 31, 1994 and
1993, and the related statutory-basis statements of operations, capital and
surplus, and cash flow for the years then ended. These financial statements
are the responsibility of the Company's 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.
The Company presents its 1994 and 1993 financial statements in conformity
with accounting practices prescribed or permitted by the Department of
Insurance of the State of Delaware. The variances between such practices and
generally accepted accounting principles and the effects on the accompanying
financial statements are described in Notes 2 and 4.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, or the results
of its operations or its cash flow for the years then ended. However, in our
opinion, the supplementary information included in Note 4 presents fairly, in
all material respects, stockholder's equity at December 31, 1994 and 1993,
and net income (loss) for the years ended December 31, 1994 and 1993, in
conformity with generally accepted accounting principles.
48
<PAGE>
Also, in our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, and the results
of its operations and its cash flow for the years then ended in conformity with
accounting practices prescribed or permitted by the Department of Insurance
of the State of Delaware for the years ended December 31, 1994 and 1993.
February 14, 1995
49
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $2,673,223 $ 2,127,036
Short-term investments 13,933,550 15,231,954
Common stock 15,609 321,842
Funds held in escrow pursuant to an Exchange Agreement 2,757,467 1,375,000
Cash 3,315,768 4,075,718
Policy loans 513,350 144,529
-------------------------------
23,208,967 23,276,079
Investment income due and accrued 92,423 68,002
Due from reinsurers 14,506,893 162,041
Due from parent and affiliates -- 466,129
Separate account assets 950,291,746 810,150,858
Other assets 80,119 --
Total admitted assets $988,180,148 $834,123,109
-------------------------------
-------------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Policy and contract liabilities:
Insurance and annuity reserves $ 6,036,021 $ 2,389,726
Due to reinsurers 13,860,267 87,977
-------------------------------
19,896,288 2,477,703
Other liabilities:
Due from separate accounts for net transfers (49,758,887) (39,158,451)
Due to parent and affiliates 232,587 --
Accrued expenses and other liabilities 745,569 1,220,619
Adjustable principal amount promissory note, 7.5%, due
1997 438,636 438,636
Borrowed money -- 40,040,278
Asset valuation reserve and interest maintenance reserve 41,598 131,060
-------------------------------
(28,404,209) 2,672,142
Separate account liabilities 950,291,746 810,150,858
-------------------------------
Total liabilities 921,887,537 815,300,703
Capital and surplus:
Common stock, par value $10 per share:
Authorized, issued and outstanding 250,000 shares 2,500,000 2,500,000
Redeemable preferred stock, par value $5,000 per share,
50,000 shares authorized, 10,000 shares issued and
outstanding in 1994 50,000,000 --
Paid-in surplus 42,699,479 33,949,479
Unassigned surplus (deficit) (28,906,868) (17,627,073)
-------------------------------
Total capital and surplus 66,292,611 18,822,406
-------------------------------
Total liabilities and capital and surplus $988,180,148 $834,123,109
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED December 31
1994 1993
-------------------------------
<S> <C> <C>
Premiums and annuity considerations $294,549,961 $505,465,379
Reserve adjustments on reinsurance ceded 12,705,353 --
-------------------------------
307,255,314 505,465,379
Investment income:
Gross investment income 578,107 245,507
Less investment expenses (2,310) (773,443)
-------------------------------
575,797 (527,936)
Amortization of interest maintenance reserve 3,323 14,720
Commissions and expense allowances on
reinsurance ceded 1,140,402 --
Other income -- 8,446
-------------------------------
Total income 308,974,836 504,960,609
Benefits paid or provided:
Annuity benefits 18,263,492 9,591,886
Surrender benefits 86,014,940 26,809,545
Increase (decrease) in insurance and annuity reserves 3,646,295 (59,390)
-------------------------------
107,924,727 36,342,041
Net transfers to separate accounts 178,965,551 434,471,301
Expenses:
Commissions 17,569,333 34,259,911
General insurance expenses 15,838,760 9,337,982
-------------------------------
33,408,093 43,597,893
-------------------------------
Total benefits and expenses 320,298,371 514,411,235
-------------------------------
Net loss from operations before federal income tax
benefit and net realized capital gains (11,323,535) (9,450,626)
Federal income tax benefit -- 16,083
Net realized capital gains 63,500 33,657
-------------------------------
Net loss $(11,260,035) $(9,400,886)
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
51
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
Balance at beginning of year $18,822,406 $12,204,962
Net loss (11,260,035) (9,400,886)
Change in net unrealized appreciation of investments (62,320) 47,856
Change in asset valuation reserve 92,811 (29,526)
Change in non-admitted assets (50,251) --
Issuance of redeemable preferred stock 50,000,000 --
Issuance of common stock -- 1,000,000
Contribution of capital by parent 8,750,000 15,000,000
-------------------------------
Net increase in capital and surplus 47,470,205 6,617,444
-------------------------------
Balance at end of year $66,292,611 $18,822,406
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
52
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations, net $308,461,038 $505,337,943
Policy loans (368,822) 202,132
Investment income, net of interest paid 465,559 (484,512)
Federal income tax benefit recovered -- 16,083
Benefits paid (104,913,778) (36,551,412)
Commissions and other operating expenses (33,764,277) (42,607,803)
Net transfers to separate accounts (189,565,987) (458,548,369)
Other 845,300 (274,409)
-------------------------------
Net cash used in operating activities (18,840,967) (32,910,347)
INVESTING ACTIVITIES
Proceeds from maturity and calling of bonds 321,110 552,100
Proceeds from sale of common stock 313,500 240,492
Cost of bonds acquired (857,274) (543,368)
Cost of common stock acquired (6,087) (260,576)
Investments held in escrow pursuant to an Exchange
Agreement, (net) (1,300,000) (1,375,000)
-------------------------------
Net cash used in investing activities (1,528,751) (1,386,352)
FINANCING ACTIVITIES
Issuance of common stock -- 1,000,000
Issuance of redeemable preferred stock 50,000,000 --
Contribution of capital by parent 8,750,000 15,000,000
Borrowed money (40,438,636) 33,600,000
-------------------------------
Net cash provided by financing activities 18,311,364 49,600,000
-------------------------------
Net (decrease) increase in cash and short-term
investments (2,058,354) 15,303,301
Cash and short-term investments at beginning
of year 19,307,672 4,004,371
-------------------------------
Cash and short-term investments at end of year $17,249,318 $19,307,672
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
53
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a
life insurance company in the District of Columbia and all states except New
York. Effective December 30, 1993, Golden American was redomesticated from
the State of Minnesota to the State of Delaware.
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
Directed Services, Inc. ("DSI"), an affiliate of Golden American, and certain
related assets and contributed them to BTV. The portion of the aggregate
consideration exchanged by Bankers Trust, allocable to Golden American, was
valued at $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated
value of insurance contracts in force and also included the acquisition of
net tangible assets of $.4 million. 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 is contingently supported by a $5 million note payable from
Golden American and a $6 million letter of credit from Bankers Trust. The
Golden American note is secured by a pledge of Golden American's right to
receive certain deferred sales loads. Bankers Trust has estimated that the
contingent liability due from Golden American amounted to $438,636 at
December 31, 1994 and 1993. During 1994 and 1993, Golden American deposited
with an escrow agent $1,300,000 and $1,375,000, respectively, pursuant to
certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly and
indirectly, all the issued and outstanding capital stock of Golden American,
to have at all times statutory capital and surplus of no less than the sum of
(i) $5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994 and 1993, BTV
contributed additional capital and paid-in
54
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. ORGANIZATION (CONTINUED)
surplus of $8,750,000 and $16,000,000, respectively, to Golden American,
including $1,000,000 in 1993 through the issuance of an additional 100,000
shares of common stock. In 1994, Golden American issued $50,000,000 of
preferred stock that was purchased by BTV for $50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements for the years ended December 31, 1994
and 1993 have been prepared on the basis of accounting practices and
procedures prescribed or permitted by the Department of Insurance of the
State of Delaware (the "Department") and the National Association of
Insurance Commissioners ("NAIC"). These practices differ in certain respects
from generally accepted accounting principles ("GAAP"). The more significant
accounting practices followed and, where indicated, their variation from
GAAP, are summarized as follows:
ADMITTED ASSETS
Assets in the accompanying balance sheets are stated at "admitted asset"
values. The term "admitted assets" means the assets are stated at values
required or permitted to be reported to the Department in accordance with the
rules and regulations of the Department and the NAIC.
ACQUISITION
The acquisition of Golden American by Bankers Trust had no effect on the
carrying value of the acquired assets and liabilities reported in the
accompanying statutory-basis financial statements. Under GAAP, the
acquisition of Golden American has been accounted for as a purchase by
Bankers Trust and, accordingly, the acquired assets and the liabilities
assumed were reported at their estimated fair values at the date of
acquisition. In addition, for GAAP purposes Golden American recorded an asset
for the cost assigned to insurance contracts in force, which represents the
value of the right to receive future profits from the life insurance and
annuity policies existing at the acquisition date. Such value is the
actuarially-determined present value of projected future profits from the
acquired contracts discounted at an interest rate of 15%. Cost assigned to
insurance contracts in force is being amortized over the estimated life of
the applicable insurance contracts in relation to estimated future gross
profits with interest at 8%.
55
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The admitted asset values of bonds and stocks have been determined on the
basis prescribed by the NAIC. Such admitted asset values represent
principally amortized cost for bonds (market value--1994: $2,658,448 and 1993:
$2,198,654) and market value for common stocks (cost--1994: $16,429 and 1993:
$260,342).
As prescribed by the NAIC, an Asset Valuation Reserve ("AVR") is required to
be maintained by insurance companies. The AVR is computed in accordance with
a prescribed formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate, and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus. As also prescribed by the NAIC, beginning in 1992, Golden
American adopted an Interest Maintenance Reserve ("IMR") that represents the
net accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity. Under GAAP, the AVR and IMR are not recorded.
Net realized capital gains and losses on investments are included in the
determination of net income using the specific identification method. Through
the use of the IMR such net realized gains and losses may be deferred, net of
applicable capital gains taxes, and amortized into investment income over the
life of the investments sold.
Unrealized gains and losses on stocks are recognized directly in unassigned
surplus. Short-term investments are carried at cost, which, when combined
with accrued interest income, approximates fair value.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden
American provides for variable accumulation and benefits under the policies
and contracts by crediting life and annuity considerations in accordance with
contractholder direction to one or more divisions within various separate
accounts or Golden American's guaranteed interest division. Allocation of
premiums to the guaranteed interest division was discontinued in 1991.
56
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums and annuity considerations are recorded as received and are
presented net of reinsurance premiums of $16.1 million and $.7 million in
1994 and 1993, respectively. Under GAAP, revenues from variable life and
annuity products consist of policy charges for mortality and expense risk,
the cost of insurance and policy administration costs that have been assessed
against policy account balances during the period.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent policy account balances invested in
the guaranteed interest division less the related unamortized portion of the
deferred sales load and other policy charges. Such reserves include
provisions for minimum death benefit guarantees.
Surrender values are not promised in excess of the legally computed reserves.
There was no insurance in-force at December 31, 1994 for which the gross
premiums were less than net premiums.
POLICY BENEFITS
Policy benefits paid or provided include benefit claims incurred in the
period and are net of reinsurance of $2.4 million and $.4 million in 1994 and
1993, respectively. Interest credited rates for the guaranteed interest
division ranged from 4.0% to 5.0% during 1994 and 1993. Under GAAP, policy
benefits that are charged to expense include benefits incurred in the period
in excess of the policy account balances and interest credited to policy
account balances invested in the guaranteed interest division.
ACQUISITION COSTS
Commissions and other costs incurred in acquiring new business are charged to
operations as incurred. Under GAAP, these costs are deferred and are
amortized over the lives of the policies in relation to the present value of
estimated gross profits from policy sales load and investment returns, and
mortality and expense margins.
57
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
The separate accounts are registered investment companies under the
provisions of the Investment Company Act of 1940. At the direction of the
policyowners and contractholders, the separate accounts invest the premium
and annuity considerations from the sale of variable life and annuity
products in either shares of specified mutual funds or directly in other
investment securities. The assets and liabilities of Golden American's
separate accounts are identified and segregated from other assets and
liabilities of Golden American. The portion of the separate account assets
applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
Separate account assets are carried at the net asset value of the underlying
mutual funds, which approximates market value, and generally represent
contractholder and policyowner funds maintained in the accounts and
unamortized deferred sales loads and other charges payable to Golden American
over a specified period. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are not included
in the accompanying statements of operations of Golden American.
A sales load ranging from 0% to 9% in addition to other charges is applicable
to each premium payment for policy related expenses. Although this sales load
is assessed on each premium when it is received by Golden American, such
sales load is initially advanced by Golden American to contractholders and
policyowners and included in the separate or general account assets, as
applicable, and then deducted in equal installments on each contract
processing date over a period specified in the contract or policy. Sales
loads are included in operations when assessed by Golden American. Under
GAAP, these sales loads are earned over the life of the contract in relation
to estimated future gross profits. Sales load amounts that have been deducted
but not yet earned are reported as unearned income.
REINSURANCE
Premiums and policy benefits are reported in the accompanying financial
statements net of reinsurance ceded. Golden American would remain liable to
the extent that any reinsurers do not meet their obligations under the
reinsurance agreements. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts" which was issued
in December 1992, was adopted by Golden American in 1993. However, its
adoption did not have a material impact on the financial statements of Golden
American.
58
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Federal income tax benefits are based on net losses from operations after
adjusting for certain income and expense items, principally differences
between statutory and tax reserves, accrual of bond discount, and specified
policy acquisition expenses that, in accordance with the provisions of the
Internal Revenue Code ("IRC"), are not included in the determination of
current taxable income.
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the IRC. At December 31, 1994
and 1993, Golden American had net operating loss ("NOL") carryforwards for
federal income tax purposes of approximately $17.3 million and $7.3 million,
respectively. Approximately $2.4 million of these NOL's, relating to
operations prior to ownership by Mutual Benefit, can be used to offset future
taxable income of Golden American only through the year 2005, subject to
annual limitations. Approximately $.8 million, $4.1 million and $10.0 million
are available through the years 2007, 2008, and 2009, respectively.
STATEMENTS OF CASH FLOW
For purposes of Golden American's statements of cash flow, all highly liquid
investments with a maturity of one year or less are considered to be
short-term investments.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount
promissory note, and policy and contract liabilities and determined that
carrying amounts reported in the balance sheets approximate fair value.
59
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000,000 under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. Golden American met the RBC requirements as of December 31,
1994 and 1993.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock in 1994. As of December 31, 1994, Dividends in Arrears on
the Redeemable Preferred Stock were $17,917 or $1.79 per share. The
dividends are cumulative and are calculated based on a rate not to exceed the
sum of the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable
at the option of Golden American at the redemption price of $5,000 per share.
Dividend payments to common stockholders are limited by statutory
restrictions issued by the State of Delaware. The maximum amount of
dividends which can be paid by State of Delaware insurance companies to
stockholders without prior approval of the Insurance Commissioner is the
higher of either (a) prior year net income or (b) 10% of ending prior year
surplus. Statutory surplus at December 31, 1994, was $13,792,611. The net
loss for 1994 was $(11,260,035). The maximum dividend payout which may be
made without prior approval in 1995 is $1,379,261. No dividends were paid in
1994.
60
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS (CONTINUED)
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1994 and 1993 and net loss for the years ended December 31, 1994
and 1993 to its statutory-basis capital and surplus and net loss included in
the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME/(LOSS)
--------------------------- -------------------------
1994 1993 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C>
GAAP-basis $ 89,506,318 $ 28,596,888 $ 2,221,748 $ (1,792,700)
Asset valuation reserve/interest
maintenance reserve (41,598) (131,060) 3,323 14,720
Fixed maturities from acquisition (75,609) (96,528) 14,248 4,300
Deferred policy acquisition costs (60,662,000) (42,151,111) (18,510,889) (35,101,494)
Cost assigned to insurance contracts in
force (7,620,000) (9,784,189) 2,164,189 1,356,597
Deferred sales loads and policy charges 49,223,050 42,223,470 6,999,580 26,695,281
Reserves (4,985,212) -- (5,016,676) 563,905
Unearned revenue 1,759,000 164,936 1,594,064 (1,141,495)
Other (811,338) -- (729,622) --
------------ ------------ ------------ ------------
Statutory-basis $ 66,292,611 $ 18,822,406 $(11,260,035) $ (9,400,886)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
5. INVESTMENTS
Investments in debt securities and other fixed maturity investments generally
are held for investment purposes to maturity. Included in short-term
investments at December 31, 1994 and 1993 are $13.9 million and $15.2 million
of debt securities, respectively, issued by the U.S. Government.
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1994:
U.S. Treasury bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
Total bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
-----------------------------------------------
At December 31, 1993:
U.S. Treasury $2,032,905 $68,669 $(4,191) $2,097,383
Corporate securities 94,131 7,140 -- 101,271
-----------------------------------------------
Total bonds $2,127,036 $75,809 $(4,191) $2,198,654
-----------------------------------------------
-----------------------------------------------
</TABLE>
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
5. INVESTMENTS (CONTINUED)
Fair values generally represent quoted market value prices for securities
traded in the public marketplace.
Maturities of long-term bonds are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
-----------------------------
<S> <C> <C>
Due in one year or less $701,048 $688,136
Due after one year through five years 849,927 827,009
Due after five years through ten years 1,122,248 1,143,303
$2,673,223 $2,658,448
-----------------------------
-----------------------------
</TABLE>
Proceeds from the sale of investments in bonds during 1994 and 1993 were
$321,110 and $552,100; gross gains of $6,672 and $24,919 were realized on
those sales, respectively.
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities was $(820) and $61,500, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year ended December 31, 1993, Golden
American incurred $311,121 for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
were sold primarily through two broker/dealer institutions. For 1994 and
1993, commissions paid by Golden American to DSI aggregated $17,569,333 and
$34,259,911, respectively.
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Golden American provided to DSI certain of its personnel to perform
management, administrative, and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,486
and $2,012,969, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
ended December 31, 1993, fees earned by BTV from Golden American for these
services aggregated $2,700,850. The agreement was terminated as of
January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative, and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
ended December 31, 1993, BTV allocated to Golden American $1,503,159. The
agreement was terminated on January 1, 1994.
At December 31, 1994 and 1993, Golden American's cash and short-term
investments on deposit at Bankers Trust were $10,063,172 and $19,307,672,
respectively.
7. REINSURANCE
Variable life and annuity product fees are reported in the accompanying
financial statements net of reinsurance premiums of $16.1 million and
$.7 million in 1994 and 1993, respectively. Effective September 30, 1992,
Golden American terminated all reinsurance agreements with Mutual Benefit.
Concurrently, Golden American entered into agreements covering mortality
risks under both life policies and annuity contracts with an unaffiliated
reinsurer. Also, effective June 1, 1994, Golden American entered into a
reinsurance agreement on a modified coinsurance basis with an unaffiliated
reinsurer. Golden American remains liable to the extent that its reinsurers
do not meet their obligations under the reinsurance agreements. Reinsurance
in-force for life mortality risks were $23.3 million and $15.4 million at
December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and
63
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
7. REINSURANCE (CONTINUED)
1993, respectively. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts," was issued in
December 1992 and adopted by Golden American in 1993. However, its adoption
did not have a material impact on the financial statements of Golden American.
8. LIFE AND ANNUITIES ACTUARIAL RESERVES
The following is a reconciliation of the Life and Annuities actuarial
reserves presented in the 1994 Annual Statements of Golden American and
Golden American Separate Accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT TOTAL
--------------------------------
<S> <C> <C>
1. Subject to discretionary withdrawal
1.1 - with market value adjustment $ -- 0%
----------- -----
1.2 - at book value less current surrender charge of 5%
or more -- 0%
----------- -----
1.3 - at market value -- 0%
----------- -----
1.4 - Total with adjustment or at market value 893,814,295 100%
----------- -----
1.5 - at book value without adjustment (minimal or no
charge or adjustment) 520,244 0%
----------- -----
2. Not subject to discretionary withdrawal -- 0%
----------- -----
3. Total (gross) 894,334,539 100%
----------- -----
4. Reinsurance ceded --
-----------
5. Total (net)* (3) - (4) $894,334,539
-----------
-----------
<FN>
*Reconciliation of total annuity actuarial reserves and deposit fund
liabilities.
</TABLE>
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
8. LIFE AND ANNUITIES ACTUARIAL RESERVES (CONTINUED)
<TABLE>
<S> <C>
Life and Accident and Health Annual Statement:
6. Exhibit 8, Section B, Total (net) $ 520,244
------------
7. Exhibit 8, Section C, Total (net) --
------------
8. Exhibit 10, Column 1, Line 12 --
------------
9. Subtotal 520,244
------------
Separate Accounts Statement:
10. Exhibit 6, Column 2, Line B.10 893,814,295
------------
11. Exhibit 6, Column 2, Line C.5 --
------------
12. Page 3, Line 3 --
------------
13. Page 3, Line 3 --
------------
14. Subtotal 893,814,295
------------
15. Combined total $894,334,539
------------
------------
</TABLE>
9. BORROWED MONEY
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
10. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
Golden American's employees are covered under the Parent's benefit plans.
The noncontributory pension plan and the profit sharing plan of the Parent
are also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were approximately $207,000.
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
11. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. BTV, an indirect subsidiary of Bankers Trust, is
the corporate parent of the Company and DSI. The acquisition is subject to
the approval of the appropriate regulators. First Colony is the corporate
parent of two insurance companies, First Colony Life Insurance Company and
American Mayflower Life Insurance Company, which together provide life
insurance and annuity products throughout the United States. The agreement
was amended to extend to June 15, 1995, the date at which either party may
terminate the agreement if the closing has not occurred by such time.
66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying balance sheets of Golden American Life
Insurance Company (the Company) as of December 31, 1994 and 1993 and the
related statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1994 and 1993 and for the period from
September 30, 1992 (date of acquisition) to December 31, 1992. These financial
statements are the responsibility of the Company's 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 financial position of Golden American Life Insurance
Company at December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years ended December 31, 1994 and 1993 and for the period
from September 30, 1992 to December 31, 1992, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted, as of
December 31, 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
February 14, 1995
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
---------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost
(market--$2,659 and $2,199) $ 2,749 $ 2,224
Short-term investments, at cost, which approximates market 13,933 15,232
Equity securities, at market (cost--$17 and $260) 16 322
Policy loans 513 144
-------------------------
Total investments 17,211 17,922
Cash 3,316 4,076
Accrued investment income 92 68
Due from affiliates and separate accounts 963 466
Deferred policy acquisition costs 60,662 42,151
Unamortized cost assigned to insurance contracts in force 7,620 9,784
Funds held in escrow pursuant to an Exchange Agreement 2,757 1,375
Due from reinsurers 1,713 162
Other assets 134 --
Separate account assets 950,292 810,151
-------------------------
Total assets $1,044,760 $886,155
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves (including $17 and $31
of unamortized deferred sales load) $ 1,051 $ 2,421
Due to affiliates and separate accounts 660 3,462
Accrued expenses and other liabilities 1,053 920
Short-term debt -- 40,000
Unearned revenue 1,759 165
Adjustable principal amount promissory note,
7.50%, due 1997 439 439
Separate account liabilities (including
$48,924 and $42,192 of unamortized
deferred sales load) 950,292 810,151
-------------------------
Total liabilities 955,254 857,558
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share, authorized,
issued, and outstanding 250,000 shares 2,500 2,500
Redeemable preferred stock, par value $5,000
per share, 50,000 shares authorized,
10,000 issued and outstanding in 1994 50,000 --
Additional paid-in capital 37,086 28,336
Unrealized (depreciation) appreciation of equity
securities (1) 62
Retained earnings (deficit) (79) (2,301)
-------------------------
Total stockholder's equity 89,506 28,597
-------------------------
Total liabilities and stockholder's equity $1,044,760 $886,155
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
REVENUES
Variable life and annuity product fees and policy
charges $ 17,519 $10,192 $ 694
Net investment income 560 216 67
Realized capital gain (loss) 65 35 (2)
-----------------------------------------------------
Total revenues 18,144 10,443 759
EXPENSES
Policy benefits 35 1,747 34
Commissions and overrides 16,741 34,260 6,429
Salaries, benefits and other employee-
related costs 5,866 -- --
Financing charges and interest 1,962 726 53
Other general, administrative, and
operating expenses 7,665 9,248 1,662
Deferral of policy acquisition costs (23,119) (37,129) (7,059)
Amortization of deferred policy acquisition
costs 4,608 2,027 10
Amortization of cost assigned to insurance
contracts in force 2,164 1,357 138
-----------------------------------------------------
Total expenses 15,922 12,236 1,267
-----------------------------------------------------
Net income (loss) $ 2,222 $ (1,793) $ (508)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD SEPTEMBER 30, 1992 TO DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
UNREALIZED
SHARES SHARES ADDITIONAL APPRECIATION RETAINED TOTAL
COMMON PREFERRED COMMON PREFERRED PAID-IN OF EQUITY EARNINGS STOCKHOLDER'S
STOCK STOCK STOCK STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1992 (date of
acquisition) 150,000 $1,500 $13,336 $14,836
Net loss $ (508) (508)
Unrealized appreciation of equity securities $ 14 14
------------------------------------------------------------------------------------
Balances at December 31, 1992 150,000 1,500 13,316 14 (508) 14,342
Issuance of common stock 100,000 1,000 1,000
Contribution of capital 15,000 15,000
Net loss (1,793) (1,793)
Change in unrealized appreciation of
equity securities 48 -- 48
------------------------------------------------------------------------------------
Balances at December 31, 1993 250,000 2,500 -- 28,336 62 (2,301) 28,597
Issuance of preferred stock 10,000 50,000 50,000
Contribution of capital 8,750 8,750
Net income 2,222 2,222
Change in unrealized depreciation of equity
securities (63) (63)
------------------------------------------------------------------------------------
Balances at December 31, 1994 250,000 10,000 $2,500 $50,000 $37,086 $(1) $ 79 $89,506
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,222 $ (1,793) $(508)
Adjustments to reconcile net income (loss)
to net cash used in
operating activities:
Amortization of deferred policy
acquisition costs 4,608 2,027 10
Amortization of cost assigned
to insurance contracts in force 2,164 1,357 138
Change in unearned revenue 1,594 (1,141) (136)
Increase in accrued investment income (24) (1) (13)
Change in due to/from affiliates and
separate accounts (3,299) 2,976 (81)
Changes in other assets, accrued expenses
and other liabilities (1,552) 42 (154)
Policy acquisition costs deferred (23,119) (37,129) (7,059)
Change in insurance and annuity reserves (1,370) 550 45
Amortization of premium on fixed maturity
investments 13 -- --
-----------------------------------------------------
Net cash used in operating activities (18,763) (33,112) (7,758)
INVESTING ACTIVITIES
Purchases of fixed maturities (857) (543) (151)
Sales of fixed maturities 319 552 1,177
Purchases of common stock (7) (260) (2)
Sales of common stock 250 240 --
(Increase) decrease in policy loans (369) 202 (29)
Funds held in escrow pursuant to
an Exchange Agreement (1,382) (1,375) --
-----------------------------------------------------
Net cash (used in) provided by
investing activities (2,046) (1,184) 995
FINANCING ACTIVITIES
(Retirement) issuances of short-term debt (40,000) 33,600 6,400
Issuance of common stock -- 1,000 --
Issuance of preferred stock 50,000 -- --
Contribution of capital by parent 8,750 15,000 --
-----------------------------------------------------
Net cash provided by financing activities 18,750 49,600 6,400
-----------------------------------------------------
Net (decrease) increase in cash and
short-term investments (2,059) 15,304 (363)
Cash and short-term investments at
beginning of year 19,308 4,004 4,367
-----------------------------------------------------
Cash and short-term investments at
end of year $17,249 $19,308 $4,004
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance Company
in Rehabilitation ("Mutual Benefit"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at
approximately $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of insurance contracts in force and also included the acquisition of net
tangible assets of $.4 million. 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
is contingently supported by a $5 million note payable from Golden American and
a $6 million letter of credit from Bankers Trust. The Golden American note is
secured by a pledge of Golden American's right to receive certain deferred sales
loads. Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993. Golden American
deposited with an escrow agent $1,300,000 and $1,375,000, in 1994 and 1993,
respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994, 1993, and 1992, BTV
contributed additional capital and paid-in surplus of $8,750,000, $16,000,000,
and $3,200,000, respectively, to Golden American, including $1,000,000 in 1993
through the issuance of an additional 100,000 shares of common stock. In 1994,
Golden American issued $50,000,000 of preferred stock that was purchased by BTV
for $50,000,000 in cash.
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been presented in accordance with
generally accepted accounting principles ("GAAP"). The acquisition of Golden
American has been accounted for as a purchase by Bankers Trust and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair values
at September 30, 1992. In accordance with requirements of the Securities and
Exchange Commission, this new basis of accounting has been "pushed down" to
Golden American.
INVESTMENTS
Fixed maturities are carried at amortized cost. Short-term investments are
carried at cost, which approximates market. Equity securities, principally
investments in mutual funds, are carried at market based on quoted market
prices. Net unrealized appreciation of equity securities is included as a
component of stockholder's equity. The cost of investments sold is determined by
using the specific identification method.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible premium
variable life insurance policies and annuity products. Golden American provides
for variable accumulation and benefits under the policies and contracts by
crediting life and annuity considerations in accordance with contractholder
direction to one or more divisions within various separate accounts or Golden
American's guaranteed interest division. Allocation of premiums to the
guaranteed interest division was discontinued in 1991.
SEPARATE ACCOUNTS
The separate accounts are registered under the provisions of the Investment
Company Act of 1940. At the direction of the policyowners and contractholders,
the separate accounts invest the premium and annuity considerations from the
sale of variable life and annuity products either in shares of specified mutual
funds or directly in other investments. The assets and liabilities of Golden
American's separate accounts are clearly identified and segregated from other
assets and liabilities of Golden American. The portion of the separate account
assets applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS (CONTINUED)
Separate account assets are carried at net asset value, which approximates
market value and generally represent policyowner and contractholder investment
values maintained in the accounts and unamortized deferred sales loads and other
charges payable to Golden American over a specified period. Separate account
liabilities represent account balances for the variable life policies and
annuity contracts invested in the separate accounts, which include unamortized
deferred sales loads. 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 of Golden American.
REVENUE RECOGNITION
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, the cost of insurance and contract administration
charges that have been assessed against account balances during the period. In
addition, a sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for contract related expenses. Although such
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the general or separate account assets, as
applicable, and then deducted or amortized in equal installments on each
contract processing date over a period specified in the contract or policy.
These sales loads are earned over the life of the insurance contract in relation
to estimated future gross profits using methods and assumptions similar to those
for cost assigned to insurance contracts in force. Sales loads that have been
deducted but not yet earned are reported as unearned revenue.
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE
The cost assigned to insurance contracts in force represents the value of the
right to receive future profits from the life insurance and annuity policies
existing at the acquisition date. Such value is the actuarially-determined
present value of projected future profits from the acquired contracts discounted
at an interest rate of 15%. Cost assigned to insurance contracts in force is
being amortized over the estimated life of the applicable insurance contracts in
relation to estimated future gross profits with interest at 8%.
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE (CONTINUED)
The following is a reconciliation of the costs assigned to insurance contracts
in force for the years ended December 31, 1994, 1993, and the period September
30, 1992 to December 31, 1992:
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 9,784,000 $11,140,000 $11,278,000
Interest accrued 696,000 942,000 244,000
Amortization (2,860,000) (2,298,000) (382,000)
-------------------------------------------------------
Ending balance $ 7,620,000 $ 9,784,000 $11,140,000
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The following table presents the expected amortization of the cost assigned to
insurance contracts in force over the next five years. The amortization may be
adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<S> <C>
1995 $1,481,000
1996 1,232,000
1997 1,156,000
1998 936,000
1999 580,000
</TABLE>
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and are
directly related to the production of new and renewal business. Acquisition
costs for variable life and annuity products are being amortized over the lives
of the policies in relation to the present value of estimated future gross
profits. The future gross profit estimates are subject to periodic evaluation
with necessary revisions applied against amortization to date.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent variable life and annuity account
balances invested in the guaranteed interest division. Interest credited rates
for this division ranged from 4.0% to 5.0% during 1994 and 1993.
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY BENEFITS
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited to
policy account balances invested in the guaranteed interest division.
REINSURANCE
Included in the accompanying financial statements are net considerations to
reinsurers of $2.4 million and $.7 million in 1994 and 1993, respectively.
Effective September 30, 1992, Golden American terminated all reinsurance
agreements with Mutual Benefit. Concurrently, Golden American entered into
agreements covering mortality risks under both life policies and annuity
contracts with an unaffiliated reinsurer. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance in-force for life mortality risks were $23.6 million and
$15.4 million at December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and 1993, respectively.
FASB Statement No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts," was adopted by Golden American in 1993.
However, its adoption did not have a material impact on the financial statements
of Golden American.
Also effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects of the treaty
which reduced 1994 net income by $27,000.
CASH EQUIVALENTS
The Company considers all short-term investments (including commercial paper,
money markets, and certificates of deposit) with a maturity of three months or
less when purchased to be cash equivalents.
PRESENTATION
Certain prior-year balances have been reclassifed to conform to the current-year
financial statement presentation.
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally short-term
investments, policy loans, the adjustable principal amount promissory note, and
insurance and annuity reserves and determined that carrying amounts reported in
the balance sheets approximate fair value.
4. INVESTMENTS
Effective with the December 31, 1993 financial statements, Golden American
adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its fixed maturities as held to maturity
based on its intent and ability to hold them to maturity. The adoption of FASB
Statement No. 115 had no impact on Golden American's financial statements. The
major categories of investment income for 1994, 1993, and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities held to maturity $142 $114 $47
Short-term investments 226 90 14
Equity securities 1 1 2
Policy loans 11 11 4
Cash 99 -- --
Funds held in escrow 83 -- --
-----------------------
Gross investment income 562 216 67
Investment expenses (2)
-----------------------
Net investment income $560 $216 $67
-----------------------
-----------------------
</TABLE>
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
--------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1994:
U.S. Treasury securities $16,682 $(90) $16,592
--------------------------------------
--------------------------------------
At December 31, 1993:
U.S. Treasury securities $17,357 $(27) $17,330
Corporate securities 99 2 101
--------------------------------------
$17,456 $(25) $17,431
--------------------------------------
--------------------------------------
</TABLE>
77
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $14,634 $14,622 $15,454 $15,452
Due after one year through five years 850 827 793 791
Due after five years through ten years 1,198 1,143 1,209 1,188
---------------------------------------------------
$16,682 $16,592 $17,456 $17,431
---------------------------------------------------
---------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities recognized directly in stockholder's equity
was $(1,000) and $62,000, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
5. STOCKHOLDER'S EQUITY
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain of the jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total statutory-
basis capital and surplus of not less than $5,000,000 under the provisions of
the insurance laws of certain states in which it is presently licensed to sell
variable life and annuity products. Dividend payments by Golden American are
limited by statutory restrictions to the higher of 10% of surplus or 100% of the
prior year s net gain, not to exceed unassigned surplus, subject to the broad
discretionary powers of insurance regulatory authorities to further limit
dividend payments of insurance companies.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1994 and 1993, Golden American met the RBC
requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock. As of December 31, 1994, Dividends in Arrears on the
Redeemable Preferred Stock were $17,917 or $1.79 per share. The dividends
are cumulative and are calculated based on a rate not to exceed the sum of
the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable at the
option of Golden American at the redemption price of $5,000 per share.
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
1993 and the period from September 30, 1992 to December 31, 1992, fees earned
by BTV from Golden American for these services aggregated $2,701,000 and
$209,000, respectively. The agreement was terminated as of January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
1993 and the period from September 30, 1992 to December 31, 1992, BTV
allocated to Golden American $1,503,000 and $450,000, respectively. The
agreement was terminated on January 1, 1994.
Golden American's cash is on deposit at Bankers Trust.
79
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code (the
"Code"). At December 31, 1994 and 1993, Golden American had net operating
loss ("NOL") carryforwards for federal income tax purposes of approximately
$17.3 million and $7.3 million, respectively. Approximately $2.4 million of
these NOL s, relating to operations prior to ownership by Mutual Benefit, can
be used to offset future taxable income of Golden American only through the
year 2005, subject to annual limitations. Approximately $.8 million, $4.1
million and $10.0 million are available through the years 2007, 2008, and
2009, respectively.
Significant components of Golden American s deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $21,200 $14,800
Unamortized cost assigned to insurance
contracts in force 2,700 3,400
-------------------
23,900 18,200
Deferred tax assets:
Net operating loss carryforwards 6,000 2,400
Insurance liabilities 15,200 14,800
Deferred policy acquisition costs
proxy tax 3,700 2,900
Other 700 --
-------------------
25,600 20,100
Valuation allowance for deferred tax assets 1,700 1,900
-------------------
Net deferred tax liabilities $ $
-------------------
-------------------
</TABLE>
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The differences between the provision (benefit) for income taxes at the
federal statutory income tax rate and the taxes based on income (loss) were
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 34%
-------------------------
-------------------------
Taxes at statutory rate $ 778 $(627) $(173)
Dividends received deduction (368) (194) --
Other, net (210) (379) (92)
Valuation allowance (200) 1,200 265
-------------------------
Taxes based on income (loss) $ -- $ -- $ --
-------------------------
-------------------------
</TABLE>
8. SHORT-TERM DEBT
At December 31, 1993, Golden American had short-term debt outstanding with an
unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
9. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
The Company s employees are covered under the Parent s benefit plans. The
noncontributory pension plan and the profit sharing plan of the Parent are
also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were $.2 million.
10. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. The acquisition is subject to the approval of the
appropriate regulators. First Colony is the corporate parent of two insurance
companies, First Colony Life Insurance Company and American Mayflower Life
Insurance Company, which together provide life insurance and annuity products
throughout the United States. The agreement was amended to extend to June
15, 1995, the date at which either party may terminate the agreement if the
closing has not occurred by such time.
81
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GOLDENSELECT DVA SERIES 100
DEFERRED VARIABLE
ANNUITY CONTRACT
issued by
SEPARATE ACCOUNT B ("Account B")
and
SEPARATE ACCOUNT D ("Account D")
(collectively, the "Accounts")
of
GOLDEN AMERICAN LIFE INSURANCE COMPANY
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THE
INFORMATION CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS FOR THE GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED
VARIABLE ANNUITY CONTRACT WHICH IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT
TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, SEND A WRITTEN
REQUEST TO GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE
CENTER, P.O. BOX 8794, WILMINGTON, DE 19899-8794 OR TELEPHONE 1-800-366-0066.
DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
INTRODUCTION............................................................ 1
PART I
Description of Golden American Life Insurance Company................... 1
Safekeeping of Assets................................................... 1
The Administrator....................................................... 1
Independent Auditors.................................................... 1
Reinsurance............................................................. 2
Distribution of Contracts............................................... 2
Performance Information................................................. 2
IRA Partial Withdrawal Option........................................... 5
Other Information....................................................... 6
PART II
Securities and Investment Techniques.................................... 6
U.S. Government Securities........................................... 6
Debt Securities...................................................... 7
Short Sales Against the Box.......................................... 7
Futures Contracts and Options on Futures Contracts................... 7
Options on Securities................................................ 8
Options of Securities Indexes........................................ 9
Foreign Currency Transactions........................................ 9
Options on Foreign Currencies........................................ 10
Repurchase Agreements................................................ 11
Banking Industry and Savings Industry Obligations.................... 11
Commercial Paper..................................................... 12
When Issued or Delayed Delivery Securities........................... 12
Investment Restrictions................................................. 12
Management of Separate Account of Account D............................. 14
The Manager............................................................. 15
Portfolio Manager....................................................... 16
Custodian and Portfolio Accounting Agent................................ 16
Portfolio Transactions and Brokerage.................................... 16
Purchase and Pricing of the Global Account.............................. 17
Financial Statements.................................................... 19
Appendix - Description of Bond Ratings
<PAGE>
INTRODUCTION
Part I of this Statement of Additional Information provides background
information regarding Account B and Account D. Part II of this Statement of
Additional Information (beginning on page 7) provides information regarding
the investment activities of Account D and The Managed Global Account (the
"Global Account"), including its investment policies.
PART I
DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior
to December 30, 1993, Golden American was a Minnesota corporation. From
January 2, 1973 through December 31, 1987, the name of the company was St.
Paul Life Insurance Company. On December 31, 1987, after all of St. Paul
Life Insurance Company's business was sold, the name was changed to Golden
American. On March 7, 1988, all of the stock of Golden American was acquired
by The Golden Financial Group, Inc. ("GFG"), a financial services holding
company. On October 19, 1990, GFG merged with and into MBL Variable, Inc.
("MBLV"), a wholly owned direct subsidiary of The Mutual Benefit Life
Insurance Company ("MBL"). On January 1, 1991, MBLV became a wholly owned
indirect subsidiary of MBL and Golden American became a wholly owned direct
subsidiary of MBL. Golden American's name had been changed to MB Variable
Life Insurance Company in the state of Minnesota but subsequently has been
changed back to Golden American. In a transaction that closed on September
30, 1992, Golden American was acquired by a subsidiary of Bankers Trust
Company ("Bankers Trust"). As of December 31, 1994, Golden American had over
$89.5 million in stockholders' equity and approximately $1.04 billion in
total assets, including approximately $950.3 million of separate account
assets. Golden American is authorized to do business in all jurisdictions
except New York. Golden American offers variable annuities and variable life
insurance.
SAFEKEEPING OF ASSETS
Golden American acts as its own custodian for Account B.
THE ADMINISTRATOR
Effective January 1, 1994, 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) has 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 are reimbursed by Golden
American on an allocated cost basis. Charges billed to Golden American by
Bankers Trust (Delaware) pursuant to the service agreement were $816,264 for
1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and administration of its products. For
the year 1993 and the period from September 30, 1992 to December 31, 1992,
fees earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its personnel
to perform management, administrative and clerical services and the use of
certain of its facilities. BT Variable charged Golden American for such
expenses and all other general and administrative costs, first on the basis
of direct charges when identifiable, and second allocated based on the
estimated amount of time spent by BT Variable's employees on behalf of Golden
American. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, BT Variable allocated to Golden American $1,503,000 and
$450,000, respectively. The agreement was terminated on January 1, 1994.
During 1994, such expenses were allocated directly by BT New York Corporation
to Golden American and totaled $1,395,966 for the year.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, NY 10019, independent
auditors, will perform annual audits of Golden American and the Accounts.
1
<PAGE>
REINSURANCE
Golden American reinsures its mortality risk associated with the guaranteed
death benefit with Security Life of Denver Insurance Company ("Security Life
Reinsurance").
DISTRIBUTION OF CONTRACTS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from
September 30, 1992 to December 31, 1992, Golden American incurred $311,000
and $35,000, respectively, for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
PERFORMANCE INFORMATION
Performance information for the divisions of Account B and the Global
Account, including the yield and effective yield of the Liquid Asset
Division, the yield of the remaining divisions and the Global Account, and
the total return of all divisions, may appear in reports or promotional
literature to current or prospective owners. Negative values are denoted by
parentheses. Performance information for measures other than total return do
not reflect sales load which can have a maximum level of 6.5% of premium, and
any applicable premium tax that can range from 0% to 3.5%.
SEC STANDARD MONEY MARKET DIVISION YIELDS
Current yield for the Liquid Asset Division will be based on the change in
the value of a hypothetical investment (exclusive of capital changes) over a
particular 7-day period, less a pro-rata share of division expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The
base period return is then annualized by multiplying by 365/7, with the
resulting yield figure carried to at least the nearest hundredth of one
percent. Calculation of "effective yield" begins with the same "base period
return" used in the calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return) +1) (365/7)] - 1
For the 7-day period December 24, 1994 to December 31, 1994, the current
yield of the Liquid Asset Division was 3.89% and the effective yield of the
Division was 3.97%.
SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET DIVISIONS
Quotations of yield for the remaining divisions will be based on all
investment income per Unit (accumulation value divided by the index of
investment experience) earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an accumulation
unit on the last day of the period, according to the following formula:
2
<PAGE>
YIELD = 2 [ ( a - b +1)(6) - 1]
-----
cd
Where:
[a] equals the net investment income earned during the period by the
Series attributable to shares owned by a division
[b] equals the expenses accrued for the period (net of reimbursements)
[c] equals the average daily number of Units outstanding during the
period based on the index of investment experience
[d] equals the value (maximum offering price) per index of investment
experience on the last day of the period
Yield on divisions of Account B is earned from the increase in net asset
value of shares of the Series in which the Division invests and from
dividends declared and paid by the Series, which are automatically reinvested
in shares of the Series. Yield on the Global Account is earned from the
increase in asset value of shares of the securities in which the Global
Account invests.
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of average annual total return for any division will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and 10 years (or, if
less, up to the life of the division), calculated pursuant to the formula:
P(1+T)(n)=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical
$1,000 initial premium payment made at the beginning of the
period (or fractional portion thereof)
All total return figures reflect the deduction of the maximum sales load, the
asset based administrative charge, and the mortality and expense risk charge.
The SEC requires that an assumption be made that the contract owner
surrenders the entire contract at the end of the one, five and 10 year
periods (or, if less, up to the life of the security) for which performance
is required to be calculated. This assumption may not be consistent with the
typical contract owner's intentions in purchasing a contract and may
adversely affect returns. Quotations of total return may simultaneously be
shown for other periods, as well as quotations of total return that do not
take into account certain contractual charges such as sales load.
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- STANDARDIZED
<TABLE>
<CAPTION>
One Year Period Five Year Period Inception to
Division Ending 12/31/94 Ending 12/31/94 12/31/94 Inception Date
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -3.16% 5.04%* 5.45%* 1/25/89
Fully Managed -9.17% 3.75%* 3.50%* 1/25/89
Capital Appreciation -3.57% N/A 4.36%* 5/4/92
Rising Dividends -1.41% N/A 0.58% 10/4/93
All-Growth -12.63% 1.22%* 1.91%* 1/25/89
Real Estate 4.26% 6.46%* 4.85%* 1/25/89
Natural Resources 0.50% 2.44%* 4.85%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -16.97% N/A 2.07% 10/4/93
Limited Maturity Bond -3.17% 3.71%* 4.45%* 1/25/89
Global Account -14.52%* N/A -5.11%* 10/21/92
<FN>
- ---------------------
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
3
<PAGE>
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of non-standard average annual total return for any division will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five and 10 years
(or, if less, up to the life of the division), calculated pursuant to the
formula:
[P(1+T)(n)]=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
initial premium payment made at the beginning of the period (or
fractional portion thereof) assuming certain loading and charges are
zero.
All total return figures reflect the deduction of the mortality and expense
risk charge and the administrative charges, but not the deduction of the
maximum sales load.
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- NON-STANDARDIZED
<TABLE>
<CAPTION>
One Year Period Five Year Period Inception to
Division Ending 12/31/94 Ending 12/31/94 12/31/94 Inception Date
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -2.51% 5.61%* 6.01%* 1/25/89
Fully Managed -8.52% 4.33%* 4.08%* 1/25/89
Capital Appreciation -2.92% N/A 5.04%* 5/4/92
Rising Dividends -0.76% N/A 1.62% 10/4/93
All-Growth -11.98% 1.81%* 2.51%* 1/25/89
Real Estate 4.91% 7.10%* 5.51%* 1/25/89
Natural Resources 1.15% 3.16%* 5.49%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -16.32% N/A 3.02% 10/4/93
Limited Maturity Bond -2.52% 4.29%* 5.01%* 1/25/89
Global Account -13.87%* N/A -4.56%* 10/21/92
<FN>
____________________________
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a
pertinent group of securities so that investors may compare a division's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which
ranks mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank such investment companies on overall
performance or other criteria; and (iii) the Consumer Price Index (measure
for inflation) to assess the real rate of return from an investment in the
Contract. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs
and expenses.
Performance information for any division reflects only the performance of a
hypothetical Contract under which accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the Account B divisions invest and the
securities in which the Global Account invests, and the market conditions
during the given time period, and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other information
including the ranking of any division derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on
overall performance or other criteria.
4
<PAGE>
PUBLISHED RATINGS
From time to time, the rating of Golden American as an insurance company by
A.M. Best may be referred to in advertisements or in reports to contract
owners. Each year the A.M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to
the norms of the life/health insurance industry. Best's ratings range from
A+ to C. An A+ rating means, in the opinion of A.M. Best, that the insurer
has demonstrated the strongest ability to meet its respective policyholder
and other contractual obligations.
PORTFOLIO TURNOVER
For reporting purposes, the Global Account's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value
of the portfolio securities owned by the Global Account during the fiscal
year. In determining such portfolio turnover, all securities whose
maturities at the time of acquisition were one year or less are excluded. A
100% portfolio turnover rate would occur, for example, if all the securities
in the portfolio (other than short-term securities) were replaced once during
the fiscal year.
INDEX OF INVESTMENT EXPERIENCE
The calculation of the Index of Investment Experience ("IIE") is discussed in
the prospectus for the Contracts under Measurement of Investment Experience.
The following illustrations show a calculation of a new IIE and the purchase
of Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF IIE
Example 1.
- ----------
1. IIE, beginning of period.....................................$1.80000000
2. Value of securities, beginning of period..........................$21.20
3. Change in value of securities.......................................$.50
4. Gross investment return (3) divided by (2)......................02358491
5. Less daily mortality and expense charge.........................00003446
6. Less asset based administrative charge..........................00000276
7. Net investment return (4) minus (5) minus (6)...................02354769
8. Net investment factor (1.000000) plus (7).....................1.02354769
9. IIE, end of period (1) multiplied by (8).....................$1.84238584
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 2.
- ---------
1. Initial Premium Payment..........................................$100.00
2. IIE on effective date of purchase (see Example 1).............$1.8000000
3. Number of Units purchased [(1) divided by (2)]..................55.55556
4. IIE for valuation date following purchase (see Example 1)....$1.84238584
5. Accumulation Value in account for valuation date following
purchase [(3) multiplied by (4)].................................$102.35
IRA PARTIAL WITHDRAWAL OPTION
If the contract owner has an IRA contract and will attain age 70 1/2 in the
current calendar year, distributions will be made to you in accordance with
the requirements of Federal tax law. This option is available to assure that
the required minimum distributions from qualified plans under the Internal
Revenue Code (the "Code") are made. Under the Code, distributions must begin
no later than April 1st of the calendar year following the calendar year in
which the contract owner attains age 70 1/2. If the required minimum
distribution is not withdrawn, there may be a penalty tax in an amount equal
to 50% of the difference between the amount required to be withdrawn and the
amount actually withdrawn. Even if the IRA partial
5
<PAGE>
withdrawal option is not elected, distributions must nonetheless be made in
accordance with the requirements of Federal tax law.
Golden American notifies the contract owner of these regulations with a
letter mailed on January 1st of the calendar year in which the contract owner
reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and
supplies an election form. If the contract owner chooses to elect this
option, he or she specifies whether the withdrawal amount will be based on a
life expectancy calculated on a single life basis (contract owner's life
only) or, if the contract owner is married, on a joint life basis (contract
owner's and spouse's life combined). The contract owner selects the payment
mode on a monthly, quarterly or annual basis. If the payment mode selected
on the election form is more frequent than annually, the payments in the
first calendar year in which the option is in effect will be based on the
amount of payment modes remaining when Golden American receives the completed
election form.
Golden American calculates the IRA Partial Withdrawal amount each year
based on the minimum distribution rules. We do this by dividing the
accumulation value by the life expectancy. In the first year withdrawals
begin, we use the accumulation value as of the date of the first payment.
Thereafter, we use the accumulation value on December 31st of each year. The
life expectancy is recalculated each year. Certain minimum distribution
rules govern payouts if the designated beneficiary is other than the contract
owner's spouse and the beneficiary is more than ten years younger than the
contract owner.
OTHER INFORMATION
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of
the information set forth in the registration statements, amendments and
exhibits thereto has been included in this Statement of Additional
Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal
instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed
with the Securities and Exchange Commission.
PART II
SECURITIES AND INVESTMENT TECHNIQUES
This description of the Global Account of Account D securities and investment
techniques is not comprehensive and is intended to supplement the discussion
contained in Part II of the prospectus under "Securities and Investment
Techniques."
U.S. GOVERNMENT SECURITIES
The Global Account may invest in U.S. Government securities. U.S.
Government securities are obligations of, or are guaranteed by, the U.S.
Government, its agencies or instrumentalities. Treasury bills, notes, and
bonds are direct obligations of the U.S. Treasury supported by the full faith
and credit of the United States. Securities guaranteed by the U.S.
Government include Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates and Federal Housing
Administration debentures). In guaranteed securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are generally of the highest credit quality. Such direct
obligations or guaranteed securities are subject to variations in market
value due to fluctuations in interest rates, but, if held to maturity, the
U.S. Government is obligated to or guarantees to pay them in full.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of, nor guaranteed, by the Treasury.
However, they involve Federal sponsorship in one way or another: some are
backed by specific types of collateral; some are supported by the issuer's
right to borrow from the Treasury; some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer;
others are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), Student Loan Mortgage Association, Central Bank for Cooperatives,
Federal Intermediate Credit Banks, and Federal Home Loan Banks.
The Global Account may also purchase obligations of the International Bank
for Reconstruction and Development ("IBRD"), which, while technically not a
U.S. Government Agency or instrumentality has the right to borrow from IBRD
participating countries, including the United States.
6
<PAGE>
DEBT SECURITIES
The Global Account may invest in debt securities of domestic and foreign
issuers including bonds, debentures, asset-backed securities, and notes which
meet the minimum ratings criteria set forth for the Global Account, or, if
unrated, are, in the Portfolio Manager's determination, comparable in quality
to corporate debt securities in which the Global Account may invest.
The investment return on a debt security reflects interest earnings and
changes in the market value of the security. The market value of debt
obligations may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or principal payments at
the time called for by an instrument. Any bond may be susceptible to
changing conditions, particularly to economic downturns, which could lead to
a weakened capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-issued or
firm-commitment basis; that is, the payment obligation and the interest rate
are fixed at the time the buyer enters into the commitment, but delivery and
payment for the securities normally takes place after the customary
settlement time. The value of when-issued securities or securities purchased
on a firm-commitment basis may vary prior to and after delivery depending on
market conditions and changes in interest rate levels. However, the Global
Account will not accrue any income on these securities prior to delivery.
The Global Account will maintain in a segregated account with its custodian
an amount of cash or high-quality debt securities equal (on a daily
mark-to-market basis) in the amount of its commitment to purchase the
when-issued securities or securities purchased on a firm-commitment basis.
Many debt securities of foreign issuers are not rated by Moody's Investors
Services, Inc. ("Moody's") or Standard and Poor's Corporation ("Standard &
Poor's"); therefore, the selection of such issuers depends, to a large
extent, on the credit analysis performed or used by the Portfolio Manager.
SHORT SALES AGAINST THE BOX
The Global Account may make short sales "against the box." A short sale
"against the box" is a short sale where, at time of the short sale, the
Global Account owns or has the immediate and unconditional right, at no added
cost, to obtain the identical security. The Global Account would enter into
such a transaction to defer a gain or loss for Federal income tax purposes on
the security owned by the Global Account. Short sales against the box are
not subject to the percentage limitations on short sales as described in the
prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts. A futures contract provides
for the future sale by one party and purchase by another party of a specified
amount of a particular financial instrument (debt security), or currency for
a specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for
financial instruments or currencies, futures contracts are usually closed out
before the delivery date. Closing out an open futures contract position is
effected by entering into an offsetting sale or purchase, respectively, for
the same aggregate amount of the same financial instrument and the same
delivery date. Where the Global Account has sold a futures contract, if the
offsetting purchase price is less than the original futures contract sale
price, the Global Account realizes a gain; if it is more, the Global Account
realizes a loss. Where the Global Account has purchased a futures contract,
if the offsetting price is more than the original futures contract purchase
price, the Global Account realizes a gain; if it is less, the Global Account
realizes a loss. The transaction costs must also be included in these
calculations.
Using futures to effect a particular strategy instead of using the underlying
or related security or index or currency will frequently result in lower
transaction costs being incurred. The Global Account's use of futures
contracts and futures options may include hedging transactions. For example,
the Global Account might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Global Account's securities or the price of the securities which the Global
Account intends to purchase. The Global Account's hedging may include sales
of futures contracts as an offset against the effect of expected increases in
interest rates and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques
could be used to reduce the Global
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Account's exposure to interest rate fluctuations, the Global Account may be
able to hedge its exposure more effectively and perhaps at a lower cost by
using futures contracts and futures options.
The Global Account may sell stock index futures to protect against a market
decline in an attempt to offset partially or wholly a decrease in the market
value of securities that the Global Account intends to sell. Similarly, to
protect against a market advance when the Global Account is not fully
invested in the securities market, the Global Account may purchase stock
index futures that may partly or entirely offset increases in the cost of
securities that the Global Account intends to purchase. A stock index is a
method of reflecting in a single number the market values of many different
stocks, or, in the case of capitalization weighted indices that take into
account both stock prices and the number of shares outstanding, of many
different companies. An index fluctuates generally with changes in the
market values of the common stocks so included. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take
or make delivery of an amount of cash equal to a specified dollar amount
multiplied by the difference between the stock index value at the close of
the last trading day of the contract and the price at which the futures
contract is originally purchased or sold. No physical delivery of the
underlying stocks in the index is made.
If a purchase or sale of a futures contract is made by the Global Account,
the Global Account is required to deposit with its custodian a specified
amount of cash or U.S. Government securities ("initial margin"). Generally,
the margin required for a futures contract is set by the exchange or board of
trade on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or
good faith deposit on the futures contract which is returned to the Global
Account upon termination of the contract, assuming all contractual
obligations have been satisfied. The Global Account expects to earn interest
income on its initial margin deposits. A futures contract held by the Global
Account is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Global Account pays or receives cash,
called "variation margin" equal to the daily change in value of the futures
contract. This process is known as "marking-to-market". The payment or
receipt of the variation margin does not represent a borrowing or loan by the
Global Account but is settlement between the Global Account and the broker of
the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each fund will mark-to-market its open
futures positions.
The Global Account is also required to deposit and maintain margin with
respect to put and call options on futures contracts it writes. Such margin
deposits will vary depending on the nature of the underlying futures contract
(including the related initial margin requirements), the current market value
of the option, and other futures positions held by the Global Account.
When purchasing a futures contract or selling a put option on a futures
contract, the Global Account is required to maintain with its custodian
high-quality liquid debt securities, cash, or cash equivalents (including any
margin) equal to the purchase price of such contract or option to
collateralize the position, or to otherwise cover the position. When selling
a futures contract or selling a call option on a futures contract, the Global
Account is required to maintain with its custodian high-quality liquid debt
securities, cash, or cash equivalents (including any margin) equal to the
market value of such contract or option, or to otherwise cover the position.
In compliance with the requirements of the Commodity Futures Trading
Commission ("CFTC") under which an investment company may engage in futures
transactions, the Global Account will comply with certain regulations of the
CFTC to qualify for an exclusion from being a "commodity pool." The
regulations require that the Global Account enter into futures and options
(1) for "bona fide hedging" purposes, without regard to the percentage of
assets committed to initial margin and options premiums, or (2) for other
strategies, provided that the aggregate initial margin and premiums required
to establish such positions do not exceed 5% of the liquidation value of the
Global Account's portfolio, after taking into account unrealized profits and
unrealized gains on any such contracts entered into.
OPTIONS ON SECURITIES
In pursuing its investment objective, the Global Account may engage in
transactions on options on securities. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option.
One reason the Global Account may purchase put options on securities is to
protect holdings in an underlying or related security against a substantial
decline in market value. Securities are considered related if their price
movements generally correlate to one another. For example, the purchase of
put options on debt securities held by the Global Account would enable the
Global Account to protect, at least partially, an unrealized gain in an
appreciated security without actually selling the security. In addition, the
Global Account would continue to receive interest income on such security.
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The Global Account may purchase call options on securities in furtherance of
its investment objective, which may include a call option to protect against
substantial increases in prices of securities the Global Account intends to
purchase pending its ability to invest in such securities in an orderly
manner. The Global Account may sell put or call options it has previously
purchased, which could result in a net gain or loss depending on whether the
amount realized on the sale is more or less than the premium and other
transactional costs paid on the put or call option which is sold.
In order to earn additional income on its portfolio securities or to protect
partially against declines in the value of such securities, the Global
Account may write covered call options. The exercise price of a call option
may be below, equal to, or above the current market value of the underlying
security at the time the option is written. During the option period, a
covered call option writer may be assigned an exercise notice by the
broker-dealer through whom such call option was sold requiring the writer to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time in which the writer effects a closing purchase transaction.
Closing purchase transactions will ordinarily be effected to realize a profit
on an outstanding call option, to prevent an underlying security from being
called, to permit the sale of the underlying security, or to enable the
Global Account to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to facilitate its ability to purchase a
security at a price lower than the current market price of such security, the
Global Account may write secured put options. During the option period, the
writer of a put option may be assigned an exercise notice by the
broker-dealer through whom the option was sold requiring the writer to
purchase the underlying security at the exercise price.
The Global Account may write a call or put option only if the option is
"covered" or "secured". This means that so long as the Global Account is
obligated as the writer of a call option, it will own the underlying
securities subject to the option or if the Global Account holds a call at the
same exercise price, for the same exercise period, and on the same securities
as the written call. Alternatively, the Global Account may maintain, in a
segregated account with Account D's custodian, cash, cash equivalents, or
high-quality liquid debt securities with a value sufficient to meet its
obligation as writer of the option. A put is secured if the Global Account
maintains cash, cash equivalents, or high-quality debt securities with a
value equal to the exercise price in a segregated account, or holds a put on
the same underlying security at an equal or greater exercise price. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase
or sale of an option of the same series.
Unless otherwise indicated above, the Global Account will enter only into
options which are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
OPTIONS ON SECURITIES INDEXES
Call and put options on securities indexes also may be purchased or sold by
the Global Account in furtherance of its investment objective. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not
involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations
in a single security. When such options are written, the Global Account is
required to maintain a segregated account consisting of cash, cash
equivalents or high grade obligations with a value equal to the exercise
price or the Global Account must purchase a like option of greater value that
will expire no earlier than the option sold. Purchased options may not
enable the Global Account to hedge effectively against stock market risk if
they are not highly correlated with the value of the Global Account's
securities. Moreover, the ability to hedge effectively depends upon the
ability to predict movements in the stock market.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts, currency
exchange transactions on a spot (i.e. cash) basis and options on currencies.
A forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Global Account may either accept or make delivery of the
currency at the maturity of the forward contract or, prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. The Global Account will engage in forward currency transactions in
furtherance of its investment objective, which may include hedging purposes
such as transactions in anticipation of or to protect the Global Account
against fluctuations in currency exchange rates. The Global Account might
sell a particular currency forward, for example, when it wanted to hold bonds
or bank obligations denominated in that currency but anticipated or wished to
be protected against a decline in the currency against the dollar.
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The Global Account may enter into a long position in a forward currency
contract for a fixed amount of foreign currency in anticipation of an
increase in the value of that currency. The Global Account may enter into
forward foreign currency contracts in other circumstances, as described in
Part II of the prospectus under Investment Objective and Policies of the
Global Account. When the Global Account enters into a contract for the
purchase or sale of a security denominated in a foreign currency, the Global
Account may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Global Account will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency during the period between the date
on which the security is purchased or sold and the date on which payment is
made or received.
Also, when the Portfolio Manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it
may enter into a forward contract for a fixed amount of dollars to sell the
amount of foreign currency approximating the value of some or all of the
Global Account's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
At the maturity of a forward contract, the Global Account may either sell the
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. It is impossible to forecast the market value of a
particular security at the expiration of the contract. Accordingly, if a
decision is made to sell the security and make delivery of the foreign
currency, it may be necessary for the Global Account to purchase additional
foreign currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of foreign
currency that the Global Account is obligated to deliver.
If the Global Account retains the security and engages in an offsetting
transaction, the Global Account will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Global Account's
entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Global Account will realize a gain to the extent that the price
of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Global Account
will suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
When entering into a long position on a forward currency contract or selling
a put option on a forward currency contract, the Global Account is required
to maintain with its custodian high-quality liquid debt securities, cash, or
cash equivalents (including any margin) equal to the purchase price of such
contract or option to collateralize the position or to otherwise cover the
position. When entering into a short position in a forward currency contract
or selling a call option on a forward currency contract, the Global Account
is required to maintain with its custodian high-quality liquid debt
securities, cash, or cash equivalents (including any margin) equal to the
market value of such contract or option or to otherwise cover the position.
Forward contracts are not traded on regulated commodities exchanges. There
can be no assurance that a liquid market will exist when the Global Account
seeks to close out a forward currency position, and in such an event, the
Global Account might not be able to effect a closing purchase transaction at
any particular time. In addition, the Global Account entering into a forward
foreign currency contract incurs the risk of default by the counter party to
the transaction. The CFTC has indicated that it may in the future assert
jurisdiction over certain types of forward contracts in foreign currencies
and attempt to prohibit certain entities from engaging in such foreign
currency forward transactions.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may write and purchase call and put options on foreign
currencies. Such strategies may be employed for purposes of exposing the
Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another or to function as a
hedge against changes in the value of the U.S. dollar (or another currency)
in relation to a foreign currency in which securities of the Global Account
may be denominated. A call option on a foreign currency gives the buyer the
right to buy, and a put option gives the buyer the right to sell, a certain
amount of foreign currency at a specified price during a fixed period of
time. The Global Account may enter into closing sale transactions with
respect to such options, exercise them, or permit them to expire.
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The Global Account may enter into an option on a currency before the Global
Account purchases a foreign security denominated in the currency the Global
Account anticipates acquiring, during the period the Global Account holds the
foreign security, or between the date the foreign security is purchased or
sold and the date on which payment therefor is made or received.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which a hedge is desired, the hedge may be obtained by purchasing or selling
an option on a "surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two currencies.
A surrogate currency is a currency that can act, for hedging purposes, as a
substitute for a particular currency because the surrogate currency's
exchange rate movements parallel that of the primary currency. Surrogate
currencies are used to hedge an illiquid currency risk, when no liquid hedge
instruments exist in world currency markets for the primary currency.
REPURCHASE AGREEMENTS
The Global Account may invest in repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security commits itself
at the time of the sale to repurchase that security from the buyer at a
mutually agreed upon time and price. These agreements may be considered to
be loans by the purchaser collateralized by the underlying securities. The
term of such an agreement is generally quite short, possibly overnight or for
a few days, although it may extend over a number of months (up to one year)
from the date of delivery. The resale price is in excess of the purchase
price by an amount which reflects an agreed upon market rate of return,
effective for the period of time the Global Account is invested in the
security. This results in a fixed rate of return protected from market
fluctuations during the period of the agreement. This rate is not tied to
the coupon rate on the security subject to the repurchase agreement.
The Global Account may engage in repurchase transactions in accordance with
guidelines approved by the Board of Governors of Account D, which include
monitoring the creditworthiness of the parties with which the Global Account
engages in repurchase transactions, obtaining collateral at least equal in
value to the repurchase obligation, and marking the collateral to market on a
daily basis. The Global Account may not enter into a repurchase agreement
having more than seven days remaining to maturity if, as a result, such
agreements, together with any other securities that are not readily
marketable, would exceed 15% of the net assets of the Global Account. If the
seller should become bankrupt or default on its obligations to repurchase
the securities, the Global Account may experience delays or difficulties in
exercising its rights to the securities held as collateral and might incur a
loss if the value of the securities should decline. The Global Account also
might incur disposition costs in connection with liquidating the securities.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
The Global Account may invest in (i) certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by
commercial banks and in (ii) certificates of deposit, time deposits, and
other short-term obligations issued by savings and loan or other depository
associations ("S&L").
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument
on maturity. Fixed-time deposits are bank obligations payable at a stated
maturity date and bearing interest at a fixed rate. Fixed-time deposits may
be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions
on the right to transfer a beneficial interest in a fixed-time deposit to a
third party, because there is no market for such deposits. The Global
Account will not invest in fixed-time deposits (i) which are not subject to
prepayment or (ii) which provide for withdrawal penalties upon prepayment
(other than overnight deposits), if, in the aggregate, more than 15% of its
assets would be invested in such deposits, in repurchase agreements maturing
in more than seven days, and in other illiquid assets.
Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of U.S. banks, which include: (i) the possibility
that their liquidity could be impaired because of future political and
economic developments; (ii) their obligations may be less marketable than
comparable obligations of U.S. banks; (iii) a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations;
(iv) foreign deposits may be seized or nationalized; (v) foreign governmental
restrictions, such as exchange controls, may be adopted which might adversely
affect the payment of principal and interest on those obligations; and (vi)
the selection of those obligations may be more difficult because there may be
less publicly available information concerning foreign banks and/or because
the
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accounting, auditing, and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to examination by any
U.S. Government agency or instrumentality.
The Global Account will not invest in obligations issued by a U.S. or foreign
commercial bank or S&L unless:
(i) the bank or S&L has total assets of at least $10 billion (U.S.),
or the equivalent in other currencies, and the institution has
outstanding securities rated A or better by Moody's or Standard &
Poor's, or, if the institution has no outstanding securities rated
by Moody's or Standard & Poor's, it has, in the determination of the
Portfolio Manager, similar creditworthiness to institutions having
outstanding securities so rated; and
(ii) in the case of a U.S. bank or S&L, its deposits are insured by the
FDIC or the Savings Association Insurance Fund ("SAIF"), as the case
may be.
COMMERCIAL PAPER
The Global Account may invest in commercial paper (including variable amount
master demand notes), denominated in U.S. dollars, issued by U.S.
corporations or foreign corporations. The Global Account may invest in
commercial paper (i) rated, at the date of investment, P-2 or better by
Moody's or A-2 or better by Standard & Poor's; (ii) if not rated by either
Moody's or Standard & Poor's, issued by a corporation having an outstanding
debt issue rated A or better by Moody's or A or better by Standard & Poor's;
or (iii) if not rated, are determined to be of an investment quality
comparable to rated commercial paper in which the Global Account may invest.
Generally, commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations, and finance
companies.
Commercial paper obligations may include variable amount master demand notes.
These notes are obligations that permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between
the Global Account, as lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The lender has the right to increase or to
decrease the amount under the note at any time up to the full amount provided
by the note agreement; and the borrower may prepay up to the full amount of
the note without penalty. Because variable amount master demand notes are
direct lending arrangements between the lender and borrower, and because no
secondary market exists for those notes, such instruments will probably not
be traded. However, the notes are redeemable (and thus immediately repayable
by the borrower) at face value, plus accrued interest, at any time. In
connection with master demand note arrangements, the Portfolio Manager will
monitor, on an ongoing basis, the earning power, cash flow, and other
liquidity ratios of the borrower and its ability to pay principal and
interest on demand. The Portfolio Manager also will consider the extent to
which the variable amount master demand notes are backed by bank letters of
credit. These notes generally are not rated by Moody's or Standard & Poor's;
the Global Account may invest in them only if the Portfolio Manager believes
that at the time of investment the notes are of comparable quality to the
other commercial paper in which the Global Account may invest. Master demand
notes are considered by the Global Account to have a maturity of one day,
unless the Portfolio Manager has reason to believe that the borrower could
not make immediate repayment upon demand. See the Appendix for a description
of Moody's and Standard & Poor's ratings applicable to commercial paper.
WHEN ISSUED OR DELAYED DELIVERY SECURITIES
The Global Account may purchase securities on a when-issued or delayed
delivery basis if the Global Account holds, and maintains until the
settlement date in a segregated account, cash, U.S. Government securities, or
high-grade liquid debt obligations in an amount sufficient to meet the
purchase price, or if the Global Account enters into offsetting contracts for
the forward sale of other securities it owns. Purchasing securities on a
when-issued or delayed delivery basis involves a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which
risk is in addition to the risk of decline in value of the Global Account's
other assets. Although the Global Account would generally purchase
securities on a when-issued basis or enter into forward commitments with the
intention of acquiring securities, the Global Account may dispose of a
when-issued or delayed delivery security prior to settlement if the Portfolio
Manager deems it appropriate to do so. The Global Account may realize
short-term profits or losses upon such sales.
INVESTMENT RESTRICTIONS
The Global Account's investment objective as set forth under "Investment
Objective and Policies" in Part II of the prospectus, together with the
investment restrictions set forth below are, unless otherwise noted,
fundamental policies of the Global Account and may not be changed without the
approval of a majority of the outstanding voting interests of the Global
Account. The vote of a majority of the outstanding voting interests of the
Global Account means the vote, at an annual or special meeting, of the lesser
of: (a) 67% or more of the voting interest present at such meeting, if the
holders of more than
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50% of the outstanding voting interests of the Global Account are present or
represented by proxy; or (b) more than 50% of the outstanding voting interest
of the Global Account. In accordance with its investment restrictions, the
Global Account will not:
(1) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except that this
restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto) or securities issued or guaranteed
by a foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities (or repurchase agreements
with respect thereto):
(2) Purchase or sell real estate, except that the Global Account may invest
in securities secured by real estate or real estate interests or issued
by companies in the real estate industry or which invest in real estate
or real estate interests;
(3) Purchase securities on margin (except for use of short-term credit
necessary for clearance of purchases and sales of securities), except
that to the extent the Global Account engages in transactions in
options, futures, and options on futures, the Global Account may make
margin deposits in connection with those transactions and except that
effecting short sales will be deemed not to constitute a margin
purchase for purposes of this restriction;
(4) Lend any funds or other assets, except that the Global Account may,
consistent with its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange Commission
and any guidelines established by Account D's Board of Governors;
(5) Issue senior securities, except insofar as the Global Account may be
deemed to have issued a senior security by reason of borrowing money
in accordance with the Global Account's borrowing policies, or in
connection with any repurchase agreement, and except, for purposes of
this investment restriction, collateral or escrow arrangements with
respect to the making of short sales, purchase or sale of futures
contracts or related options, purchase or sale of forward currency
contracts, writing of stock options, and collateral arrangements with
respect to margin or other deposits respecting futures contracts,
related options, and forward currency contracts are not deemed to be an
issuance of a senior security;
(6) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, the Global
Account may be deemed to be an underwriter under Federal securities
laws;
(7) Borrow money or pledge, mortgage, or hypothecate its assets, except
that the Global Account may: (a) borrow from banks but only if
immediately after each borrowing and continuing thereafter, there is
asset coverage of 300%; and (b) enter into reverse repurchase
agreements and transactions in options, futures, options on futures,
and forward currency contracts as described in the prospectus and in
this Statement of Additional Information. (The deposit of assets in
escrow in connection with the writing of covered put and call options
and the purchase of securities on a "when-issued" or delayed delivery
basis and collateral arrangements with respect to initial or variation
margin and other deposits for futures contracts, options on futures
contracts, and forward currency contracts will not be deemed to be
pledges of the Global Account's assets for purposes of this
restriction.)
The Global Account is also subject to the following restrictions and policies
that are not fundamental and may, therefore, be changed by the Board of
Governors (without contract owner approval) relating to the investment of its
assets and activities. Unless otherwise indicated, the Global Account may
not:
(1) Invest in securities that are illiquid because they are subject to legal
or contractual restrictions on resale, in repurchase agreements maturing
in more than seven days, or other securities which in the determination
of the Portfolio Manager are illiquid if, as a result of such
investment, more than 15% of the total assets of the Global Account
(taken at market value at the time of such investment) would be invested
in such securities; and
(2) Purchase or sell commodities or commodities contracts (which, for the
purpose of this restriction, shall not include foreign currency or
forward foreign currency contracts or futures contracts on currencies),
except that the Global Account may engage in interest rate futures
contracts, stock index futures contracts, futures contracts based on
other financial instruments, and in options on such futures contracts.
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MANAGEMENT OF SEPARATE ACCOUNT D
BOARD OF GOVERNORS
The business and affairs of Account D are managed under the direction of a
Board of Governors, which consists of four members. The Board of Governors
has responsibility for matters relating to the portfolio of Account D and
matters arising under the Investment Company Act of 1940. The Board of
Governors does not have responsibility for the payment of obligations under
the Contracts and administration of the Contracts. These matters are Golden
American's responsibility. The business and affairs of Account D are
governed under a set of rules adopted by the Board of Governors called "Rules
and Regulations of Separate Account D".
The members of the Board of Governors and the principal officers, their
business addresses, and principal occupation(s) during the past five years
are as follows:
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS ACCOUNT D DURING PAST FIVE YEARS
---------------- ------------- -----------------------
<S> <C> <C>
Terry L. Kendall* Chairman and President Chairman, President and Chief Executive
Golden American Life Insurance Co. Officer, Golden American Life Insurance
280 Park Avenue, 14 West Company, October 1993 to present;
New York, N.Y. 10017 Chairman, President and Chief Executive
Officer, BT Variable, Inc. October 1993 to
present; Chairman and Chief Executive
Officer, Directed Services, Inc., October
1993 to present; President and Chief
Executive Officer, United Pacific Life
Insurance Company, September 1982 to
September 1993.
Bernard R. Beckerlegge Secretary Secretary and General Counsel, Directed
Golden American Life Insurance Co. Services, Inc. March 1988 to present; Secretary
280 Park Avenue, 14 West and General Counsel, Golden American Life
New York, N.Y. 10017 Insurance Company, March 1988 to present;
Secretary, BT Variable, Inc., October 1992 to
present; Vice President and General Counsel,
MBL Variable, Inc., February 1991 to September
1992; General Counsel, The Golden Financial
Group, Inc., March 1988 to
October 1990.
Robert A. Grayson Member Co-founder, Grayson Associates, Inc.; Adjunct
Grayson Associates Professor of Marketing, New York University
108 Loma Media Road School of Business Administration; Former
Santa Barbara, CA 93103 Director, The Golden Financial Group, Inc.;
Former Senior Vice President, David & Charles
Advertising
Barnett Chernow Executive Vice President Executive Vice President, BT Variable and
Golden American Life Insurance Co. and Principal Financial Directed Services, Inc., October 1993 to present;
1001 Jefferson Street Officer From 1977 through 1993, various positions with
Wilmington, DE 19801 Reliance Insurance Companies, and Senior vice
President and Chief Financial Officer of United
Pacific Life Insurance Company from 1984
through 1993.
14
<PAGE>
Stephen J. Preston Comptroller Senior Vice President, BT Variable and Directed
Golden American Life Insurance Co. Services, Inc., December 1993 to present; From
1001 Jefferson Street September 1993 through November 1993, Senior
Wilmington, DE 19801 Vice President and Actuary for Mutual of
America Insurance Company; From July 1987
through August 1993, various positions with
United Pacific Life Insurance Company and was
Vice President and Actuary upon leaving.
M. Norvel Young Member Chancellor Emeritus and Board of Regents,
Pepperdine University Pepperdine University; Director, Imperial
Malibu, CA 90263 Bancorp, Imperial Bank and Imperial Trust
Company and 20th Century Christian Publishing
Company
Roger B. Vincent Member President, Springwell Corporation; Director,
230 Park Avenue Petralone, Inc; formerly, Managing Director,
New York, NY 10169 Bankers Trust Company.
<FN>
________________________________
*Mr. Kendall is an "interested persons" of Account D (as that term is defined in the Investment Company Act
of 1940) by reason of his affiliation with Directed Services, Inc.
</TABLE>
THE MANAGER
DSI also serves as the manager (the "Manager") to Account D pursuant to a
management agreement effective October 2, 1992. The Manager is a New York
corporation. Its address is 280 Park Avenue, New York, New York 10017. DSI
is a wholly owned indirect subsidiary of Bankers Trust Company, which in
turn, is a wholly owned subsidiary of Bankers Trust New York Corporation.
DSI's business activities include those of a distributor and underwriter of
variable insurance products, broker-dealer and investment manager. DSI is
registered with the SEC as a broker-dealer and investment advisor and is a
member of the National Association of Securities Dealers, Inc. ("NASD"). It
is also registered as a broker-dealer and/or investment advisor in various
states.
Under the management agreement, the Manager, subject to the direction of the
Board of Governors, is responsible for providing all supervisory and
management services reasonably necessary for the operation of Account D,
including the Global Account, other than the investment advisory services
performed by the Portfolio Manager. These services include, but are not
limited to, (i) coordinating all matters relating to the functions of the
Portfolio Manager, Custodian, Recordkeeping Agent (including pricing and
valuation of the Global Account), accountants, attorneys, and other parties
performing services or operational functions for Account D; (ii) providing
Account D and the Global Account, at the Manager's expense, with the services
of a sufficient number of persons competent to perform such administrative
and clerical functions as are necessary to provide effective supervision and
administration of Account D; (iii) maintaining or supervising the maintenance
by the Portfolio Manager or third parties approved by Account D of such books
and records of Account D and the Global Account as may be required by
applicable Federal or state law; (iv) preparing or supervising the
preparation by third parties approved by Account D of all Federal, state and
local tax returns and reports of Account D required by applicable law; (v)
preparing and filing and arranging for the distribution of proxy materials
and periodic reports to contract owners of Account D as required by
applicable law; (vi) preparing and arranging for the filing of such
registration statements and other documents with the Securities and Exchange
Commission and other Federal and state regulatory authorities as may be
required by applicable law; (vii) taking such other action with respect to
Account D as may be required by applicable law, including without limitation
the rules and regulations of the SEC and other regulatory agencies; and
(viii) providing Account D at the Manager's expense, with adequate personnel,
office space, communications facilities, and other facilities necessary for
its operations as contemplated in the Management Agreement. Other
responsibilities of the Manager are described in the prospectus.
The Manager shall make its officers and employees available to the Board of
Governors and Officers of Account D for consultation and discussions
regarding the supervision and administration of the Global Account.
15
<PAGE>
Pursuant to the Management Agreement, the Manager is authorized to exercise
full investment discretion and make all determinations with respect to the
investment of Global Account's assets and the purchase and sale of securities
in the event that at any time no portfolio manager is engaged to manage the
assets of the Global Account.
The Management Agreement shall continue in effect until October 2, 1994, and
from year to year thereafter, provided such continuance is approved annually
by (i) the holders of a majority of the outstanding voting securities of
Account D or by the Board of Governors, and (ii) a majority of the Board of
Governors who are not parties to such Management Agreement or "interested
persons" (as defined in the Investment Company Act of 1940, the "1940 Act")
of any such party. The Management Agreement was approved by the Board of
Governors including a majority of the Board of Governors who are not parties
to the Management Agreement, or interested persons of such parties, at a
meeting held on August 12, 1992. The Management Agreement may be terminated
without penalty by vote of the Board of Governors or the contract owners of
the Global Account, or by the Manager, on 60 days' written notice by the
Board or the Manager and will terminate automatically if assigned as that
term is described in the 1940 Act.
The Global Account pays the Manager a monthly fee based upon the following
annual percentages of the Global Account's average daily net assets: 0.40%
of the first $500 million and 0.30% of the amount over $500 million.
The initial organizational expenses of the Global Account will be amortized
by Account D for accounting purposes on a straight line basis over a period
of five years from the date that the Global Account commences operations.
PORTFOLIO MANAGER
The Global Account and Warburg, Pincus Counsellors, Inc. entered into a
Portfolio Management Agreement dated June 9, 1994. The Portfolio Management
Agreement, which became effective July 1, 1994, provides that, subject to the
supervision of Account D's Board of Governors and the Manager, the Portfolio
Manager will provide a continuous investment program for the Global Account
and will determine the composition of the assets of the Global Account,
including determination of the purchase, retention, or sale of the
securities, cash, and other investments contained in the portfolio. The
Portfolio Manager is required to provide investment research and conduct a
continuous program of evaluation, investment, sales, and reinvestment of the
Global Account's assets. The Portfolio Management Agreement may be
terminated without penalty by the vote of the Board of Governors or the
contract owners of the Global Account, by the Portfolio Manager, or by the
Manager, on 60 days' written notice by any party to the Portfolio Management
Agreement and will terminate automatically if assigned as that term is
described in the 1940 Act.
Pursuant to the Portfolio Management Agreement, the Global Account pays the
Portfolio Manager a monthly fee equal to an annual rate based upon the
following percentages of the Global Account's average daily net assets:
0.60% of the first $500 million and 0.50% of the amount over $500 million.
CUSTODIAN AND PORTFOLIO ACCOUNTING AGENT
The Custodian for Account D is Bankers Trust Company, 280 Park Avenue, New
York, New York 10017. DSI provides portfolio accounting services for the
Global Account.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for the Global Account are made by the Portfolio Manager
which has investment advisory clients other than the Global Account. A
particular security may be bought or sold by the Portfolio Manager for
certain clients even though it could have been bought or sold for other
clients at the same time. Two or more clients also may simultaneously
purchase or sell the same security, in which event each day's transactions in
such security are, insofar as possible, allocated between such clients in a
manner deemed fair and reasonable by the Portfolio Manager. Although there
is no specified formula for allocating such transactions, the various
allocation methods used by the Portfolio Manager, and the results of such
allocations, are subject to periodic review by Account D's Manager and Board
of Governors. There may be circumstances when purchases or sales of
securities for one or more clients will have an adverse effect on other
clients.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager places all orders for the purchase and sale of
securities, options, and futures contracts for the Global Account through a
substantial number of brokers and dealers or futures commission merchants.
In executing transactions, the Portfolio Manager will attempt to obtain the
best execution for the Global Account taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size
of order, the nature of the market for the security, the timing of the
transaction, the reputation, experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of
execution and operational facilities of the firms involved, and the firm's
risk in positioning a block of securities. In transactions on stock
exchanges in the United States, payments of brokerage
16
<PAGE>
commissions are negotiated. In effecting purchases and sales of securities
in transactions on U.S. stock exchanges for the Global Account, the Portfolio
Manager may pay higher commission rates than the lowest available when the
Portfolio Manager believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded on some
foreign stock exchanges, brokerage commissions may be fixed and the Portfolio
Manager may be unable to negotiate commission rates for these transactions.
In the case of securities traded on the over-the-counter markets, there is
generally no stated commission, but the price includes an undisclosed
commission or markup.
There is generally no stated commission in the case of fixed-income
securities, which are generally traded in the over-the-counter markets, but
the price paid by the Global Account usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Global Account includes a disclosed, fixed commission or discount retained by
the underwriter or dealer. Transactions on U.S. stock exchanges and other
agency transactions involve the payment by the Global Account of negotiated
brokerage commission. Such commissions vary among different brokers. Also,
a particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction.
It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional
investors to receive research services from broker-dealers which execute
portfolio transactions for the clients of such advisors. Consistent with
this practice, the Portfolio Manager for the Global Account may receive
research services from many broker-dealers with which the Portfolio Manager
places the Global Account's portfolio transactions. These services, which in
some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Portfolio Manager
and its affiliates in advising its various clients (including the Global
Account), although not all of these services are necessarily useful and of
value in managing the Global Account. The advisory fee paid by the Global
Account to the Portfolio Manager is not reduced because the Portfolio Manager
and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager may cause the Global Account to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the 1934 Act) to
the Portfolio Manager, a disclosed commission for effecting a securities
transaction for the Global Account in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
A Portfolio Manager may place orders for the purchase and sale of
exchange-listed portfolio securities with a broker-dealer that is an
affiliate of the Portfolio Manager where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and is an affiliate of the Portfolio Manager.
Pursuant to rules of the Securities and Exchange Commission, a broker-dealer
that is an affiliate of the Manager or Portfolio Manager or, if it is also a
broker-dealer, the Portfolio Manager may receive and retain compensation for
effecting portfolio transactions for the Global Account on a national
securities exchange of which the broker-dealer is a member if the transaction
is "executed" on the floor of the exchange by another broker which is not an
"associated person" of the affiliated broker-dealer or Portfolio Manager, and
if there is in effect a written contract between the Portfolio Manager and
the Global Account expressly permitting the affiliated broker-dealer or
Portfolio Manager to receive and retain such compensation. The Portfolio
Management Agreement provides that the Portfolio Manager may retain
compensation on transactions effected for the Global Account in accordance
with the terms of these rules.
Securities and Exchange Commission rules further require that commissions
paid to such an affiliated broker-dealer or Portfolio Manager by the Global
Account on exchange transactions not exceed "usual and customary brokerage
commission." The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Board
of Governors has adopted procedures for evaluating the reasonableness of
commissions paid to broker-dealers that are affiliated with the Portfolio
Manager and will review these procedures periodically.
PURCHASE AND PRICING OF THE GLOBAL ACCOUNT
The valuation of the Global Account's assets is determined once each business
day, Monday through Friday, exclusive of Federal holidays, at 4:00 p.m., New
York City time, on each day that the New York Stock Exchange is open for
trading. In general, valuation of the Global Account's assets is based on
actual or estimated market value, with special provisions for assets not
having readily available market quotations and short-term debt securities.
The value of the Global Account will fluctuate in response to changes in
market conditions and other factors.
17
<PAGE>
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are
valued at their fair value as determined in good faith by the Board of
Governors, although the actual calculations will be made by persons acting
under the direction of the Board of Governors and subject to the Board of
Governor's review.
Money market instruments are valued at market value, except that instruments
maturing in sixty days or less may be valued using the amortized cost method
of valuation. The value of a foreign security is determined in its national
currency based upon the price on the pertinent foreign exchange as of its
close of business immediately preceding the time of valuation. Securities
traded in over-the-counter markets outside the United States are valued at
the last available price in the over-the-counter market prior to the time of
valuation.
Other debt securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity date sixty days or less
after their date of acquisition, valued under the amortized cost method), are
normally valued on the basis of quotes obtained from brokers and dealers or
pricing services, which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data. Debt obligations having a maturity of sixty days or less may be
valued at amortized cost, unless the Portfolio Manager believes that
amortized cost does not approximate market value.
When the Global Account writes a put or call option, the amount of the
premium is included in the Global Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the
current market value of the option. The premium paid for an option purchased
by the Global Account is recorded as an asset and subsequently adjusted to
market value.
18
<PAGE>
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B
The audited Financial Statements of Separate Account B are listed below and
included in this Statement of Additional Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Combined Statement of Operations for the Year ended December 31, 1994
Combined Statements of Changes in Net Assets for the Years ended
December 31, 1994 and 1993
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
The audited financial statements of The Managed Global Account of Separate
Account D are listed below and are included in this Statement of Additional
Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the Year ended December 31, 1994
Statements of Changes in Net Assets for the Year ended December 31,
1994 and 1993
Statement of Investments as of December 31, 1994
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
The audited financial statements of Golden American Life Insurance Company
prepared in accordance with statutory accounting practices ("Statutory") and
generally accepted accounting principles ("GAAP") are listed below and are
included in this Statement of Additional Information:
STATUTORY BASIS
Report of Independent Auditors
Financial Statements -- Statutory
Balance Sheets (Statutory) as of December 31, 1994 and 1993
Statements of Operations (Statutory) for the Years ended December 31,
1994 and 1993
Statements of Capital and Surplus (Statutory) for the Years ended
December 31, 1994 and 1993
Statements of Cash Flow (Statutory) for the Years ended December 31,
1994 and 1993
Notes to Audited Financial Statements
GAAP BASIS
Report of Independent Auditors
Financial Statements -- GAAP
Balance Sheets as of December 31, 1994 and 1993
Statements of Operations for the Years ended December 31, 1994 and 1993
and the Period September 30, 1992 to December 31, 1992
Statements of Changes in Stockholder's Equity for the Years ended
December 31, 1994 and 1993 and the Period September 30, 1992 to
December 31, 1992
Statements of Cash Flows for the Years ended December 31, 1994 and 1993
and the Period September 30, 1992 to December 31, 1992
Notes to Audited Financial Statements
19
<PAGE>
APPENDIX: DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. ("Moody's) description of its
bond ratings:
Aaa: Judged to be the best quality; they carry the smallest degree of
investment risk.
Aa: Judged to be of high quality by all standards; together with the Aaa
group, they comprise what are generally known as high grade bonds.
A: Possess many favorable investment attributes and are to be considered
as "upper medium grade obligations."
Baa: Considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured; interest payments and principal
security appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great
length of time.
Ba: Judged to have speculative elements; their future cannot be considered
as well assured.
B: Generally lack characteristics of the desirable investment.
Caa: Are of poor standing; such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca: Speculative in a high degree; often in default.
C: Lowest rate class of bonds; regarded as having extremely poor prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.
Excerpts from Standard & Poor's Corporation ("Standard & Poor's") description
of its bond ratings:
AAA: Highest grade obligations; capacity to pay interest and repay
principal is extremely strong.
AA: Also qualify as high grade obligations; a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small
degree.
A: Regarded as upper medium grade; they have a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB: Regarded as having an adequate capacity to pay interest and repay
principal; whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity than in higher rated categories -- this group
is the lowest which qualifies for commercial bank investment.
BB, B,
CCC,
CC: Predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with terms of the obligation: BB indicates
the lowest degree of speculation and CC the highest.
Standard & Poor's applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Variable Annuity Contractowners
SEPARATE ACCOUNT B
We have audited the accompanying statement of assets and liabilities of
Separate Account B (the "Account") as of December 31, 1994, and the related
combined statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account's 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 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. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian. 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 financial position of Separate Account B at
December 31, 1994, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 14, 1995
21
<PAGE>
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 45,387,280 shares
(Cost $45,387,280)...................................................... $ 45,387,280
Limited Maturity Bond Series, 7,174,931 shares
(Cost $76,441,934)...................................................... 71,605,813
Natural Resources Series, 2,360,675 shares
(Cost $31,960,922)...................................................... 32,766,167
All-Growth Series, 5,958,509 shares
(Cost $74,833,551)...................................................... 70,668,772
Real Estate Series, 3,273,594 shares
(Cost $37,973,481)...................................................... 36,958,871
Fully Managed Series, 8,452,554 shares
(Cost $106,998,483)..................................................... 98,894,625
Multiple Allocation Series, 26,275,715 shares
(Cost $311,456,760)..................................................... 297,702,661
Capital Appreciation Series, 7,795,369 shares
(Cost $89,125,585)...................................................... 88,399,229
Rising Dividends Series, 4,933,167 shares
(Cost $51,022,111)...................................................... 50,416,965
Emerging Markets Series, 5,932,065 shares
(Cost $69,617,468)...................................................... 59,795,219
Market Manager Series, 274,824 shares
(Cost $2,754,250)....................................................... 2,753,739
-------------
Total Invested Assets
(Cost $897,571,825)................................................... 855,349,341
LIABILITIES
Payable to Golden American for Charges and Fees -- (Note 3)................ 530,918
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
NET ASSETS
For Variable Annuity Contracts............................................. $ 810,810,446
Retained in Separate Account B by Golden American -- (Note 3).............. 44,007,977
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
</TABLE>
See notes to financial statements.
22
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
----------------------------------------------------------------------------------------------------
LIMITED NATURAL MULTIPLE
LIQUID ASSET MATURITY RESOURCES ALL-GROWTH REAL ESTATE FULLY MANAGED ALLOCATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES
------------- ------------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,443,621 $ 3,500,972 $ 286,872 $ 668,418 $ 1,862,701 $ 2,839,238 $ 10,655,655
Capital gain
distribution.......... -- -- 540,421 -- -- -- --
------------- ------------- ----------- ------------ ------------- -------------- ------------
Total investment
income.............. 1,443,621 3,500,972 827,293 668,418 1,862,701 2,839,238 10,655,655
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 361,615 736,430 282,948 613,111 348,164 1,078,655 2,955,387
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net investment
income.............. 1,082,006 2,764,542 544,345 55,307 1,514,537 1,760,583 7,700,268
------------- ------------- ----------- ------------ ------------- ------------- -------------
Realized gain on
investments
Proceeds from sales.... 40,758,078 22,640,885 7,724,804 4,427,509 9,351,495 15,241,359 28,761,003
Cost of securities
sold.................. 40,758,078 22,575,099 6,038,663 4,350,791 8,812,382 14,181,236 25,917,030
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net realized gain on
investments......... -- 65,786 1,686,141 76,718 539,113 1,060,123 2,843,973
------------- ------------- ----------- ------------ ------------- ------------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... -- (407,617) 2,953,720 3,650,218 (373,993) 4,424,678 3,296,333
End of year............ -- (4,836,121) 805,245 (4,164,779) (1,014,610) (8,103,858) (13,754,098)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. -- (4,428,504) (2,148,475) (7,814,997) (640,617) (12,528,536) (17,050,431)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,082,006 $(1,598,176) $ 82,011 $(7,682,972) $ 1,413,033 $ (9,707,830) $ (6,506,190)
------------- ------------- ----------- ------------ ------------- ------------- -------------
------------- ------------- ----------- ------------ ------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
-----------------------------------------------------------------------
CAPITAL RISING EMERGING MARKETS
APPRECIATION DIVIDENDS MARKET SERIES MANAGER
SERIES SERIES (a) (a) SERIES (b) COMBINED
-------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,777,023 $ 685,072 $ -- $ 6,199 $ 23,725,771
Capital gain
distribution.......... -- -- 2,686,591 316 3,227,328
-------------- ------------ ------------- ----------- -------------
Total investment
income.............. 1,777,023 685,072 2,686,591 6,515 26,953,099
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 909,077 367,964 560,823 -- 8,214,174
-------------- ------------ ------------- ----------- -------------
Net investment
income.............. 867,946 317,108 2,125,768 6,515 18,738,925
-------------- ------------ ------------- ----------- -------------
Realized gain on
investments
Proceeds from sales.... 11,164,715 2,770,019 6,933,220 1,334 149,774,421
Cost of securities
sold.................. 9,738,102 2,715,467 6,096,514 1,331 141,184,693
-------------- ------------ ------------- ----------- -------------
Net realized gain on
investments......... 1,426,613 54,552 836,706 3 8,589,728
-------------- ------------ ------------- ----------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... 4,004,838 220,884 3,970,717 -- 21,739,778
End of year............ (726,357) (605,146) (9,822,249) (511) (42,222,484)
-------------- ------------ ------------- ----------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. (4,731,195) (826,030) (13,792,966) (511) (63,962,262)
-------------- ------------ ------------- ----------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ (2,436,636) $ (454,370) $ (10,830,492) $ 6,007 $ (36,633,609)
-------------- ------------ ------------- ----------- -------------
-------------- ------------ ------------- ----------- -------------
<FN>
(a) Commencement of operations, October 4, 1993.
(b) Commencement of operations, November 14, 1994.
</TABLE>
See notes to financial statements.
23
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
NATURAL
LIQUID ASSET LIMITED MATURITY BOND RESOURCE
SERIES SERIES SERIES
-------------------------- -------------------------- ------------
1994 1993 1994 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 1,082,006 $ 251,524 $ 2,764,542 $ 2,344,976 $ 544,345
Net realized gain (loss) on investments.............. -- -- 65,786 677,243 1,686,141
Net change in unrealized appreciation (depreciation)
of investments...................................... -- -- (4,428,504) (434,962) (2,148,475)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 1,082,006 251,524 (1,598,176) 2,587,257 82,011
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 43,297,390 22,808,053 32,040,952 54,680,072 8,595,119
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 4,159,230 (15,604,916) (22,001,625) (19,820,224) 5,715,775
Benefits, surrenders and other withdrawals........... (18,470,294) (3,497,357) (7,603,846) (5,188,057) (2,768,491)
Contract related charges and fees.................... (1,200,931) (229,252) (886,527) (498,019) (314,191)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 27,785,395 3,476,528 1,548,954 29,173,772 11,228,212
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 28,867,401 3,728,052 (49,222) 31,761,029 11,310,223
Net Assets:
Beginning of Year.................................... 16,497,588 12,769,536 71,622,231 39,861,202 21,436,544
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 45,364,989 $ 16,497,588 $ 71,573,009 $ 71,622,231 $ 32,746,767
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
ALL-GROWTH REAL ESTATE
SERIES SERIES
---------------------------------------- --------------------------
1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 8,983 $ 55,307 $ (177,810) $ 1,514,537 $ 640,795
Net realized gain (loss) on investments.............. 426,591 76,718 476,553 539,113 513,528
Net change in unrealized appreciation (depreciation)
of investments...................................... 3,295,092 (7,814,997) 2,648,629 (640,617) (548,785)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 3,730,666 (7,682,972) 2,947,372 1,413,033 605,538
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 10,191,488 18,242,132 34,573,445 9,862,267 22,416,140
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 5,176,672 9,624,494 (2,151,633) 208,409 4,008,119
Benefits, surrenders and other withdrawals........... (465,000) (4,906,264) (2,429,632) (2,918,618) (1,716,743)
Contract related charges and fees.................... (79,699) (709,171) (302,798) (401,259) (140,619)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 14,823,461 22,251,191 29,689,382 6,750,799 24,566,897
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 18,554,127 14,568,219 32,636,754 8,163,832 25,172,435
Net Assets:
Beginning of Year.................................... 2,882,417 56,055,565 23,418,811 28,772,896 3,600,461
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 21,436,544 $ 70,623,784 $ 56,055,565 $ 36,936,728 $ 28,772,896
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
24
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------------------------------
FULLY MANAGED SERIES MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
-------------------------------- -------------------------------- ----------------------------
1994 1993 1994 1993 1994 1993
--------------- --------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 1,760,583 $ 2,384,033 $7,700,268 $ 15,125,636 $ 867,946 $565,868
Net realized gain on
investments........... 1,060,123 524,624 2,843,973 295,483 1,426,613 246,599
Net change in
unrealized
appreciation
(depreciation) of
investments........... (12,528,536) 1,699,232 (17,050,431) 672,723 (4,731,195) 2,955,304
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations.............. (9,707,830) 4,607,889 (6,506,190) 16,093,842 (2,436,636) 3,767,771
--------------- --------------- --------------- --------------- ------------- -------------
Contract related
transactions (Note 3)
Premiums............... 21,742,235 70,788,527 74,594,438 150,788,747 19,196,186 63,986,159
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (11,098,109) 108,564 (9,842,434) 5,675,110 (6,162,504) 3,402,619
Benefits, surrenders and
other withdrawals....... (9,049,892) (4,050,100) (30,149,866) (12,915,093) (7,902,148) (2,392,822)
Contract related charges
and fees................ (1,341,160) (516,502) (3,746,076) (1,609,228) (1,148,856) (331,307)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 253,074 66,330,489 30,856,062 141,939,536 3,982,678 64,664,649
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets........... (9,454,756) 70,938,378 24,349,872 158,033,378 1,546,042 68,432,420
Net Assets:
Beginning of Year...... 108,290,963 37,352,585 273,158,122 115,124,744 86,798,642 18,366,222
--------------- --------------- --------------- --------------- ------------- -------------
End of Year............ $ 98,836,207 $ 108,290,963 $297,507,994 $ 273,158,122 $ 88,344,684 $86,798,642
--------------- --------------- --------------- --------------- ------------- -------------
--------------- --------------- --------------- --------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------
MARKET
MANAGER
RISING DIVIDENDS SERIES EMERGING MARKETS SERIES SERIES COMBINED
---------------------------- ---------------------------- ------------ ---------------
1994 1993 (a) 1994 1993 (a) 1994 (b) 1994
------------- ------------- ------------- ------------- ------------ ---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $317,108 $ 4,934 $ 2,125,768 $ (24,280) $ 6,515 $ 18,738,925
Net realized gain on
investments........... 54,552 -- 836,706 -- 3 8,589,728
Net change in
unrealized
appreciation
(depreciation) of
investments........... (826,030) 220,884 (13,792,966) 3,970,717 (511) (63,962,262)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase in net
assets resulting from
operations.............. (454,370) 225,818 (10,830,492) 3,946,437 6,007 (36,633,609)
------------- ------------- ------------- ------------- ------------ ---------------
Contract related
transactions (Note 3)
Premiums............... 25,149,913 11,566,378 30,112,986 13,923,417 1,414,129 284,247,747
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. 15,544,356 2,632,922 14,777,915 12,702,200 1,334,937 2,260,444
Benefits, surrenders and
other withdrawals....... (3,843,523) (25,387) (4,285,144) (62,486) -- (91,898,086)
Contract related charges
and fees................ (398,993) (12,349) (516,806) (20,979) (2,625) (10,666,595)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 36,451,753 14,161,564 40,088,951 26,542,152 2,746,441 183,943,510
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets........... 35,997,383 14,387,382 29,258,459 30,488,589 2,752,448 147,309,901
Net Assets:
Beginning of Year...... 14,387,382 -- 30,488,589 -- -- 707,508,522
------------- ------------- ------------- ------------- ------------ ---------------
End of Year............ $50,384,765 $ 14,387,382 $ 59,747,048 $ 30,488,589 $ 2,752,448 $ 854,818,423
------------- ------------- ------------- ------------- ------------ ---------------
------------- ------------- ------------- ------------- ------------ ---------------
<CAPTION>
1993
---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 21,124,659
Net realized gain on
investments........... 3,160,621
Net change in
unrealized
appreciation
(depreciation) of
investments........... 14,478,834
---------------
Net increase in net
assets resulting from
operations.............. 38,764,114
---------------
Contract related
transactions (Note 3)
Premiums............... 455,722,426
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (3,870,567)
Benefits, surrenders and
other withdrawals....... (32,742,677)
Contract related charges
and fees................ (3,740,752)
---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 415,368,430
---------------
Net increase (decrease)
in net assets........... 454,132,544
Net Assets:
Beginning of Year...... 253,375,978
---------------
End of Year............ $ 707,508,522
---------------
---------------
<FN>
(a) Commencement of Operations, October 4, 1990.
(b) Commencement of Operations, November 14, 1994.
</TABLE>
See notes to financial statements.
25
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account B (the "Account") was established on June 14, 1988, by
Golden American Life Insurance Company ("Golden American"), under Minnesota
insurance law to support the operations of variable annuity contracts
("Contracts"). Effective September 30, 1992, Golden American became a
wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned
subsidiary of Bankers Trust Company ("Bankers Trust"). Previously, Golden
American was owned by Mutual Benefit Life Insurance Company in Rehabilitation
("Mutual Benefit"). Golden American is primarily engaged in the issuance of
variable insurance products and is licensed as a life insurance company in the
District of Columbia and all states except New York. Effective December 30,
1993, Golden American was redomesticated from the State of Minnesota to the
State of Delaware.
Operations of the Account commenced on January 25, 1989. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to one or more divisions within the Account or to the
Golden American Guaranteed Interest Division and the Managed Global Division of
Separate Account D, which are not part of the Account, as elected by the
Contractowners. The assets of the Account are owned by Golden American. The
portion of the Account's assets applicable to Contracts will not be chargeable
with liabilities arising out of any other business Golden American may conduct,
but obligations of the Account, including the promise to make benefit payments,
are obligations of Golden American.
The Account makes available, under GoldenSelect Contracts, eleven investment
divisions: the Liquid Asset, the Limited Maturity Bond, the Natural Resources,
the All-Growth, the Real Estate, the Fully Managed, the Multiple Allocation, the
Capital Appreciation (commenced operations on May 4, 1992), the Rising Dividends
(commenced operations October 4, 1993), the Emerging Markets (commenced
operations on October 4, 1993) and the Market Manager (commenced operations
November 14, 1994) Divisions ("Divisions"). The assets in each Division are
invested in shares of a designated series ("Series") of a mutual fund, The GCG
Trust (the "Trust"). The account also includes The Fund For Life Division, which
is not included in the accompanying financial statements, and which, ceased to
accept new contracts effective December 31, 1994.
The Account is a unit investment trust and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the amount required under state law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
Contract benefits. Additional assets are held in Golden American's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risk under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The transaction had no effect on the
accompanying financial statements of the Account.
26
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS: Investments are made in shares of a Series of the Trust and
are valued at the net asset value per share of the respective Series of the
Trust.
Investment transactions in each Series of the Trust are recorded on the
trade date. Distributions of net investment income and capital gains of each
Series of the Trust are recognized on the ex-distribution date. Realized gains
and losses on redemptions of the shares of the Series of the Trust are
determined on the identified cost basis.
For the years ended December 31, 1994 and 1993, the cost of purchases of
shares of the Trust aggregated $352,604,679 and $483,230,191, respectively and
the proceeds from sales of shares of the Trust aggregated $149,774,421 and
$46,471,631, respectively.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. Following is a summary of these charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.25% of the assets attributable
to Contracts to cover these risks.
ADMINISTRATIVE CHARGE: An administrative charge of $40 per Contract year is
deducted from accumulation value of Deferred Annuity Contracts to cover ongoing
administrative expenses. The charge is deducted on the Contract processing date
at the end of the Contract processing period. This charge has been waived for
certain offerings of the Contract. For certain Contracts, a daily charge at an
annual rate of .10% is deducted from assets attributable to such Contracts.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: For certain Contracts, a minimum
death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death
benefit per Contract year is deducted from the accumulation value of Deferred
Annuity Contracts on each Contract processing date.
PREMIUM TAXES: For certain contracts, premium taxes are deducted, where
applicable, from the accumulation value of each Contract. The amount and timing
of the deduction depend on the annuitant's state of residence and currently
ranges up to 3.5% of premiums.
OTHER CHARGES: Five free investment re-allocations among Divisions per
Contract are allowed each Contract year. For each additional investment
re-allocation, a $25 charge is deducted from the amount transferred from each
Division.
CONTRACT SALES LOAD AND PREMIUM TAXES: A sales load of up to 7 1/2% is
applicable to each premium payment for sales related expenses as specified in
the Contracts (see Note 4), as is an amount equal to the premium tax applicable
to certain Contracts. Although this sales load and the premium tax are
chargeable to each premium when it is received by Golden American, the amount of
such
27
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. CHARGES AND FEES (CONTINUED)
charges is initially advanced by Golden American to Contractowners and included
in the accumulation value and then deducted in equal installments on each
contract processing date over a period specified in the Contract. For Deferred
Annuity Contracts, the charges are recovered over a period which is the lesser
of either six or ten years or the amount of time between the contract date and
the annuity commencement date. For Annuity Certain Contracts, the charges are
recovered over a period which is the lesser of either six or ten years or the
length of the "certain" period, as defined in each Contract. Upon surrender of
the Contract, the unamortized deferred sales load and premium taxes are deducted
from the accumulation value by Golden American. The net assets retained in the
Account by Golden American in the accompanying financial statements represent
the unamortized deferred sales load and premium taxes.
Net assets retained in the Account by Golden American:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Balance at January 1.......................................................... $ 37,363,830 $ 13,024,324
Sales load advanced........................................................... 16,137,638 27,069,471
Premium tax advanced.......................................................... 73,178 206,633
Net transfer from Guaranteed Interest Division and Separate Account D......... 665,964 359,229
Amortization of deferred sales load and premium tax........................... (10,232,633) (3,295,827)
-------------- --------------
Balance at December 31........................................................ $ 44,007,977 $ 37,363,830
-------------- --------------
-------------- --------------
</TABLE>
4. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer,acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For 1994
and 1993, fees paid by Golden American to DSI aggregated $15,939,331 and
$30,495,805, respectively.
Under the terms of an expense limitation agreement ("Expense Agreement")
between DSI and the Trust, DSI paid the Trust for ordinary expenses which
exceeded certain prescribed limits. For the year ended December 31, 1993, DSI
paid the Trust $255,476 relating to the Expense Agreement. The Expense Agreement
was terminated effective September 30, 1993, and was replaced by a unified fee
payable by the Trust to DSI, covering all expenses of the Trust, except trustee
fees which are borne by the Trust.
28
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 0.83 0.82 0.83 0.85 0.87 0.79 0.85 0.84 0.89 0.87 0.82 1.20 0.72 0.83 0.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.87% 1.82% 2.30% 4.81% 6.88% (1.98)% 5.35% 4.00% 10.38% 7.00% 1.71% 48.73% (10.53)% 3.87% (14.53)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 0.71 0.86 0.78 1.09 0.75 0.85 0.94 0.91 1.07 0.64 0.74 0.86 0.85 1.04 0.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.49)% 5.70% (3.37)% 35.39% (8.09)% 5.49% 16.33% 12.96% 32.99% (21.42)% (8.01)% 6.73% 5.38% 27.89% (3.96)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 0.78 0.89 0.82 0.95 0.84 0.79 0.87 0.59 0.80 0.20 0.67 0.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (1.96)% 10.24% 1.06% 19.07% 3.90% (2.38)% 7.44% 10.28% (0.21)% 2.94% (15.85)% 24.16%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent the mortality and expense risk charges at an
annual rate of .80% of the assets of the Account.
</TABLE>
29
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(d)... 1.04 1.03 1.04 1.06 1.08 0.98 1.06 1.05 1.11 1.08 1.02 1.50 0.90 1.04 0.86
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.66% 1.61% 2.09% 4.60% 6.67% (2.17)% 5.14% 3.79% 10.16% 6.79% 1.51% 48.43% (10.71)% 3.66% (14.70)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(d)... 0.89 1.07 0.98 1.36 0.94 1.06 1.17 1.14 1.34 0.80 0.93 1.08 1.07 1.29 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.67)% 5.49% (3.57)% 35.12% (8.28)% 5.28% 16.10% 12.73% 32.72% (21.58)% (8.20)% 6.51% 5.16% 27.64% (4.15)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING MARKET
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS MANAGER
-------------------------------------- ---------------------- -------------- -------------- -------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b) 1994 (c)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --% 0.24%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40 0.44
Expense
charges
(d)... 0.98 1.11 1.02 1.19 1.06 0.98 1.09 0.74 1.00 0.25 0.84 0.30 0(e)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (2.16)% 10.02% 0.86% 18.83% 3.68% (2.57)% 7.22% 10.13% (0.41)% 2.89% (16.02)% 24.10% 0.44%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Commencement of operations November 14, 1994. Net return is not annualized
(d) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.00% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.00% had been in effect
since January 1, 1990.
(e) During the period November 14, 1994 through December 31, 1994, all fund
operative expense and mortality and expense risk charges were waived. Such
expenses would have aggregated 0.26% of average assets.
</TABLE>
30
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 1.40 1.39 1.40 1.43 1.46 1.33 1.43 1.42 1.50 1.46 1.38 2.03 1.22 1.41 1.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.30% 1.25% 1.73% 4.23% 6.29% (2.52)% 4.77% 3.42% 9.77% 6.41% 1.15% 47.90% (11.03)% 3.29% (15.01)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 1.20 1.44 1.32 1.84 1.26 1.43 1.58 1.54 1.80 1.07 1.25 1.46 1.44 1.74 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.98)% 5.12% (3.91)% 34.64% (8.60)% 4.91% 15.69% 12.33% 32.26% (21.85)% (8.52)% 6.13% 4.79% 27.19% (4.49)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 1.33 1.50 1.38 1.61 1.42 1.33 1.46 1.00 1.35 0.34 1.14 0.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (2.51)% 9.63% 0.50% 18.41% 3.32% (2.92)% 6.85% 9.87% (0.76)% 2.80% (16.32)% 23.99%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.35% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.35% had been in effect
since January 1, 1990.
</TABLE>
31
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners and Board of Governors
THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
We have audited the accompanying statement of assets and liabilities of The
Managed Global Account of Separate Account D, including the statement of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Account's 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. Our procedures included
verification by examination of securities held by the custodian as of December
31, 1994 and confirmation of securities not held by the custodian by
correspondence with others. 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 financial position of The Managed Global Account
of Separate Account D at December 31, 1994, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 10, 1995
32
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $90,208,934).................................... $85,946,412
Cash........................................................................ 278,515
Dividends and interest receivable........................................... 98,042
Prepaid expenses and other assets........................................... 7,918
-----------
Total Assets............................................................ 86,330,887
-----------
LIABILITIES
Payable to Golden American for contract related expenses.................... 46,106
Accrued expenses............................................................ 76,226
-----------
Total Liabilities....................................................... 122,332
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
NET ASSETS
For variable annuity contracts.............................................. $81,674,591
Retained in The Managed Global Account of Separate Account D by Golden
American................................................................... 4,533,964
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
</TABLE>
See notes to financial statements.
33
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of $53,740 foreign taxes withheld)........................... $ 457,838
Interest (Net of $1,330 foreign taxes withheld)............................. 1,211,036
------------
Total investment income................................................. 1,668,874
EXPENSES:
Management and advisory fees................................................ 834,367
Mortality and expense risk and administrative charges....................... 831,890
Custodian fees.............................................................. 84,877
Fund accounting fees........................................................ 68,428
Amortization of organizational expenses..................................... 29,200
Legal fees.................................................................. 28,916
Auditing fees............................................................... 25,536
Interest.................................................................... 23,218
Insurance premiums for fidelity bond........................................ 22,535
Proxy....................................................................... 19,368
Printing and mailing........................................................ 12,445
Registration fees........................................................... 3,463
Directors' fees and expenses................................................ 3,289
Other....................................................................... 12,284
------------
Total expenses.......................................................... 1,999,816
Less amounts paid by the investment manager pursuant to expense limitation
agreement.................................................................. (71,175)
------------
Net expenses............................................................ 1,928,641
------------
NET INVESTMENT LOSS........................................................... (259,767)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments............................................................... 357,057
Options................................................................... (14,024)
Futures................................................................... (100,164)
Foreign currency transactions............................................. (1,606,427)
------------
(1,363,558)
------------
Net change in unrealized appreciation (depreciation) of:
Investments............................................................... (10,287,249)
Futures and options....................................................... (1,063,664)
Foreign currency transactions............................................. (161,039)
------------
(11,511,952)
------------
Net realized and unrealized loss............................................ (12,875,510)
------------
Net decrease in net assets resulting from operations...................... (13,135,277)
------------
------------
</TABLE>
See notes to financial statements.
34
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss............................................................ $ (259,767) $ (269,919)
Net realized loss from investment and foreign currency transactions............ (1,363,558) (3,529,193)
Net unrealized (depreciation) appreciation of investment and foreign currency
transactions.................................................................. (11,511,952) 7,269,059
-------------- --------------
Net (decrease) increase in net assets resulting from operations................ (13,135,277) 3,469,947
-------------- --------------
CONTRACT RELATED TRANSACTIONS:
Premiums....................................................................... 22,680,207 45,381,393
Benefits, surrenders and other withdrawals..................................... (8,496,158) (3,073,207)
Net transfers (to) from Separate Account B and Guaranteed Interest Division of
Golden American............................................................... (2,244,552) 4,544,018
Contract related charges and fees.............................................. (1,073,158) (544,060)
-------------- --------------
Net increase in net assets resulting from contract related transactions........ 10,866,339 46,308,144
-------------- --------------
Net (decrease) increase in net assets.......................................... (2,268,938) 49,778,091
NET ASSETS:
Beginning of year.............................................................. 88,477,493 38,699,402
-------------- --------------
End of year.................................................................... $ 86,208,555 $ 88,477,493
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
35
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT
OF NET PRINCIPAL
ASSETS AMOUNT VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 5.8% $ 4,966,000 PNC Securities, 5.50%, dated 12/30/94,
due 01/03/95, collateralized by
$5,055,000 in principal amount of U.S.
Treasury Notes 5.875%, due 05/31/96
(Cost $4,966,000)...................... $ 4,966,000
-----------
CONVERTIBLE BONDS 6.0% $ 920,000 United Micro Electronics Conv. Bonds,
1.25%, 6/8/04 (Taiwan)................. 1,423,700
AUD 33,000 BTR Nylex LTD, 9% Conv. Notes 11/30/49,
(Australia)............................ 258,307
Y111,000,000 Matsushita Electric Works Conv. Bonds,
2.70%, 5/31/02 (Japan)................. 1,193,788
$ 800,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan) (c)................... 916,000
90,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan)....................... 103,050
FF 7,512,750 SCOR SA 3%, Conv. Bonds, 1/1/01
(France)............................... 1,299,230
-----------
Total Convertible Bonds
(Cost $5,275,355)...................... 5,194,075
-----------
COMMON STOCKS 85.2% SHARES
-------------
BANKS 3.2% 16,000 Arab Malaysian Merchant Bank BHD
(Malaysia)............................. 151,665
4,000 Banco Frances Rio Plata ADR
(Argentina)............................ 85,500
18,300 Banco Frances Del Rio Plata
(Argentina)............................ 121,022
119,000 Development Bank of Singapore
(Singapore)............................ 1,224,280
422,000 Foereningsbanken AB Serjes A (a)
(Sweden)............................... 824,219
79,500 Thailand Military Bank LTD (Thailand)... 335,737
-----------
2,742,423
-----------
BEVERAGES 1.7% 764,500 Lion Nathan LTD (New Zealand)........... 1,455,776
-----------
BUILDING & CONSTRUCTION 5.1% 113,400 Cementos De Mexico SA ADR (a)
(Mexico)............................... 1,151,237
5,000 Grupo Mexicand De Desarollo (Mexico).... 38,125
47,100 Grupo Tribasa SA ADR (a) (Mexico)....... 783,038
2,400 Maculan Holdings AG (Austria)........... 198,165
23,800 Tsuchiya Home (Japan)................... 586,089
100,000 United Construction (a) (Australia)..... 73,625
15,500 VA Technologie (a) (Australia).......... 1,561,376
-----------
4,391,655
-----------
CHEMICALS 6.1% 43,700 Norsk Hydro AS ADR (Norway)............. 1,709,763
20,600 PT TriPolyta Indonesia ADR (a)
(Indonesia)............................ 499,550
51,200 Reliance Industries GDS (a) (India)..... 1,011,200
98,000 Shin - Etsu Chemical (Japan)............ 1,950,347
-----------
5,170,860
-----------
COSMETICS 3.2% 164,000 KAO Corp. (Japan)....................... 1,862,700
79,000 NEC Corp. (Japan)....................... 905,217
-----------
2,767,917
-----------
DIVERSIFIED 1.9% 676,000 BTR Nylex LTD (Australia)............... 1,257,360
64,000 Westmont Berhad (Malaysia).............. 398,590
-----------
1,655,950
-----------
DRUGS 1.5% 50,200 Astra AB (Sweden)....................... 1,284,752
-----------
</TABLE>
36
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
COMMON STOCKS -- CONTINUED
<S> <C> <C> <C> <C>
ELECTRONICS 9.6% 4,400 Austria Mikro System (Austria).......... $ 331,817
1,465 BBC Brown Boveri (Switzerland).......... 1,261,310
80,000 Hitachi LTD (Japan)..................... 795,256
464,000 IPC LTD (Singapore)..................... 316,653
9,500 Sony ADR (Japan)........................ 533,187
44,000 Sony (Japan)............................ 2,498,744
53,000 TDK Corp. (Japan)....................... 2,573,022
-----------
8,309,989
-----------
ENTERTAINMENT 3.3% 77,200 Thorn EMI PLC (United Kingdom).......... 1,250,466
9,100 TOHO (Japan)............................ 1,600,664
-----------
2,851,130
-----------
FINANCIAL SERVICES 14.2% 75,000 Ampal American Israel Cl. A (a)
(Israel)............................... 496,875
35,900 Anglovaal LTD (South Africa)............ 1,101,227
3,565 Banco DeGalica Buenos Aires SA ADR
(Argentina)............................ 61,496
58,100 Banco Santander SA ADR (Spain).......... 2,222,325
38,732 Banesto SA ADS (a) (Spain).............. 115,094
2,583,854 Brierley Investment LTD (New Zealand)... 1,865,723
2,640 Cetelem (France)........................ 472,400
50,000 Goven & Company PLC (United Kingdom).... 278,570
71,200 Grupo Financiero Bancomer SA ADR (a)
(Mexico)............................... 844,218
466,800 Industrial Finance Corporation of
Thailand (Thailand).................... 994,972
65,000 Japan Securities Finance (Japan)........ 1,077,998
630,000 Singer & Friedlander Group (United
Kingdom)............................... 847,917
88,200 YPF SA ADR (Argentina).................. 1,885,275
-----------
12,264,090
-----------
HOSPITAL MANAGEMENT 1.2% 295,400 Takare PLC (United Kingdom)............. 1,017,062
-----------
INDUSTRIAL 2.2% 32,100 Celsius Industries Cl. B (Sweden)....... 713,429
31,900 Murata Manufacturing LTD (Japan)........ 1,234,446
-----------
1,947,875
-----------
INSURANCE 0.3% 10,080 SCOR SA (France)........................ 224,755
-----------
LEISURE RELATED 0.3% 4,000 Sankyo Company, LTD (Japan)............. 269,374
-----------
METALS & MINING 2.6% 49,000 Hindalco Industries GDR (a) (India)..... 1,641,500
79,100 Niugini Mining (a) (Australia).......... 242,145
287,000 Pasminco LTD (a) (Australia)............ 400,365
-----------
2,284,010
-----------
OFFICE EQUIPMENT 3.2% 2,900 Canon ADR (Japan)....................... 246,500
149,000 Canon (Japan)........................... 2,531,008
-----------
2,777,508
-----------
OIL & GAS 5.6% 51,000 Elf Aquitaine ADR (France).............. 1,797,750
19,200 Francaise de Petroleum Total (France)... 1,115,953
516,900 Woodside Petroleum LTD (Australia)...... 1,898,832
-----------
4,812,535
-----------
PAPER 3.0% 420,000 Fletcher Challenge LTD (New Zealand).... 984,955
36,650 Metsa Serla B (Finland)................. 1,608,609
-----------
2,593,564
-----------
</TABLE>
37
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
PHOTO & OPTICAL 0.6% 114,000 Pt Modern Photo Film Company
(Indonesia)............................ $ 482,128
-----------
PRINTING & PUBLISHING 1.2% 253,734 News Corporation LTD (Australia)........ 993,051
-----------
RETAIL 1.7% 33,600 York--Benimaru (Japan).................. 1,475,847
-----------
TELECOMMUNICATIONS 3.4% 46,000 Lagardere Groupe (France)............... 1,068,765
61 Nippon Telegraph & Telephone (Japan).... 540,165
31,600 Telefonos de Mexico Cl. L ADR
(Mexico)............................... 1,295,600
-----------
2,904,530
-----------
TEXTILES 0.9% 58,700 Tuntex Distinct GDS (Taiwan)............ 763,100
-----------
TRANSPORTATION 5.7% 188,000 British Airport Authority (United
Kingdom)............................... 1,391,661
150 Danzas Holding AG (Switzerland)......... 135,218
682 East Japan Railway (Japan).............. 3,413,770
-----------
4,940,649
-----------
UTILITIES 3.5% 8,100 ASEA AB (Sweden)........................ 586,988
71,900 Capex SA GDR (a) (c) (Argentina)........ 1,213,313
3,000 Capex SA GDR (a) (Argentina)............ 50,625
140 DDI (Japan)............................. 1,210,172
-----------
3,061,098
-----------
Total Common Stocks (Cost $77,338,313) 73,441,628
-----------
CONVERTIBLE PREFERRED STOCKS 1.2%
BUILDING & CONSTRUCTION 0.7% 6,800 Maclun Holdings AG (Australia).......... 561,468
PRINTING & PUBLISHING 0.5% 126,867 News Corporation Ltd Preferred
(Australia)............................ 437,533
-----------
Total Convertible Preferred Stocks
(Cost $1,154,019)....................... 999,001
-----------
WARRANTS AND OPTIONS 1.5% 40,250 Korean Stock Index Option, Expires
7/1/95 at 100,000 Won (Korea) (b)...... 1,343,302
600 Danza Holding AG., Expires 08/26/96
(Switzerland).......................... 2,406
-----------
Total Warrants and Options (Cost
$1,475,247)............................ 1,345,708
-----------
99.7% Total Investments (Cost $90,208,934).... 85,946,412
0.4% Total Other Assets...................... 384,475
(0.1%) Liabilities............................. (122,332)
-----------
100.0% Total Net Assets........................ $86,208,555
-----------
-----------
<FN>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of Notes to Financial Statements.
(a) Non-income producing security.
(b) Security is illiquid. Investments in illiquid securities with an aggregate
market value of $1,343,302 represent approximately 1.5% of net assets. The
valuation of this investment has been determined under the direction of the
Board of Governors:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION
ISSUE ISSUER DATE PURCHASE PRICE VALUATION
- ------------------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Korean Stock Index Peninsula Trust 7/26/94 $ 36.14 $ 33.37
<FN>
(c) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At December 31,
1994, the value of these securities amounted to $3,263,457 or 3.8% of net
assets.
</TABLE>
See notes to financial statements.
38
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Managed Global Account of Separate Account D (the "Account") was
established on April 18, 1990, by Golden American Life Insurance Company
("Golden American"), under Minnesota insurance law to support the operations of
variable annuity contracts ("Contracts"). Golden American is a wholly-owned
subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned subsidiary of
Bankers Trust Company ("Bankers Trust"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
Operations of the Account commenced on October 21, 1992. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to the Account. The assets of the Account are owned by
Golden American. The portion of the Account's assets applicable to Contracts
will not be chargeable with liabilities arising out of any other business Golden
American may conduct, but obligations of the Account, including the promise to
make benefit payments, are obligations of Golden American.
The Account is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, as a non-diversified open-end
investment company.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the reserves and other contract liabilities with respect to the
Account. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risks under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS VALUATION: The valuation of the Account's assets is determined
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price at which domestic and foreign securities are traded, or, if no sales
are reported, the mean between representative bid and ask quotations obtained
from a quotation reporting system or from established market makers. In other
cases, securities are valued at their fair value as determined in good faith
under the direction of the Board of Governors. The value of a foreign security
is determined in its national currency based upon the price on the pertinent
foreign exchange as of its close of business immediately preceding the time of
valuation. Domestic and foreign denominated debt securities, including those to
be purchased under firm commitment agreements, are normally valued on the basis
of quotes obtained from brokers and dealers or pricing services. Debt
obligations having a maturity of sixty days or less may be valued at amortized
cost unless the Portfolio Manager believes that amortized cost does not
approximate market value.
CURRENCY TRANSLATION: Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency exchange contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar as of the close of business
39
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
immediately preceding the time of valuation. Purchases and sales of portfolio
securities are translated at the rates of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates of
exchange prevailing when accrued. Net realized and unrealized losses on foreign
currency transactions of $1,606,427 and $161,039, respectively, represent
foreign exchange gains and losses from holdings of foreign currencies, options
on foreign currencies, exchange gains and losses realized between the trade and
settlement date on security transactions, and the difference between the amounts
of interest and dividends and expenses recorded on the Account's books and the
U.S. dollar equivalent amounts actually received or paid. The Account does not
separate that portion of the realized and unrealized gains and losses resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of investments.
INVESTMENT INCOME AND SECURITY TRANSACTIONS: Investment transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
Interest income, including the amortization of premiums and discounts, and
estimated expenses are accrued daily. Realized gains and losses from investment
transactions are recorded on an identified cost basis which is the same basis
used for federal income tax purposes.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American, which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. SECURITIES TRANSACTIONS
(a) Purchases and sales of investment securities, excluding short-term
securities and options transactions, during the year ended December 31, 1994,
were $116,075,263 and $83,822,618, respectively.
(b) The Account may enter into repurchase agreements in accordance with
guidelines approved by the Board of Governors. The account bears a risk of loss
in the event that the counterparty to a repurchase agreement defaults on its
obligations and the Account is delayed or prevented from exercising its right to
dispose of the underlying securities collateralizing the repurchase agreement,
including the risk of a possible decline in the value of the underlying
securities during the period while the Series seeks to assure its rights. The
Account takes possession of the collateral, and reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Account enters into repurchase agreements to evaluate potential risks. The
market value of the underlying securities received as collateral must be at
least equal to the total amount of the repurchase obligation. In the event of
counterparty default, the Account has the right to use the underlying securities
to offset the loss.
(c) The Account may write exchange-listed and over-the-counter call and put
options on securities, currencies and other financial investments to enhance
investment performance. When the Account writes a put or call option, the amount
of received premium is included in the Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the current
market value of the option. Premiums received from writing options which expire
unexercised are treated by the Account on the expiration date as realized gains.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security in determining whether the Account has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Account. In writing an option, the Account
bears the market risk of
40
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
unfavorable changes in the price of the security or currency underlying the
written option. Exercise of an option written by the Account could result in the
Account selling or buying a security or currency at a price different from the
current market value.
The Account realized losses on written options of $232,104 for the year
ended December 31, 1994. Transactions in call and put options written for the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
------------ --------------
<S> <C> <C>
CALL OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 276 1,211,700
Options terminated in closing purchase transactions............... (276) (1,211,700)
------------ --------------
Options outstanding at end of period.............................. 0 0
------------ --------------
------------ --------------
PUT OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 181 809,540
Options terminated in closing purchase transactions............... (181) (809,540)
------------ --------------
Options outstanding at end of period.............................. 0 $ 0
------------ --------------
------------ --------------
</TABLE>
In addition, the Account may purchase exchange-traded and over-the-counter
call and put options on securities, currencies and securities indices. The risk
in buying an option is that the Account pays for a premium whether or not the
option is exercised. The Account also has the additional risk of not being able
to enter into a transaction if a liquid secondary market does not exist.
Additionally, the account bears the risk of loss should the counterparty not
perform under the contract.
(d) The Account enters into forward foreign exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward foreign exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the cost of the
original contracts and the amount realized upon the closing of such contracts is
included in realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward foreign currency exchange contracts held
are recorded for financial reporting purposes as unrealized gains or losses by
the Account on a daily basis. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar. At December 31,
1994, the Account had no forward foreign currency exchange contracts
outstanding.
(e) The Account may engage in trading financial futures contracts to hedge
its portfolio holdings or to enhance investment performance. Consequently, the
Account is exposed to market risk as a result of changes in the value of the
underlying financial instruments. Investments in financial futures require the
Account to "mark to market" on a daily basis, which reflects the change in the
market value of the contract at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized gains
or losses. When the contracts are closed, the Account recognizes a realized gain
or loss. These investments require initial margin deposits
41
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
which consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the exchange or
the board of trade on which the contract is traded and is subject to change. At
December 31, 1994, the Account had no open futures contracts.
4. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. The following is a summary of these
charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.35% of the assets attributable
to Contracts to cover these risks.
ASSET BASED ADMINISTRATIVE CHARGE: To compensate Golden American for the
administrative expenses under the Contract, a daily charge at an annual rate of
0.10% is deducted from assets attributable to the Contracts.
PARTIAL WITHDRAWAL CHARGE: A partial withdrawal charge of the lower of 2%
of the withdrawal or $25 is deducted from the accumulation value for each
additional partial withdrawal after the first partial withdrawal in a contract
year.
DEFERRED SALES LOAD: A sales load of 6% is applicable to each premium
payment for sales related expenses as specified in the Contracts. Although the
sales load is chargeable to each premium when it is received by Golden American,
the amount of such charge is initially advanced by Golden American to
Contractowners and included in the accumulation value and then deducted in equal
installments on each Contract processing date over a period of six years. For
the year ended December 31, 1994, contract sales loads of $1,039,651 initially
advanced by Golden American to the Account were deducted from contractowners'
accumulation value. Upon surrender of the Contract, the unamortized deferred
sales load is deducted from the accumulation value by Golden American. In
addition, when partial withdrawal limits are exceeded, a portion of the
unamortized deferred sales load is deducted.
The net assets retained in the Account by Golden American in the
accompanying financial statements represent the unamortized deferred sales load
and premium taxes advanced by Golden American, noted above.
Net Assets Retained in the Account by Golden American are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------- -------------
<S> <C> <C>
Balance at beginning of year........................................................ $ 4,668,658 $ 2,313,333
Sales load advanced................................................................. 1,338,526 2,671,408
Premium tax advanced................................................................ 6,823 5,997
Net transfer (to) from Separate Account B and the Guaranteed Interest Division...... (427,829) 197,052
Amortization of deferred sales load................................................. (1,052,214) (519,132)
------------- -------------
$ 4,533,964 $ 4,668,658
------------- -------------
------------- -------------
</TABLE>
42
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHARGES AND FEES (CONTINUED)
PREMIUM TAXES: Premium taxes are deducted, where applicable, from the
accumulation value of each Contract. The amount and timing of the deduction
depend on the annuitant's state of residence and currently ranges up to 3.5% of
premiums. Premium taxes are generally incurred on the annuity commencement date
and a charge for such premium taxes is then deducted from the accumulation value
on such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity commencement
date. In those states, Golden American advances the amount of the charge for
premium taxes to Contractowners and then deducts it from the accumulation value
in equal installments on each contract processing date over a six year period.
During the year ended December 31, 1994, premium taxes of $6,823 were advanced
by Golden American to Contractowners. Golden American is currently waiving the
deduction of the applicable installments of the charge for premium taxes
previously advanced by Golden American to Contractowners. Golden American
reserves the right to deduct the total amount of the charge for premium taxes
previously waived and unrecovered on the annuity commencement date or upon
surrender of the Contract.
OPERATING EXPENSES: The Account is charged for management expenses by DSI,
the Manager of the Account, based upon the following annual percentage of the
Account's average daily net assets: 0.40% of the first $500 million and 0.30% of
the amount over $500 million. In addition, Zulauf Asset Management AG, the
Account's Portfolio Manager, was paid a monthly advisory fee equal to an annual
rate based upon the following percentages of the Account's average daily net
assets: 0.60% of the first $500 million and 0.50% of the amount over $500
million. The Board of Governors of the Account terminated, effective June 30,
1994, the Portfolio Management Agreement between Zulauf Asset Management AG and
the Account. Effective July 1, 1994, the Board of Governors appointed Warburg
Pincus Counsellors, Inc. ("Warburg") as the new portfolio manager of the
Account. The Account pays Warburg an advisory fee, payable monthly, based on the
average daily net assets of the Account at an annual rate of 0.60% of the first
$500 million and 0.50% on the excess thereof. For the year ended December 31,
1994, the Account incurred management and advisory fees of $333,747 and
$500,620, respectively.
The Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, legal and auditing services, registration fees and other
related operating expenses. Bankers Trust is the custodian of the assets in the
Account. For the year ended December 31, 1994, the Account incurred $84,877 for
custodian fees.
ORGANIZATION EXPENSES: The initial organizational expenses of the Account
of approximately $150,000 were paid by Golden American. The Account reimburses
Golden American for such expenses over a period of five years from the date of
the Account's commencement of operations. At December 31, 1994, the unamortized
balance of such expenses was $94,382.
EXPENSE LIMITATION: The Account and DSI entered into an agreement to limit
the total expenses of the Account, excluding mortality and expense risk charges,
interest expense, and other contractual charges, through December 31, 1994, so
that such expenses do not exceed on an annual basis: 1.25% of the first $500
million of the average daily net assets 1.05% of the excess over $500 million.
For the year ended December 31, 1994, $71,175 was reimbursed by DSI to the
Account pursuant to this limitation. Such agreement was extended under the same
terms through December 31, 1995.
43
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer, acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For the
years ended December 31, 1994 and 1993, fees paid by Golden American to DSI in
connection with sales of the contracts aggregated approximately $1,343,000 and
$3,070,000, respectively.
6. NET RETURN
The following table shows the net return as a percentage of average net
assets with respect to the Account for the years ended December 31, 1994 and
1993, and the period October 21, 1992 (commencement of operations) to December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992*
--------- --------- ---------
<S> <C> <C> <C>
Investment income................................................................... 2.00% 1.97% 0.62%
Expense charges..................................................................... 2.31 2.42 0.36
--------- --------- ---------
Net investment income (loss)........................................................ (0.31) (0.45) 0.26
Net realized and unrealized (loss) gain on investments.............................. (13.26) 6.19 (.18)
--------- --------- ---------
Net return.......................................................................... (13.57)% 5.74% 0.08%
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
*Not annualized.
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Golden
American Life Insurance Company (the "Company") as of December 31, 1994 and
1993, and the related statutory-basis statements of operations, capital and
surplus, and cash flow for the years then ended. These financial statements
are the responsibility of the Company's 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.
The Company presents its 1994 and 1993 financial statements in conformity
with accounting practices prescribed or permitted by the Department of
Insurance of the State of Delaware. The variances between such practices and
generally accepted accounting principles and the effects on the accompanying
financial statements are described in Notes 2 and 4.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, or the results
of its operations or its cash flow for the years then ended. However, in our
opinion, the supplementary information included in Note 4 presents fairly, in
all material respects, stockholder's equity at December 31, 1994 and 1993,
and net income (loss) for the years ended December 31, 1994 and 1993, in
conformity with generally accepted accounting principles.
45
<PAGE>
Also, in our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, and the results
of its operations and its cash flow for the years then ended in conformity with
accounting practices prescribed or permitted by the Department of Insurance
of the State of Delaware for the years ended December 31, 1994 and 1993.
February 14, 1995
46
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $2,673,223 $ 2,127,036
Short-term investments 13,933,550 15,231,954
Common stock 15,609 321,842
Funds held in escrow pursuant to an Exchange Agreement 2,757,467 1,375,000
Cash 3,315,768 4,075,718
Policy loans 513,350 144,529
-------------------------------
23,208,967 23,276,079
Investment income due and accrued 92,423 68,002
Due from reinsurers 14,506,893 162,041
Due from parent and affiliates -- 466,129
Separate account assets 950,291,746 810,150,858
Other assets 80,119 --
Total admitted assets $988,180,148 $834,123,109
-------------------------------
-------------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Policy and contract liabilities:
Insurance and annuity reserves $ 6,036,021 $ 2,389,726
Due to reinsurers 13,860,267 87,977
-------------------------------
19,896,288 2,477,703
Other liabilities:
Due from separate accounts for net transfers (49,758,887) (39,158,451)
Due to parent and affiliates 232,587 --
Accrued expenses and other liabilities 745,569 1,220,619
Adjustable principal amount promissory note, 7.5%, due
1997 438,636 438,636
Borrowed money -- 40,040,278
Asset valuation reserve and interest maintenance reserve 41,598 131,060
-------------------------------
(28,404,209) 2,672,142
Separate account liabilities 950,291,746 810,150,858
-------------------------------
Total liabilities 921,887,537 815,300,703
Capital and surplus:
Common stock, par value $10 per share:
Authorized, issued and outstanding 250,000 shares 2,500,000 2,500,000
Redeemable preferred stock, par value $5,000 per share,
50,000 shares authorized, 10,000 shares issued and
outstanding in 1994 50,000,000 --
Paid-in surplus 42,699,479 33,949,479
Unassigned surplus (deficit) (28,906,868) (17,627,073)
-------------------------------
Total capital and surplus 66,292,611 18,822,406
-------------------------------
Total liabilities and capital and surplus $988,180,148 $834,123,109
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
47
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED December 31
1994 1993
-------------------------------
<S> <C> <C>
Premiums and annuity considerations $294,549,961 $505,465,379
Reserve adjustments on reinsurance ceded 12,705,353 --
-------------------------------
307,255,314 505,465,379
Investment income:
Gross investment income 578,107 245,507
Less investment expenses (2,310) (773,443)
-------------------------------
575,797 (527,936)
Amortization of interest maintenance reserve 3,323 14,720
Commissions and expense allowances on
reinsurance ceded 1,140,402 --
Other income -- 8,446
-------------------------------
Total income 308,974,836 504,960,609
Benefits paid or provided:
Annuity benefits 18,263,492 9,591,886
Surrender benefits 86,014,940 26,809,545
Increase (decrease) in insurance and annuity reserves 3,646,295 (59,390)
-------------------------------
107,924,727 36,342,041
Net transfers to separate accounts 178,965,551 434,471,301
Expenses:
Commissions 17,569,333 34,259,911
General insurance expenses 15,838,760 9,337,982
-------------------------------
33,408,093 43,597,893
-------------------------------
Total benefits and expenses 320,298,371 514,411,235
-------------------------------
Net loss from operations before federal income tax
benefit and net realized capital gains (11,323,535) (9,450,626)
Federal income tax benefit -- 16,083
Net realized capital gains 63,500 33,657
-------------------------------
Net loss $(11,260,035) $(9,400,886)
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
48
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
Balance at beginning of year $18,822,406 $12,204,962
Net loss (11,260,035) (9,400,886)
Change in net unrealized appreciation of investments (62,320) 47,856
Change in asset valuation reserve 92,811 (29,526)
Change in non-admitted assets (50,251) --
Issuance of redeemable preferred stock 50,000,000 --
Issuance of common stock -- 1,000,000
Contribution of capital by parent 8,750,000 15,000,000
-------------------------------
Net increase in capital and surplus 47,470,205 6,617,444
-------------------------------
Balance at end of year $66,292,611 $18,822,406
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
49
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations, net $308,461,038 $505,337,943
Policy loans (368,822) 202,132
Investment income, net of interest paid 465,559 (484,512)
Federal income tax benefit recovered -- 16,083
Benefits paid (104,913,778) (36,551,412)
Commissions and other operating expenses (33,764,277) (42,607,803)
Net transfers to separate accounts (189,565,987) (458,548,369)
Other 845,300 (274,409)
-------------------------------
Net cash used in operating activities (18,840,967) (32,910,347)
INVESTING ACTIVITIES
Proceeds from maturity and calling of bonds 321,110 552,100
Proceeds from sale of common stock 313,500 240,492
Cost of bonds acquired (857,274) (543,368)
Cost of common stock acquired (6,087) (260,576)
Investments held in escrow pursuant to an Exchange
Agreement, (net) (1,300,000) (1,375,000)
-------------------------------
Net cash used in investing activities (1,528,751) (1,386,352)
FINANCING ACTIVITIES
Issuance of common stock -- 1,000,000
Issuance of redeemable preferred stock 50,000,000 --
Contribution of capital by parent 8,750,000 15,000,000
Borrowed money (40,438,636) 33,600,000
-------------------------------
Net cash provided by financing activities 18,311,364 49,600,000
-------------------------------
Net (decrease) increase in cash and short-term
investments (2,058,354) 15,303,301
Cash and short-term investments at beginning
of year 19,307,672 4,004,371
-------------------------------
Cash and short-term investments at end of year $17,249,318 $19,307,672
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a
life insurance company in the District of Columbia and all states except New
York. Effective December 30, 1993, Golden American was redomesticated from
the State of Minnesota to the State of Delaware.
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
Directed Services, Inc. ("DSI"), an affiliate of Golden American, and certain
related assets and contributed them to BTV. The portion of the aggregate
consideration exchanged by Bankers Trust, allocable to Golden American, was
valued at $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated
value of insurance contracts in force and also included the acquisition of
net tangible assets of $.4 million. 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 is contingently supported by a $5 million note payable from
Golden American and a $6 million letter of credit from Bankers Trust. The
Golden American note is secured by a pledge of Golden American's right to
receive certain deferred sales loads. Bankers Trust has estimated that the
contingent liability due from Golden American amounted to $438,636 at
December 31, 1994 and 1993. During 1994 and 1993, Golden American deposited
with an escrow agent $1,300,000 and $1,375,000, respectively, pursuant to
certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly and
indirectly, all the issued and outstanding capital stock of Golden American,
to have at all times statutory capital and surplus of no less than the sum of
(i) $5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994 and 1993, BTV
contributed additional capital and paid-in
51
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. ORGANIZATION (CONTINUED)
surplus of $8,750,000 and $16,000,000, respectively, to Golden American,
including $1,000,000 in 1993 through the issuance of an additional 100,000
shares of common stock. In 1994, Golden American issued $50,000,000 of
preferred stock that was purchased by BTV for $50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements for the years ended December 31, 1994
and 1993 have been prepared on the basis of accounting practices and
procedures prescribed or permitted by the Department of Insurance of the
State of Delaware (the "Department") and the National Association of
Insurance Commissioners ("NAIC"). These practices differ in certain respects
from generally accepted accounting principles ("GAAP"). The more significant
accounting practices followed and, where indicated, their variation from
GAAP, are summarized as follows:
ADMITTED ASSETS
Assets in the accompanying balance sheets are stated at "admitted asset"
values. The term "admitted assets" means the assets are stated at values
required or permitted to be reported to the Department in accordance with the
rules and regulations of the Department and the NAIC.
ACQUISITION
The acquisition of Golden American by Bankers Trust had no effect on the
carrying value of the acquired assets and liabilities reported in the
accompanying statutory-basis financial statements. Under GAAP, the
acquisition of Golden American has been accounted for as a purchase by
Bankers Trust and, accordingly, the acquired assets and the liabilities
assumed were reported at their estimated fair values at the date of
acquisition. In addition, for GAAP purposes Golden American recorded an asset
for the cost assigned to insurance contracts in force, which represents the
value of the right to receive future profits from the life insurance and
annuity policies existing at the acquisition date. Such value is the
actuarially-determined present value of projected future profits from the
acquired contracts discounted at an interest rate of 15%. Cost assigned to
insurance contracts in force is being amortized over the estimated life of
the applicable insurance contracts in relation to estimated future gross
profits with interest at 8%.
52
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The admitted asset values of bonds and stocks have been determined on the
basis prescribed by the NAIC. Such admitted asset values represent
principally amortized cost for bonds (market value--1994: $2,658,448 and 1993:
$2,198,654) and market value for common stocks (cost--1994: $16,429 and 1993:
$260,342).
As prescribed by the NAIC, an Asset Valuation Reserve ("AVR") is required to
be maintained by insurance companies. The AVR is computed in accordance with
a prescribed formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate, and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus. As also prescribed by the NAIC, beginning in 1992, Golden
American adopted an Interest Maintenance Reserve ("IMR") that represents the
net accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity. Under GAAP, the AVR and IMR are not recorded.
Net realized capital gains and losses on investments are included in the
determination of net income using the specific identification method. Through
the use of the IMR such net realized gains and losses may be deferred, net of
applicable capital gains taxes, and amortized into investment income over the
life of the investments sold.
Unrealized gains and losses on stocks are recognized directly in unassigned
surplus. Short-term investments are carried at cost, which, when combined
with accrued interest income, approximates fair value.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden
American provides for variable accumulation and benefits under the policies
and contracts by crediting life and annuity considerations in accordance with
contractholder direction to one or more divisions within various separate
accounts or Golden American's guaranteed interest division. Allocation of
premiums to the guaranteed interest division was discontinued in 1991.
53
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums and annuity considerations are recorded as received and are
presented net of reinsurance premiums of $16.1 million and $.7 million in
1994 and 1993, respectively. Under GAAP, revenues from variable life and
annuity products consist of policy charges for mortality and expense risk,
the cost of insurance and policy administration costs that have been assessed
against policy account balances during the period.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent policy account balances invested in
the guaranteed interest division less the related unamortized portion of the
deferred sales load and other policy charges. Such reserves include
provisions for minimum death benefit guarantees.
Surrender values are not promised in excess of the legally computed reserves.
There was no insurance in-force at December 31, 1994 for which the gross
premiums were less than net premiums.
POLICY BENEFITS
Policy benefits paid or provided include benefit claims incurred in the
period and are net of reinsurance of $2.4 million and $.4 million in 1994 and
1993, respectively. Interest credited rates for the guaranteed interest
division ranged from 4.0% to 5.0% during 1994 and 1993. Under GAAP, policy
benefits that are charged to expense include benefits incurred in the period
in excess of the policy account balances and interest credited to policy
account balances invested in the guaranteed interest division.
ACQUISITION COSTS
Commissions and other costs incurred in acquiring new business are charged to
operations as incurred. Under GAAP, these costs are deferred and are
amortized over the lives of the policies in relation to the present value of
estimated gross profits from policy sales load and investment returns, and
mortality and expense margins.
54
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
The separate accounts are registered investment companies under the
provisions of the Investment Company Act of 1940. At the direction of the
policyowners and contractholders, the separate accounts invest the premium
and annuity considerations from the sale of variable life and annuity
products in either shares of specified mutual funds or directly in other
investment securities. The assets and liabilities of Golden American's
separate accounts are identified and segregated from other assets and
liabilities of Golden American. The portion of the separate account assets
applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
Separate account assets are carried at the net asset value of the underlying
mutual funds, which approximates market value, and generally represent
contractholder and policyowner funds maintained in the accounts and
unamortized deferred sales loads and other charges payable to Golden American
over a specified period. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are not included
in the accompanying statements of operations of Golden American.
A sales load ranging from 0% to 9% in addition to other charges is applicable
to each premium payment for policy related expenses. Although this sales load
is assessed on each premium when it is received by Golden American, such
sales load is initially advanced by Golden American to contractholders and
policyowners and included in the separate or general account assets, as
applicable, and then deducted in equal installments on each contract
processing date over a period specified in the contract or policy. Sales
loads are included in operations when assessed by Golden American. Under
GAAP, these sales loads are earned over the life of the contract in relation
to estimated future gross profits. Sales load amounts that have been deducted
but not yet earned are reported as unearned income.
REINSURANCE
Premiums and policy benefits are reported in the accompanying financial
statements net of reinsurance ceded. Golden American would remain liable to
the extent that any reinsurers do not meet their obligations under the
reinsurance agreements. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts" which was issued
in December 1992, was adopted by Golden American in 1993. However, its
adoption did not have a material impact on the financial statements of Golden
American.
55
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Federal income tax benefits are based on net losses from operations after
adjusting for certain income and expense items, principally differences
between statutory and tax reserves, accrual of bond discount, and specified
policy acquisition expenses that, in accordance with the provisions of the
Internal Revenue Code ("IRC"), are not included in the determination of
current taxable income.
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the IRC. At December 31, 1994
and 1993, Golden American had net operating loss ("NOL") carryforwards for
federal income tax purposes of approximately $17.3 million and $7.3 million,
respectively. Approximately $2.4 million of these NOL's, relating to
operations prior to ownership by Mutual Benefit, can be used to offset future
taxable income of Golden American only through the year 2005, subject to
annual limitations. Approximately $.8 million, $4.1 million and $10.0 million
are available through the years 2007, 2008, and 2009, respectively.
STATEMENTS OF CASH FLOW
For purposes of Golden American's statements of cash flow, all highly liquid
investments with a maturity of one year or less are considered to be
short-term investments.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount
promissory note, and policy and contract liabilities and determined that
carrying amounts reported in the balance sheets approximate fair value.
56
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000,000 under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. Golden American met the RBC requirements as of December 31,
1994 and 1993.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock in 1994. As of December 31, 1994, Dividends in Arrears on
the Redeemable Preferred Stock were $17,917 or $1.79 per share. The
dividends are cumulative and are calculated based on a rate not to exceed the
sum of the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable
at the option of Golden American at the redemption price of $5,000 per share.
Dividend payments to common stockholders are limited by statutory
restrictions issued by the State of Delaware. The maximum amount of
dividends which can be paid by State of Delaware insurance companies to
stockholders without prior approval of the Insurance Commissioner is the
higher of either (a) prior year net income or (b) 10% of ending prior year
surplus. Statutory surplus at December 31, 1994, was $13,792,611. The net
loss for 1994 was $(11,260,035). The maximum dividend payout which may be
made without prior approval in 1995 is $1,379,261. No dividends were paid in
1994.
57
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. CAPITAL AND SURPLUS (CONTINUED)
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1994 and 1993 and net loss for the years ended December 31, 1994
and 1993 to its statutory-basis capital and surplus and net loss included in
the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME/(LOSS)
--------------------------- -------------------------
1994 1993 1994 1993
------------------------------------------------------
<S> <C> <C> <C> <C>
GAAP-basis $ 89,506,318 $ 28,596,888 $ 2,221,748 $ (1,792,700)
Asset valuation reserve/interest
maintenance reserve (41,598) (131,060) 3,323 14,720
Fixed maturities from acquisition (75,609) (96,528) 14,248 4,300
Deferred policy acquisition costs (60,662,000) (42,151,111) (18,510,889) (35,101,494)
Cost assigned to insurance contracts in
force (7,620,000) (9,784,189) 2,164,189 1,356,597
Deferred sales loads and policy charges 49,223,050 42,223,470 6,999,580 26,695,281
Reserves (4,985,212) -- (5,016,676) 563,905
Unearned revenue 1,759,000 164,936 1,594,064 (1,141,495)
Other (811,338) -- (729,622) --
------------ ------------ ------------ ------------
Statutory-basis $ 66,292,611 $ 18,822,406 $(11,260,035) $ (9,400,886)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
5. INVESTMENTS
Investments in debt securities and other fixed maturity investments generally
are held for investment purposes to maturity. Included in short-term
investments at December 31, 1994 and 1993 are $13.9 million and $15.2 million
of debt securities, respectively, issued by the U.S. Government.
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1994:
U.S. Treasury bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
Total bonds $2,673,223 $21,055 $(35,830) $2,658,448
-----------------------------------------------
-----------------------------------------------
At December 31, 1993:
U.S. Treasury $2,032,905 $68,669 $(4,191) $2,097,383
Corporate securities 94,131 7,140 -- 101,271
-----------------------------------------------
Total bonds $2,127,036 $75,809 $(4,191) $2,198,654
-----------------------------------------------
-----------------------------------------------
</TABLE>
58
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
5. INVESTMENTS (CONTINUED)
Fair values generally represent quoted market value prices for securities
traded in the public marketplace.
Maturities of long-term bonds are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
-----------------------------
<S> <C> <C>
Due in one year or less $701,048 $688,136
Due after one year through five years 849,927 827,009
Due after five years through ten years 1,122,248 1,143,303
$2,673,223 $2,658,448
-----------------------------
-----------------------------
</TABLE>
Proceeds from the sale of investments in bonds during 1994 and 1993 were
$321,110 and $552,100; gross gains of $6,672 and $24,919 were realized on
those sales, respectively.
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities was $(820) and $61,500, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year ended December 31, 1993, Golden
American incurred $311,121 for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
were sold primarily through two broker/dealer institutions. For 1994 and
1993, commissions paid by Golden American to DSI aggregated $17,569,333 and
$34,259,911, respectively.
59
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Golden American provided to DSI certain of its personnel to perform
management, administrative, and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,486
and $2,012,969, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
ended December 31, 1993, fees earned by BTV from Golden American for these
services aggregated $2,700,850. The agreement was terminated as of
January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative, and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
ended December 31, 1993, BTV allocated to Golden American $1,503,159. The
agreement was terminated on January 1, 1994.
At December 31, 1994 and 1993, Golden American's cash and short-term
investments on deposit at Bankers Trust were $10,063,172 and $19,307,672,
respectively.
7. REINSURANCE
Variable life and annuity product fees are reported in the accompanying
financial statements net of reinsurance premiums of $16.1 million and
$.7 million in 1994 and 1993, respectively. Effective September 30, 1992,
Golden American terminated all reinsurance agreements with Mutual Benefit.
Concurrently, Golden American entered into agreements covering mortality
risks under both life policies and annuity contracts with an unaffiliated
reinsurer. Also, effective June 1, 1994, Golden American entered into a
reinsurance agreement on a modified coinsurance basis with an unaffiliated
reinsurer. Golden American remains liable to the extent that its reinsurers
do not meet their obligations under the reinsurance agreements. Reinsurance
in-force for life mortality risks were $23.3 million and $15.4 million at
December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and
60
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
7. REINSURANCE (CONTINUED)
1993, respectively. FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short Duration and Long Duration Contracts," was issued in
December 1992 and adopted by Golden American in 1993. However, its adoption
did not have a material impact on the financial statements of Golden American.
8. LIFE AND ANNUITIES ACTUARIAL RESERVES
The following is a reconciliation of the Life and Annuities actuarial
reserves presented in the 1994 Annual Statements of Golden American and
Golden American Separate Accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT TOTAL
--------------------------------
<S> <C> <C>
1. Subject to discretionary withdrawal
1.1 - with market value adjustment $ -- 0%
----------- -----
1.2 - at book value less current surrender charge of 5%
or more -- 0%
----------- -----
1.3 - at market value -- 0%
----------- -----
1.4 - Total with adjustment or at market value 893,814,295 100%
----------- -----
1.5 - at book value without adjustment (minimal or no
charge or adjustment) 520,244 0%
----------- -----
2. Not subject to discretionary withdrawal -- 0%
----------- -----
3. Total (gross) 894,334,539 100%
----------- -----
4. Reinsurance ceded --
-----------
5. Total (net)* (3) - (4) $894,334,539
-----------
-----------
<FN>
*Reconciliation of total annuity actuarial reserves and deposit fund
liabilities.
</TABLE>
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
8. LIFE AND ANNUITIES ACTUARIAL RESERVES (CONTINUED)
<TABLE>
<S> <C>
Life and Accident and Health Annual Statement:
6. Exhibit 8, Section B, Total (net) $ 520,244
------------
7. Exhibit 8, Section C, Total (net) --
------------
8. Exhibit 10, Column 1, Line 12 --
------------
9. Subtotal 520,244
------------
Separate Accounts Statement:
10. Exhibit 6, Column 2, Line B.10 893,814,295
------------
11. Exhibit 6, Column 2, Line C.5 --
------------
12. Page 3, Line 3 --
------------
13. Page 3, Line 3 --
------------
14. Subtotal 893,814,295
------------
15. Combined total $894,334,539
------------
------------
</TABLE>
9. BORROWED MONEY
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
10. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
Golden American's employees are covered under the Parent's benefit plans.
The noncontributory pension plan and the profit sharing plan of the Parent
are also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were approximately $207,000.
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
11. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. BTV, an indirect subsidiary of Bankers Trust, is
the corporate parent of the Company and DSI. The acquisition is subject to
the approval of the appropriate regulators. First Colony is the corporate
parent of two insurance companies, First Colony Life Insurance Company and
American Mayflower Life Insurance Company, which together provide life
insurance and annuity products throughout the United States. The agreement
was amended to extend to June 15, 1995, the date at which either party may
terminate the agreement if the closing has not occurred by such time.
63
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying balance sheets of Golden American Life
Insurance Company (the Company) as of December 31, 1994 and 1993 and the
related statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1994 and 1993 and for the period from
September 30, 1992 (date of acquisition) to December 31, 1992. These financial
statements are the responsibility of the Company's 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 financial position of Golden American Life Insurance
Company at December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years ended December 31, 1994 and 1993 and for the period
from September 30, 1992 to December 31, 1992, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted, as of
December 31, 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
February 14, 1995
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
---------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost
(market--$2,659 and $2,199) $ 2,749 $ 2,224
Short-term investments, at cost, which approximates market 13,933 15,232
Equity securities, at market (cost--$17 and $260) 16 322
Policy loans 513 144
-------------------------
Total investments 17,211 17,922
Cash 3,316 4,076
Accrued investment income 92 68
Due from affiliates and separate accounts 963 466
Deferred policy acquisition costs 60,662 42,151
Unamortized cost assigned to insurance contracts in force 7,620 9,784
Funds held in escrow pursuant to an Exchange Agreement 2,757 1,375
Due from reinsurers 1,713 162
Other assets 134 --
Separate account assets 950,292 810,151
-------------------------
Total assets $1,044,760 $886,155
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves (including $17 and $31
of unamortized deferred sales load) $ 1,051 $ 2,421
Due to affiliates and separate accounts 660 3,462
Accrued expenses and other liabilities 1,053 920
Short-term debt -- 40,000
Unearned revenue 1,759 165
Adjustable principal amount promissory note,
7.50%, due 1997 439 439
Separate account liabilities (including
$48,924 and $42,192 of unamortized
deferred sales load) 950,292 810,151
-------------------------
Total liabilities 955,254 857,558
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share, authorized,
issued, and outstanding 250,000 shares 2,500 2,500
Redeemable preferred stock, par value $5,000
per share, 50,000 shares authorized,
10,000 issued and outstanding in 1994 50,000 --
Additional paid-in capital 37,086 28,336
Unrealized (depreciation) appreciation of equity
securities (1) 62
Retained earnings (deficit) (79) (2,301)
-------------------------
Total stockholder's equity 89,506 28,597
-------------------------
Total liabilities and stockholder's equity $1,044,760 $886,155
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
REVENUES
Variable life and annuity product fees and policy
charges $ 17,519 $10,192 $ 694
Net investment income 560 216 67
Realized capital gain (loss) 65 35 (2)
-----------------------------------------------------
Total revenues 18,144 10,443 759
EXPENSES
Policy benefits 35 1,747 34
Commissions and overrides 16,741 34,260 6,429
Salaries, benefits and other employee-
related costs 5,866 -- --
Financing charges and interest 1,962 726 53
Other general, administrative, and
operating expenses 7,665 9,248 1,662
Deferral of policy acquisition costs (23,119) (37,129) (7,059)
Amortization of deferred policy acquisition
costs 4,608 2,027 10
Amortization of cost assigned to insurance
contracts in force 2,164 1,357 138
-----------------------------------------------------
Total expenses 15,922 12,236 1,267
-----------------------------------------------------
Net income (loss) $ 2,222 $ (1,793) $ (508)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
66
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD SEPTEMBER 30, 1992 TO DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
UNREALIZED
SHARES SHARES ADDITIONAL APPRECIATION RETAINED TOTAL
COMMON PREFERRED COMMON PREFERRED PAID-IN OF EQUITY EARNINGS STOCKHOLDER'S
STOCK STOCK STOCK STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1992 (date of
acquisition) 150,000 $1,500 $13,336 $14,836
Net loss $ (508) (508)
Unrealized appreciation of equity securities $ 14 14
------------------------------------------------------------------------------------
Balances at December 31, 1992 150,000 1,500 13,316 14 (508) 14,342
Issuance of common stock 100,000 1,000 1,000
Contribution of capital 15,000 15,000
Net loss (1,793) (1,793)
Change in unrealized appreciation of
equity securities 48 -- 48
------------------------------------------------------------------------------------
Balances at December 31, 1993 250,000 2,500 -- 28,336 62 (2,301) 28,597
Issuance of preferred stock 10,000 50,000 50,000
Contribution of capital 8,750 8,750
Net income 2,222 2,222
Change in unrealized depreciation of equity
securities (63) (63)
------------------------------------------------------------------------------------
Balances at December 31, 1994 250,000 10,000 $2,500 $50,000 $37,086 $(1) $ 79 $89,506
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,222 $ (1,793) $(508)
Adjustments to reconcile net income (loss)
to net cash used in
operating activities:
Amortization of deferred policy
acquisition costs 4,608 2,027 10
Amortization of cost assigned
to insurance contracts in force 2,164 1,357 138
Change in unearned revenue 1,594 (1,141) (136)
Increase in accrued investment income (24) (1) (13)
Change in due to/from affiliates and
separate accounts (3,299) 2,976 (81)
Changes in other assets, accrued expenses
and other liabilities (1,552) 42 (154)
Policy acquisition costs deferred (23,119) (37,129) (7,059)
Change in insurance and annuity reserves (1,370) 550 45
Amortization of premium on fixed maturity
investments 13 -- --
-----------------------------------------------------
Net cash used in operating activities (18,763) (33,112) (7,758)
INVESTING ACTIVITIES
Purchases of fixed maturities (857) (543) (151)
Sales of fixed maturities 319 552 1,177
Purchases of common stock (7) (260) (2)
Sales of common stock 250 240 --
(Increase) decrease in policy loans (369) 202 (29)
Funds held in escrow pursuant to
an Exchange Agreement (1,382) (1,375) --
-----------------------------------------------------
Net cash (used in) provided by
investing activities (2,046) (1,184) 995
FINANCING ACTIVITIES
(Retirement) issuances of short-term debt (40,000) 33,600 6,400
Issuance of common stock -- 1,000 --
Issuance of preferred stock 50,000 -- --
Contribution of capital by parent 8,750 15,000 --
-----------------------------------------------------
Net cash provided by financing activities 18,750 49,600 6,400
-----------------------------------------------------
Net (decrease) increase in cash and
short-term investments (2,059) 15,304 (363)
Cash and short-term investments at
beginning of year 19,308 4,004 4,367
-----------------------------------------------------
Cash and short-term investments at
end of year $17,249 $19,308 $4,004
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company ("Golden
American") became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust").
Previously, Golden American was owned by Mutual Benefit Life Insurance Company
in Rehabilitation ("Mutual Benefit"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at
approximately $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of insurance contracts in force and also included the acquisition of net
tangible assets of $.4 million. 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
is contingently supported by a $5 million note payable from Golden American and
a $6 million letter of credit from Bankers Trust. The Golden American note is
secured by a pledge of Golden American's right to receive certain deferred sales
loads. Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993. Golden American
deposited with an escrow agent $1,300,000 and $1,375,000, in 1994 and 1993,
respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994, 1993, and 1992, BTV
contributed additional capital and paid-in surplus of $8,750,000, $16,000,000,
and $3,200,000, respectively, to Golden American, including $1,000,000 in 1993
through the issuance of an additional 100,000 shares of common stock. In 1994,
Golden American issued $50,000,000 of preferred stock that was purchased by BTV
for $50,000,000 in cash.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been presented in accordance with
generally accepted accounting principles ("GAAP"). The acquisition of Golden
American has been accounted for as a purchase by Bankers Trust and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair values
at September 30, 1992. In accordance with requirements of the Securities and
Exchange Commission, this new basis of accounting has been "pushed down" to
Golden American.
INVESTMENTS
Fixed maturities are carried at amortized cost. Short-term investments are
carried at cost, which approximates market. Equity securities, principally
investments in mutual funds, are carried at market based on quoted market
prices. Net unrealized appreciation of equity securities is included as a
component of stockholder's equity. The cost of investments sold is determined by
using the specific identification method.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible premium
variable life insurance policies and annuity products. Golden American provides
for variable accumulation and benefits under the policies and contracts by
crediting life and annuity considerations in accordance with contractholder
direction to one or more divisions within various separate accounts or Golden
American's guaranteed interest division. Allocation of premiums to the
guaranteed interest division was discontinued in 1991.
SEPARATE ACCOUNTS
The separate accounts are registered under the provisions of the Investment
Company Act of 1940. At the direction of the policyowners and contractholders,
the separate accounts invest the premium and annuity considerations from the
sale of variable life and annuity products either in shares of specified mutual
funds or directly in other investments. The assets and liabilities of Golden
American's separate accounts are clearly identified and segregated from other
assets and liabilities of Golden American. The portion of the separate account
assets applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS (CONTINUED)
Separate account assets are carried at net asset value, which approximates
market value and generally represent policyowner and contractholder investment
values maintained in the accounts and unamortized deferred sales loads and other
charges payable to Golden American over a specified period. Separate account
liabilities represent account balances for the variable life policies and
annuity contracts invested in the separate accounts, which include unamortized
deferred sales loads. 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 of Golden American.
REVENUE RECOGNITION
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, the cost of insurance and contract administration
charges that have been assessed against account balances during the period. In
addition, a sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for contract related expenses. Although such
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the general or separate account assets, as
applicable, and then deducted or amortized in equal installments on each
contract processing date over a period specified in the contract or policy.
These sales loads are earned over the life of the insurance contract in relation
to estimated future gross profits using methods and assumptions similar to those
for cost assigned to insurance contracts in force. Sales loads that have been
deducted but not yet earned are reported as unearned revenue.
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE
The cost assigned to insurance contracts in force represents the value of the
right to receive future profits from the life insurance and annuity policies
existing at the acquisition date. Such value is the actuarially-determined
present value of projected future profits from the acquired contracts discounted
at an interest rate of 15%. Cost assigned to insurance contracts in force is
being amortized over the estimated life of the applicable insurance contracts in
relation to estimated future gross profits with interest at 8%.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE (CONTINUED)
The following is a reconciliation of the costs assigned to insurance contracts
in force for the years ended December 31, 1994, 1993, and the period September
30, 1992 to December 31, 1992:
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
SEPTEMBER 30, 1992
YEAR ENDED DECEMBER 31 TO
1994 1993 DECEMBER 31, 1992
-------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 9,784,000 $11,140,000 $11,278,000
Interest accrued 696,000 942,000 244,000
Amortization (2,860,000) (2,298,000) (382,000)
-------------------------------------------------------
Ending balance $ 7,620,000 $ 9,784,000 $11,140,000
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The following table presents the expected amortization of the cost assigned to
insurance contracts in force over the next five years. The amortization may be
adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<S> <C>
1995 $1,481,000
1996 1,232,000
1997 1,156,000
1998 936,000
1999 580,000
</TABLE>
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and are
directly related to the production of new and renewal business. Acquisition
costs for variable life and annuity products are being amortized over the lives
of the policies in relation to the present value of estimated future gross
profits. The future gross profit estimates are subject to periodic evaluation
with necessary revisions applied against amortization to date.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent variable life and annuity account
balances invested in the guaranteed interest division. Interest credited rates
for this division ranged from 4.0% to 5.0% during 1994 and 1993.
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY BENEFITS
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited to
policy account balances invested in the guaranteed interest division.
REINSURANCE
Included in the accompanying financial statements are net considerations to
reinsurers of $2.4 million and $.7 million in 1994 and 1993, respectively.
Effective September 30, 1992, Golden American terminated all reinsurance
agreements with Mutual Benefit. Concurrently, Golden American entered into
agreements covering mortality risks under both life policies and annuity
contracts with an unaffiliated reinsurer. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance in-force for life mortality risks were $23.6 million and
$15.4 million at December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and 1993, respectively.
FASB Statement No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts," was adopted by Golden American in 1993.
However, its adoption did not have a material impact on the financial statements
of Golden American.
Also effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects of the treaty
which reduced 1994 net income by $27,000.
CASH EQUIVALENTS
The Company considers all short-term investments (including commercial paper,
money markets, and certificates of deposit) with a maturity of three months or
less when purchased to be cash equivalents.
PRESENTATION
Certain prior-year balances have been reclassifed to conform to the current-year
financial statement presentation.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally short-term
investments, policy loans, the adjustable principal amount promissory note, and
insurance and annuity reserves and determined that carrying amounts reported in
the balance sheets approximate fair value.
4. INVESTMENTS
Effective with the December 31, 1993 financial statements, Golden American
adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its fixed maturities as held to maturity
based on its intent and ability to hold them to maturity. The adoption of FASB
Statement No. 115 had no impact on Golden American's financial statements. The
major categories of investment income for 1994, 1993, and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities held to maturity $142 $114 $47
Short-term investments 226 90 14
Equity securities 1 1 2
Policy loans 11 11 4
Cash 99 -- --
Funds held in escrow 83 -- --
-----------------------
Gross investment income 562 216 67
Investment expenses (2)
-----------------------
Net investment income $560 $216 $67
-----------------------
-----------------------
</TABLE>
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
--------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1994:
U.S. Treasury securities $16,682 $(90) $16,592
--------------------------------------
--------------------------------------
At December 31, 1993:
U.S. Treasury securities $17,357 $(27) $17,330
Corporate securities 99 2 101
--------------------------------------
$17,456 $(25) $17,431
--------------------------------------
--------------------------------------
</TABLE>
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $14,634 $14,622 $15,454 $15,452
Due after one year through five years 850 827 793 791
Due after five years through ten years 1,198 1,143 1,209 1,188
---------------------------------------------------
$16,682 $16,592 $17,456 $17,431
---------------------------------------------------
---------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities recognized directly in stockholder's equity
was $(1,000) and $62,000, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with
regulatory authorities pursuant to certain statutory requirements.
5. STOCKHOLDER'S EQUITY
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain of the jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total statutory-
basis capital and surplus of not less than $5,000,000 under the provisions of
the insurance laws of certain states in which it is presently licensed to sell
variable life and annuity products. Dividend payments by Golden American are
limited by statutory restrictions to the higher of 10% of surplus or 100% of the
prior year s net gain, not to exceed unassigned surplus, subject to the broad
discretionary powers of insurance regulatory authorities to further limit
dividend payments of insurance companies.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1994 and 1993, Golden American met the RBC
requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock. As of December 31, 1994, Dividends in Arrears on the
Redeemable Preferred Stock were $17,917 or $1.79 per share. The dividends
are cumulative and are calculated based on a rate not to exceed the sum of
the Prime Rate and 1.5%. The Redeemable Preferred Stock is redeemable at the
option of Golden American at the redemption price of $5,000 per share.
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
1993 and the period from September 30, 1992 to December 31, 1992, fees earned
by BTV from Golden American for these services aggregated $2,701,000 and
$209,000, respectively. The agreement was terminated as of January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of
certain of its facilities. BTV charged Golden American for such expenses and
all other general and administrative costs, first on the basis of direct
charges when identifiable, and second allocated based on the estimated amount
of time spent by BTV's employees on behalf of Golden American. For the year
1993 and the period from September 30, 1992 to December 31, 1992, BTV
allocated to Golden American $1,503,000 and $450,000, respectively. The
agreement was terminated on January 1, 1994.
Golden American's cash is on deposit at Bankers Trust.
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code (the
"Code"). At December 31, 1994 and 1993, Golden American had net operating
loss ("NOL") carryforwards for federal income tax purposes of approximately
$17.3 million and $7.3 million, respectively. Approximately $2.4 million of
these NOL s, relating to operations prior to ownership by Mutual Benefit, can
be used to offset future taxable income of Golden American only through the
year 2005, subject to annual limitations. Approximately $.8 million, $4.1
million and $10.0 million are available through the years 2007, 2008, and
2009, respectively.
Significant components of Golden American s deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $21,200 $14,800
Unamortized cost assigned to insurance
contracts in force 2,700 3,400
-------------------
23,900 18,200
Deferred tax assets:
Net operating loss carryforwards 6,000 2,400
Insurance liabilities 15,200 14,800
Deferred policy acquisition costs
proxy tax 3,700 2,900
Other 700 --
-------------------
25,600 20,100
Valuation allowance for deferred tax assets 1,700 1,900
-------------------
Net deferred tax liabilities $ $
-------------------
-------------------
</TABLE>
77
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The differences between the provision (benefit) for income taxes at the
federal statutory income tax rate and the taxes based on income (loss) were
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 34%
-------------------------
-------------------------
Taxes at statutory rate $ 778 $(627) $(173)
Dividends received deduction (368) (194) --
Other, net (210) (379) (92)
Valuation allowance (200) 1,200 265
-------------------------
Taxes based on income (loss) $ -- $ -- $ --
-------------------------
-------------------------
</TABLE>
8. SHORT-TERM DEBT
At December 31, 1993, Golden American had short-term debt outstanding with an
unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed
under this loan had been guaranteed by Bankers Trust.
9. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
The Company s employees are covered under the Parent s benefit plans. The
noncontributory pension plan and the profit sharing plan of the Parent are
also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were $.2 million.
10. SIGNIFICANT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony") and BTV
entered into an agreement providing for the acquisition by First Colony of a
minority interest in BTV. The acquisition is subject to the approval of the
appropriate regulators. First Colony is the corporate parent of two insurance
companies, First Colony Life Insurance Company and American Mayflower Life
Insurance Company, which together provide life insurance and annuity products
throughout the United States. The agreement was amended to extend to June
15, 1995, the date at which either party may terminate the agreement if the
closing has not occurred by such time.
78
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GOLDENSELECT DVA
DEFERRED COMBINATION VARIABLE
AND FIXED ANNUITY CONTRACT
issued by
SEPARATE ACCOUNT B ("Account B")
and
SEPARATE ACCOUNT D ("Account D")
(collectively, the "Accounts")
of
GOLDEN AMERICAN LIFE INSURANCE COMPANY
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THE
INFORMATION CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED VARIABLE ANNUITY
CONTRACT WHICH IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO
KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, SEND A WRITTEN REQUEST TO
GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE CENTER, P.O. BOX 8794,
WILMINGTON, DE 19899-8794 OR TELEPHONE 1-800-366-0066.
DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
INTRODUCTION............................................................... 1
PART I
Description of Golden American Life Insurance Company...................... 1
Safekeeping of Assets...................................................... 1
The Administrator.......................................................... 1
Independent Auditors....................................................... 2
Reinsurance................................................................ 2
Distribution of Contracts.................................................. 2
Performance Information.................................................... 2
IRA Partial Withdrawal Option.............................................. 6
Other Information.......................................................... 7
PART II
Securities and Investment Techniques....................................... 7
U.S. Government Securities.............................................. 7
Debt Securities......................................................... 7
Short Sales Against the Box............................................. 8
Futures Contracts and Options on Futures Contracts...................... 8
Options on Securities................................................... 9
Options on Securities Indexes........................................... 10
Foreign Currency Transactions........................................... 10
Options on Foreign Currencies........................................... 12
Repurchase Agreements................................................... 12
Banking Industry and Savings Industry Obligations....................... 12
Commercial Paper........................................................ 13
When Issued or Delayed Delivery Securities.............................. 14
Investment Restrictions.................................................... 14
Management of Separate Account D........................................... 15
The Manager................................................................ 17
Portfolio Manager.......................................................... 18
Custodian and Portfolio Accounting Agent................................... 18
Portfolio Transactions and Brokerage....................................... 18
Purchase and Pricing of the Global Account................................. 20
Financial Statements of Separate Account B................................. 21
Financial Statements of The Managed Global Account of Separate Account D... 21
Appendix - Description of Bond Ratings
<PAGE>
INTRODUCTION
Part I of this Statement of Additional Information provides background
information regarding Account B and Account D. Part II of this Statement of
Additional Information provides information regarding the investment activities
of Account D and The Managed Global Account (the "Global Account"), including
its investment policies.
PART I
DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. From January 2,
1973 through December 31, 1987, the name of the company was St. Paul Life
Insurance Company. On December 31, 1987, after all of St. Paul Life Insurance
Company's business was sold, the name was changed to Golden American. On March
7, 1988, all of the stock of Golden American was acquired by The Golden
Financial Group, Inc. ("GFG"), a financial services holding company. On October
19, 1990, GFG merged with and into MBL Variable, Inc. ("MBLV"), a wholly owned
direct subsidiary of The Mutual Benefit Life Insurance Company ("MBL"). On
January 1, 1991, MBLV became a wholly owned indirect subsidiary of MBL and
Golden American became a wholly owned direct subsidiary of MBL. Golden
American's name had been changed to MB Variable Life Insurance Company in the
state of Minnesota but subsequently has been changed back to Golden American.
In a transaction that closed on September 30, 1992, Golden American was acquired
by a subsidiary of Bankers Trust Company ("Bankers Trust"). As of December 31,
1994, Golden American had over $89.5 million in stockholders' equity and
approximately $1.04 billion in total assets, including approximately $950.3
million of separate account assets. Golden American is authorized to do
business in all jurisdictions except New York. Golden American offers variable
annuities and variable life insurance.
SAFEKEEPING OF ASSETS
Golden American acts as its own custodian for Account B.
THE ADMINISTRATOR
Effective January 1, 1994, 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) has 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 are reimbursed by Golden
American on an allocated cost basis. Charges billed to Golden American by
Bankers Trust (Delaware) pursuant to the service agreement were $816,264 for
1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and administration of its products. For the
year 1993 and the period from September 30, 1992 to December 31, 1992, fees
earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its
personnel to perform management, administrative and clerical services and the
use of certain of its facilities. BT Variable charged Golden American for such
expenses and all other general and administrative costs, first on the basis of
direct charges when identifiable, and second allocated based on the estimated
amount of time spent by BT Variable's employees on behalf of Golden American.
For the year 1993 and the period from September 30, 1992 to December 31, 1992,
BT Variable allocated to Golden American $1,503,000 and $450,000, respectively.
The agreement was terminated on
1
<PAGE>
January 1, 1994. During 1994, such expenses were allocated directly by BT
New York Corporation to Golden American and totaled $1,395,966 for the year.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, NY 10019, independent
auditors, will perform annual audits of Golden American and the Accounts.
REINSURANCE
Golden American reinsures its mortality risk associated with the guaranteed
death benefit with Security Life of Denver Insurance Company ("Security Life
Reinsurance").
DISTRIBUTION OF CONTRACTS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994, are
sold primarily through two broker/dealer institutions. For the years ended 1994
and 1993 and the period from September 30, 1992 to December 31, 1992,
commissions paid by Golden American to DSI aggregated, $17,569,000, $34,260,000,
and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000 and
$2,013,000, respectively.
PERFORMANCE INFORMATION
Performance information for the divisions of Account B and the Global
Account, including the yield and effective yield of the Liquid Asset Division,
the yield of the remaining divisions and the Global Account, and the total
return of all divisions, may appear in reports or promotional literature to
current or prospective owners. Negative values are denoted by parentheses.
Performance information for measures other than total return do not reflect
sales load which can have a maximum level of 6% of premium, and any applicable
premium tax that can range from 0% to 3.5%.
SEC STANDARD MONEY MARKET DIVISION YIELDS
Current yield for the Liquid Asset Division will be based on the change in
the value of a hypothetical investment (exclusive of capital changes) over a
particular 7-day period, less a pro-rata share of division expenses accrued over
that period (the "base period"), and stated as a percentage of the investment at
the start of the base period (the "base period return"). The base period return
is then annualized by multiplying by 365/7, with the resulting yield figure
carried to at least the nearest hundredth of one percent. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
2
<PAGE>
Effective Yield = [(Base Period Return) +1) 365/7] - 1
For the 7-day period December 24, 1994 to December 31, 1994, the current
yield of the Liquid Asset Division was 4.24% and the effective yield of the
Division was 4.33%.
SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET DIVISIONS
Quotations of yield for the remaining divisions will be based on all
investment income per Unit (accumulation value divided by the index of
investment experience) earned during a particular 30-
day period, less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the value of an
accumulation unit on the last day of the period, according to the following
formula:
YIELD = 2 [ ( a - b +1)6 - 1]
cd
Where:
[a] equals the net investment income earned during the period by
the Series attributable to shares owned by a division
[b] equals the expenses accrued for the period (net of
reimbursements)
[c] equals the average daily number of Units outstanding during
the period based on the index of investment experience
[d] equals the value (maximum offering price) per index of
investment experience on the last day of the period
Yield on divisions of Account B is earned from the increase in net asset
value of shares of the Series in which the Division invests and from dividends
declared and paid by the Series, which are automatically reinvested in shares of
the Series. Yield on the Global Account is earned from the increase in asset
value of shares of the securities in which the Global Account invests.
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of average annual total return for any division will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a contract over a period of one, five and 10 years
(or, if less, up to the life of the division), calculated pursuant to the
formula:
P(1+T)n=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical
$1,000 initial premium payment made at the beginning of the
period (or fractional portion thereof)
All total return figures reflect the deduction of the maximum sales load,
the administrative charges, and the mortality and expense risk charges. The SEC
requires that an assumption be made that the contract owner surrenders the
entire contract at the end of the one, five and 10 year periods (or, if less, up
to the life of the security) for which performance is required to be calculated.
This assumption may not be consistent with the typical contract owner's
intentions in purchasing a contract and may adversely affect returns.
Quotations of total return may simultaneously be shown for other periods, as
well as quotations of total return that do not take into account certain
contractual charges such as sales load.
3
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- STANDARDIZED
<TABLE>
<CAPTION>
One Year Period Five Year Period Inception to
Division Ending 12/31/94 Ending 12/31/94 12/31/94 Inception Date
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -8.23% 4.89%* 5.46%* 1/25/89
Fully Managed -14.27% 3.57%* 3.49%* 1/25/89
Capital Appreciation -8.64% N/A 3.23%* 5/4/92
Rising Dividends -6.48% N/A -2.97% 10/4/93
All-Growth -17.74% 1.00%* 1.89%* 1/25/89
Real Estate -0.79% 6.26%* 4.80%* 1/25/89
Natural Resources -4.56% 2.15%* 4.81%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -22.09% N/A -1.40%* 10/4/93
Limited Maturity Bond -8.24% 3.53%* 4.46%* 1/25/89
Global Account -19.64%* N/A -7.13%* 10/21/92
_____________________________
<FN>
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of non-standard average annual total return for any division
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a contract over a period of one, five and 10 years
(or, if less, up to the life of the division), calculated pursuant to the
formula:
[P(1+T)n]=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of
$1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a
hypothetical $1,000 initial premium payment made at the
beginning of the period (or fractional portion thereof)
assuming certain loading and charges are zero.
All total return figures reflect the deduction of the mortality and expense
risk charge and the administrative charges, but not the deduction of the maximum
sales load and the annual contract fee.
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- NON-STANDARDIZED
<TABLE>
<CAPTION>
One Year Period Five Year Period Inception to
Division Ending 12/31/94 Ending 12/31/94 12/31/94 Inception Date
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -2.16% 5.99%* 6.38%* 1/25/89
Fully Managed -8.20% 4.70%* 4.45%* 1/25/89
Capital Appreciation -2.57% N/A 5.41%* 5/4/92
Rising Dividends -0.41% N/A 1.98% 10/4/93
All-Growth -11.67% 2.18%* 2.87%* 1/25/89
Real Estate 5.28% 7.48%* 5.88%* 1/25/89
Natural Resources 1.51% 3.53%* 5.86%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -16.02% N/A 3.38%* 10/4/93
Limited Maturity Bond -2.17% 4.66%* 5.38%* 1/25/89
Global Account -13.57%* N/A -4.25%* 10/21/92
_______________________________
<FN>
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
4
<PAGE>
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a pertinent
group of securities so that investors may compare a division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other groups of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank such investment companies on overall performance or other criteria; and
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the contract. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for any division reflects only the performance of a
hypothetical contract under which accumulation value is allocated to a division
during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the Account B divisions invest and the securities
in which the Global Account invests, and the market conditions during the given
time period, and should not be considered as a representation of what may be
achieved in the future.
Reports and promotional literature may also contain other information
including the ranking of any division derived from rankings of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services or by other rating services, companies, publications, or other persons
who rank separate accounts or other investment products on overall performance
or other criteria.
PUBLISHED RATINGS
From time to time, the rating of Golden American as an insurance company by
A.M. Best may be referred to in advertisements or in reports to contract owners.
Each year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's Ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's ratings range from A+ to C. An A+
rating means, in the opinion of A.M. Best, that the insurer has demonstrated the
strongest ability to meet its respective policyholder and other contractual
obligations.
PORTFOLIO TURNOVER
For reporting purposes, the Global Account's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value of
the portfolio securities owned by the Global Account during the fiscal year. In
determining such portfolio turnover, all securities whose maturities at the time
of acquisition were one year or less are excluded. A 100% portfolio turnover
rate would occur, for example, if all the securities in the portfolio (other
than short-term securities) were replaced once during the fiscal year.
INDEX OF INVESTMENT EXPERIENCE
The calculation of the Index of Investment Experience ("IIE") is discussed
in the prospectus for the Contracts under Measurement of Investment Experience.
The following illustrations show a calculation of a new IIE and the purchase of
Units (using hypothetical examples):
5
<PAGE>
ILLUSTRATION OF CALCULATION OF IIE
EXAMPLE 1.
<TABLE>
<S> <C> <C>
1. IIE, beginning of perio......................................... $1.80000000
2. Value of securities, beginning of period...............$21.20
3. Change in value of securities .........................................$.50
4. Gross investment return (3) divided by (2)...................... .02358491
5. Less daily mortality and expense charge......................... .00002477
6. Less asset based administrative charge.......................... .00000276
7. Net investment return (4) minus (5) minus (6)................... .02355738
8. Net investment factor (1.000000) plus (7)....................... 1.02355738
9. IIE, end of period (1) multiplied by (8)........................ $1.84240328
</TABLE>
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX)
EXAMPLE 2.
<TABLE>
<S> <C>
1. Initial Premium Payment.......................................... $100.00
2. IIE on effective date of purchase (see Example 1)........................... $1.8000000
3. Number of Units purchased [(1) divided by (2)]................... .55.55556
4. IIE for valuation date following purchase (see Example 1)........ $1.84240328
5. Accumulation Value in account for valuation date following purchase
[(3) multiplied by (4)]......................................... $102.36
</TABLE>
IRA PARTIAL WITHDRAWAL OPTION
If the contract owner has an IRA contract and will attain age 70 1/2 in the
current calendar year, distributions will be made to you in accordance with the
requirements of Federal tax law. This option is available to assure that the
required minimum distributions from qualified plans under the Internal Revenue
Code (the "Code") are made. Under the Code, distributions must begin no later
than April 1st of the calendar year following the calendar year in which the
contract owner attains age 70 1/2. If the required minimum distribution is not
withdrawn, there may be a penalty tax in an amount equal to 50% of the
difference between the amount required to be withdrawn and the amount actually
withdrawn. Even if the IRA Partial Withdrawal Option is not elected,
distributions must nonetheless be made in accordance with the requirements of
Federal tax law.
Golden American notifies the contract owner of these regulations with a
letter mailed on January 1st of the calendar year in which the contract owner
reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and supplies
an election form. If the contract owner chooses to elect this option, he or she
specifies whether the withdrawal amount will be based on a life expectancy
calculated on a single life basis (contract owner's life only) or, if the
contract owner is married, on a joint life basis (contract owner's and spouse's
life combined). The contract owner selects the payment mode on a monthly,
quarterly or annual basis. If the payment mode selected on the election form is
more frequent than annually, the payments in the first calendar year in which
the option is in effect will be based on the amount of payment modes remaining
when Golden American receives the completed election form.
Golden American calculates the IRA Partial Withdrawal amount each year
based on the minimum distribution rules. We do this by dividing the
accumulation value by the life expectancy. In the first year withdrawals begin,
we use the accumulation value as of the date of the first payment. Thereafter,
we use the accumulation value on December 31st of each year. The life
expectancy is recalculated each year. Certain minimum distribution rules govern
payouts if the designated beneficiary is other than the contract owner's spouse
and the beneficiary is more than ten years younger than the contract owner.
6
<PAGE>
OTHER INFORMATION
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the registration statements, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
PART II
SECURITIES AND INVESTMENT TECHNIQUES
This description of the Global Account of Account D securities and
investment techniques is not comprehensive and is intended to supplement the
discussion contained in Part II of the prospectus under "Securities and
Investment Techniques."
U.S. GOVERNMENT SECURITIES
The Global Account may invest in U.S. Government securities. U.S.
Government securities are obligations of, or are guaranteed by, the U.S.
Government, its agencies or instrumentalities. Treasury bills, notes, and bonds
are direct obligations of the U.S. Treasury supported by the full faith and
credit of the United States. Securities guaranteed by the U.S. Government
include Federal agency obligations guaranteed as to principal and interest by
the U.S. Treasury (such as GNMA certificates and Federal Housing Administration
debentures). In guaranteed securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are generally
of the highest credit quality. Such direct obligations or guaranteed securities
are subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, the U.S. Government is obligated to or guarantees to
pay them in full.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the Treasury.
However, they involve Federal sponsorship in one way or another: some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Student Loan
Mortgage Association, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and Federal Home Loan Banks.
The Global Account may also purchase obligations of the International Bank
for Reconstruction and Development ("IBRD"), which, while technically not a U.S.
Government Agency or instrumentality has the right to borrow from IBRD
participating countries, including the United States.
DEBT SECURITIES
The Global Account may invest in debt securities of domestic and foreign
issuers including bonds, debentures, asset-backed securities, and notes which
meet the minimum ratings criteria set forth for the Global Account, or, if
unrated, are, in the Portfolio Manager's determination, comparable in quality to
corporate debt securities in which the Global Account may invest.
The investment return on a debt security reflects interest earnings and
changes in the market value of the security. The market value of debt
obligations may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or principal payments at the
time called for by an instrument. Any bond may be susceptible to changing
7
<PAGE>
conditions, particularly to economic downturns, which could lead to a weakened
capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-issued or
firm-commitment basis; that is, the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally takes place after the customary settlement time.
The value of when-issued securities or securities purchased on a firm-
commitment basis may vary prior to and after delivery depending on market
conditions and changes in interest rate levels. However, the Global Account
will not accrue any income on these securities prior to delivery. The Global
Account will maintain in a segregated account with its custodian an amount of
cash or high-quality debt securities equal (on a daily mark-to-market basis) in
the amount of its commitment to purchase the when-issued securities or
securities purchased on a firm-commitment basis.
Many debt securities of foreign issuers are not rated by Moody's Investors
Services, Inc. ("Moody's") or Standard and Poor's Corporation ("Standard &
Poor's"); therefore, the selection of such issuers depends, to a large extent,
on the credit analysis performed or used by the Portfolio Manager.
SHORT SALES AGAINST THE BOX
The Global Account may make short sales "against the box." A short sale
"against the box" is a short sale where, at time of the short sale, the Global
Account owns or has the immediate and unconditional right, at no added cost, to
obtain the identical security. The Global Account would enter into such a
transaction to defer a gain or loss for Federal income tax purposes on the
security owned by the Global Account. Short sales against the box are not
subject to the percentage limitations on short sales as described in the
prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts. A futures contract provides for
the future sale by one party and purchase by another party of a specified amount
of a particular financial instrument (debt security), or currency for a
specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for
financial instruments or currencies, futures contracts are usually closed out
before the delivery date. Closing out an open futures contract position is
effected by entering into an offsetting sale or purchase, respectively, for the
same aggregate amount of the same financial instrument and the same delivery
date. Where the Global Account has sold a futures contract, if the offsetting
purchase price is less than the original futures contract sale price, the Global
Account realizes a gain; if it is more, the Global Account realizes a loss.
Where the Global Account has purchased a futures contract, if the offsetting
price is more than the original futures contract purchase price, the Global
Account realizes a gain; if it is less, the Global Account realizes a loss. The
transaction costs must also be included in these calculations.
Using futures to effect a particular strategy instead of using the
underlying or related security or index or currency will frequently result in
lower transaction costs being incurred. The Global Account's use of futures
contracts and futures options may include hedging transactions. For example,
the Global Account might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Global Account's securities or the price of the securities which the Global
Account intends to purchase. The Global Account's hedging may include sales of
futures contracts as an offset against the effect of expected increases in
interest rates and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce the Global Account's exposure to interest rate fluctuations,
the Global Account may be able to hedge its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures options.
The Global Account may sell stock index futures to protect against a market
decline in an attempt to offset partially or wholly a decrease in the market
value of securities that the Global Account intends to sell. Similarly, to
protect against a market advance when the Global Account is not fully invested
in the securities market, the Global Account may purchase stock index futures
that may partly or entirely offset increases in the cost of
8
<PAGE>
securities that the Global Account intends to purchase. A stock index is a
method of reflecting in a single number the market values of many different
stocks, or, in the case of capitalization weighted indices that take into
account both stock prices and the number of shares outstanding, of many
different companies. An index fluctuates generally with changes in the market
values of the common stocks so included. A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount multiplied by the
difference between the stock index value at the close of the last trading day
of the contract and the price at which the futures contract is originally
purchased or sold. No physical delivery of the underlying stocks in the index
is made.
If a purchase or sale of a futures contract is made by the Global Account,
the Global Account is required to deposit with its custodian a specified amount
of cash or U.S. Government securities ("initial margin"). Generally, the margin
required for a futures contract is set by the exchange or board of trade on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Global Account
upon termination of the contract, assuming all contractual obligations have been
satisfied. The Global Account expects to earn interest income on its initial
margin deposits. A futures contract held by the Global Account is valued daily
at the official settlement price of the exchange on which it is traded. Each
day the Global Account pays or receives cash, called "variation margin" equal to
the daily change in value of the futures contract. This process is known as
"marking-to-market". The payment or receipt of the variation margin does not
represent a borrowing or loan by the Global Account but is settlement between
the Global Account and the broker of the amount one would owe the other if the
futures contract expired. In computing daily net asset value, each fund will
mark-to-market its open futures positions.
The Global Account is also required to deposit and maintain margin with
respect to put and call options on futures contracts it writes. Such margin
deposits will vary depending on the nature of the underlying futures contract
(including the related initial margin requirements), the current market value of
the option, and other futures positions held by the Global Account.
When purchasing a futures contract or selling a put option on a futures
contract, the Global Account is required to maintain with its custodian
high-quality liquid debt securities, cash, or cash equivalents (including any
margin) equal to the purchase price of such contract or option to collateralize
the position, or to otherwise cover the position. When selling a futures
contract or selling a call option on a futures contract, the Global Account is
required to maintain with its custodian high-quality liquid debt securities,
cash, or cash equivalents (including any margin) equal to the market value of
such contract or option, or to otherwise cover the position.
In compliance with the requirements of the Commodity Futures Trading
Commission ("CFTC") under which an investment company may engage in futures
transactions, the Global Account will comply with certain regulations of the
CFTC to qualify for an exclusion from being a "commodity pool." The regulations
require that the Global Account enter into futures and option (1) for "bona
fide hedging" purposes, without regard to the percentage of assets committed to
initial margin and options premiums, or (2) for other strategies, provided
that the aggregate initial margin and premiums required to establish such
positions do not exceed 5% of the liquidation value of the Global Account's
portfolio, after taking into account unrealized profits and unrealized gains on
any such contracts entered into.
OPTIONS ON SECURITIES
In pursuing its investment objective, the Global Account may engage in
transactions on options on securities. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option.
One reason the Global Account may purchase put options on securities is to
protect holdings in an underlying or related security against a substantial
decline in market value. Securities are considered related if their price
movements generally correlate to one another. For example, the purchase of put
options on debt securities held by the Global Account would enable the Global
Account to protect, at least partially, an unrealized gain in an appreciated
security without actually selling the security. In addition, the Global Account
would continue to receive interest income on such security.
9
<PAGE>
The Global Account may purchase call options on securities in furtherance
of its investment objective, which may include a call option to protect against
substantial increases in prices of securities the Global Account intends to
purchase pending its ability to invest in such securities in an orderly manner.
The Global Account may sell put or call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transactional
costs paid on the put or call option which is sold.
In order to earn additional income on its portfolio securities or to
protect partially against declines in the value of such securities, the Global
Account may write covered call options. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying security
at the time the option is written. During the option period, a covered call
option writer may be assigned an exercise notice by the broker-dealer through
whom such call option was sold requiring the writer to deliver the underlying
security against payment of the exercise price. This obligation is terminated
upon the expiration of the option period or at such earlier time in which the
writer effects a closing purchase transaction. Closing purchase transactions
will ordinarily be effected to realize a profit on an outstanding call option,
to prevent an underlying security from being called, to permit the sale of the
underlying security, or to enable the Global Account to write another call
option on the underlying security with either a different exercise price or
expiration date or both.
In order to earn additional income or to facilitate its ability to purchase
a security at a price lower than the current market price of such security, the
Global Account may write secured put options. During the option period, the
writer of a put option may be assigned an exercise notice by the broker-dealer
through whom the option was sold requiring the writer to purchase the underlying
security at the exercise price.
The Global Account may write a call or put option only if the option is
"covered" or "secured". This means that so long as the Global Account is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or if the Global Account holds a call at the same exercise
price, for the same exercise period, and on the same securities as the written
call. Alternatively, the Global Account may maintain, in a segregated account
with Account D's custodian, cash, cash equivalents, or high-quality liquid debt
securities with a value sufficient to meet its obligation as writer of the
option. A put is secured if the Global Account maintains cash, cash
equivalents, or high-quality debt securities with a value equal to the exercise
price in a segregated account, or holds a put on the same underlying security at
an equal or greater exercise price. Prior to exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option of the same
series.
Unless otherwise indicated above, the Global Account will enter only into
options which are standardized and traded on a U.S. or foreign exchange or board
of trade, or for which an established over-the-counter market exists.
OPTIONS ON SECURITIES INDEXES
Call and put options on securities indexes also may be purchased or sold by
the Global Account in furtherance of its investment objective. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index
options are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single
security. When such options are written, the Global Account is required to
maintain a segregated account consisting of cash, cash equivalents or high grade
obligations with a value equal to the exercise price or the Global Account must
purchase a like option of greater value that will expire no earlier than the
option sold. Purchased options may not enable the Global Account to hedge
effectively against stock market risk if they are not highly correlated with the
value of the Global Account's securities. Moreover, the ability to hedge
effectively depends upon the ability to predict movements in the stock market.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts, currency
exchange transactions on a spot (i.e. cash) basis and options on currencies. A
forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Global Account
10
<PAGE>
may either accept or make delivery of the currency at the maturity of the
forward contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. The Global
Account will engage in forward currency transactions in furtherance
of its investment objective, which may include hedging purposes such as
transactions in anticipation of or to protect the Global Account against
fluctuations in currency exchange rates. The Global Account might sell a
particular currency forward, for example, when it wanted to hold bonds or bank
obligations denominated in that currency but anticipated or wished to be
protected against a decline in the currency against the dollar.
The Global Account may enter into a long position in a forward currency
contract for a fixed amount of foreign currency in anticipation of an increase
in the value of that currency. The Global Account may enter into forward
foreign currency contracts in other circumstances, as described in Part II of
the prospectus under Investment Objective and Policies of the Global Account.
When the Global Account enters into a contract for the purchase or sale of a
security denominated in a foreign currency, the Global Account may desire to
"lock in" the U.S. dollar price of the security. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transactions, the Global Account
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and such foreign currency
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
Also, when the Portfolio Manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract for a fixed amount of dollars to sell the amount
of foreign currency approximating the value of some or all of the Global
Account's securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of securities in foreign
currencies will change as a consequence of market movements in the value of
these securities between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
At the maturity of a forward contract, the Global Account may either sell
the security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. It is impossible to forecast the market value of a particular
security at the expiration of the contract. Accordingly, if a decision is made
to sell the security and make delivery of the foreign currency, it may be
necessary for the Global Account to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Global Account is
obligated to deliver.
If the Global Account retains the security and engages in an offsetting
transaction, the Global Account will incur a gain or a loss (as described below)
to the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between the Global Account's entering
into a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency, the
Global Account will realize a gain to the extent that the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Global Account will suffer a loss
to the extent that the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
When entering into a long position on a forward currency contract or
selling a put option on a forward currency contract, the Global Account is
required to maintain with its custodian high-
quality liquid debt securities, cash, or cash equivalents (including any margin)
equal to the purchase price of such contract or option to collateralize the
position or to otherwise cover the position. When entering into a short
position in a forward currency contract or selling a call option on a forward
currency contract, the Global Account is required to maintain with its custodian
high-quality liquid debt securities, cash, or cash equivalents (including any
margin) equal to the market value of such contract or option or to otherwise
cover the position.
11
<PAGE>
Forward contracts are not traded on regulated commodities exchanges. There
can be no assurance that a liquid market will exist when the Global Account
seeks to close out a forward currency position, and in such an event, the Global
Account might not be able to effect a closing purchase transaction at any
particular time. In addition, the Global Account entering into a forward
foreign currency contract incurs the risk of default by the counter party to the
transaction. The CFTC has indicated that it may in the future assert
jurisdiction over certain types of forward contracts in foreign currencies and
attempt to prohibit certain entities from engaging in such foreign currency
forward transactions.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may write and purchase call and put options on foreign
currencies. Such strategies may be employed for purposes of exposing the Global
Account to a foreign (or domestic) currency or to shift exposure to foreign
currency fluctuations from one country to another or to function as a hedge
against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which securities of the Global Account may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option gives the buyer the right to sell, a certain amount of
foreign currency at a specified price during a fixed period of time. The Global
Account may enter into closing sale transactions with respect to such options,
exercise them, or permit them to expire.
The Global Account may enter into an option on a currency before the Global
Account purchases a foreign security denominated in the currency the Global
Account anticipates acquiring, during the period the Global Account holds the
foreign security, or between the date the foreign security is purchased or sold
and the date on which payment therefor is made or received.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which a hedge is desired, the hedge may be obtained by purchasing or selling an
option on a "surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two currencies. A
surrogate currency is a currency that can act, for hedging purposes, as a
substitute for a particular currency because the surrogate currency's exchange
rate movements parallel that of the primary currency. Surrogate currencies are
used to hedge an illiquid currency risk, when no liquid hedge instruments exist
in world currency markets for the primary currency.
REPURCHASE AGREEMENTS
The Global Account may invest in repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security commits itself at
the time of the sale to repurchase that security from the buyer at a mutually
agreed upon time and price. These agreements may be considered to be loans by
the purchaser collateralized by the underlying securities. The term of such an
agreement is generally quite short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. The resale price is in excess of the purchase price by an amount
which reflects an agreed upon market rate of return, effective for the period of
time the Global Account is invested in the security. This results in a fixed
rate of return protected from market fluctuations during the period of the
agreement. This rate is not tied to the coupon rate on the security subject to
the repurchase agreement.
The Global Account may engage in repurchase transactions in accordance with
guidelines approved by the Board of Governors of Account D, which include
monitoring the creditworthiness of the parties with which the Global Account
engages in repurchase transactions, obtaining collateral at least equal in value
to the repurchase obligation, and marking the collateral to market on a daily
basis. The Global Account may not enter into a repurchase agreement having more
than seven days remaining to maturity if, as a result, such agreements, together
with any other securities that are not readily marketable, would exceed 15% of
the net assets of the Global Account. If the seller should become bankrupt or
default on its obligations to repurchase the securities, the Global Account may
experience delays or difficulties in exercising its rights to the securities
held as collateral and might incur a loss if the value of the securities should
decline. The Global Account also might incur disposition costs in connection
with liquidating the securities.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
12
<PAGE>
The Global Account may invest in (i) certificates of deposit, time
deposits, bankers' acceptances, and other short-term debt obligations issued by
commercial banks and in (ii) certificates of deposit, time deposits, and other
short-term obligations issued by savings and loan or other depository
associations ("S&L").
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Fixed-time deposits are bank obligations payable at a stated maturity
date and bearing interest at a fixed rate. Fixed-time deposits may be withdrawn
on demand by the investor, but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed-time deposit to a third party, because there is
no market for such deposits. The Global Account will not invest in fixed-time
deposits (i) which are not subject to prepayment or (ii) which provide for
withdrawal penalties upon prepayment (other than overnight deposits), if, in the
aggregate, more than 15% of its assets would be invested in such deposits, in
repurchase agreements maturing in more than seven days, and in other illiquid
assets.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, which include: (i) the
possibility that their liquidity could be impaired because of future political
and economic developments; (ii) their obligations may be less marketable than
comparable obligations of U.S. banks; (iii) a foreign jurisdiction might impose
withholding taxes on interest income payable on those obligations; (iv) foreign
deposits may be seized or nationalized; (v) foreign governmental restrictions,
such as exchange controls, may be adopted which might adversely affect the
payment of principal and interest on those obligations; and (vi) the selection
of those obligations may be more difficult because there may be less publicly
available information concerning foreign banks and/or because the accounting,
auditing, and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to U.S. banks.
Foreign banks are not generally subject to examination by any U.S. Government
agency or instrumentality.
The Global Account will not invest in obligations issued by a U.S. or
foreign commercial bank or S&L unless:
(i) the bank or S&L has total assets of at least $10 billion (U.S.), or
the equivalent in other currencies, and the institution has
outstanding securities rated A or better by Moody's or Standard
& Poor's, or, if the institution has no outstanding securities rated
by Moody's or Standard & Poor's, it has, in the determination of the
Portfolio Manager, similar creditworthiness to institutions having
outstanding securities so rated; and
(ii) in the case of a U.S. bank or S&L, its deposits are insured by the
FDIC or the Savings Association Insurance Fund ("SAIF"), as the case
may be.
COMMERCIAL PAPER
The Global Account may invest in commercial paper (including variable
amount master demand notes), denominated in U.S. dollars, issued by U.S.
corporations or foreign corporations. The Global Account may invest in
commercial paper (i) rated, at the date of investment, P-2 or better by Moody's
or A-2 or better by Standard & Poor's; (ii) if not rated by either Moody's or
Standard & Poor's, issued by a corporation having an outstanding debt issue
rated A or better by Moody's or A or better by Standard & Poor's; or (iii) if
not rated, are determined to be of an investment quality comparable to rated
commercial paper in which the Global Account may invest. Generally, commercial
paper represents short-term unsecured promissory notes issued in bearer form by
bank holding companies, corporations, and finance companies.
Commercial paper obligations may include variable amount master demand
notes. These notes are obligations that permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between the
Global Account, as lender, and the borrower. These notes permit daily changes
in the amounts borrowed. The lender has the right to increase or to decrease
the amount under the note at any time up to the full amount provided by the note
agreement; and the borrower may prepay up to the full amount of the note without
penalty. Because variable amount master demand notes are direct lending
arrangements between the
13
<PAGE>
lender and borrower, and because no secondary market exists for those notes,
such instruments will probably not be traded. However, the notes are
redeemable (and thus immediately repayable by the borrower) at face value,
plus accrued interest, at any time. In connection with master demand
note arrangements, the Portfolio Manager will monitor, on an ongoing
basis, the earning power, cash flow, and other liquidity ratios of the borrower
and its ability to pay principal and interest on demand. The Portfolio Manager
also will consider the extent to which the variable amount master demand notes
are backed by bank letters of credit. These notes generally are not rated by
Moody's or Standard & Poor's; the Global Account may invest in them only if the
Portfolio Manager believes that at the time of investment the notes are of
comparable quality to the other commercial paper in which the Global Account may
invest. Master demand notes are considered by the Global Account to have a
maturity of one day, unless the Portfolio Manager has reason to believe that the
borrower could not make immediate repayment upon demand. See the Appendix for a
description of Moody's and Standard & Poor's ratings applicable to commercial
paper.
WHEN ISSUED OR DELAYED DELIVERY SECURITIES
The Global Account may purchase securities on a when-issued or delayed
delivery basis if the Global Account holds, and maintains until the settlement
date in a segregated account, cash, U.S. Government securities, or high-grade
liquid debt obligations in an amount sufficient to meet the purchase price, or
if the Global Account enters into offsetting contracts for the forward sale of
other securities it owns. Purchasing securities on a when-issued or delayed
delivery basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Global Account's other assets. Although the
Global Account would generally purchase securities on a when-issued basis or
enter into forward commitments with the intention of acquiring securities, the
Global Account may dispose of a when-issued or delayed delivery security prior
to settlement if the Portfolio Manager deems it appropriate to do so. The
Global Account may realize short-term profits or losses upon such sales.
INVESTMENT RESTRICTIONS
The Global Account's investment objective as set forth under "Investment
Objective and Policies" in Part II of the prospectus, together with the
investment restrictions set forth below are, unless otherwise noted, fundamental
policies of the Global Account and may not be changed without the approval of a
majority of the outstanding voting interests of the Global Account. The vote of
a majority of the outstanding voting interests of the Global Account means the
vote, at an annual or special meeting, of the lesser of: (a) 67% or more of the
voting interest present at such meeting, if the holders of more than 50% of the
outstanding voting interests of the Global Account are present or represented by
proxy; or (b) more than 50% of the outstanding voting interest of the Global
Account. In accordance with its investment restrictions, the Global Account
will not:
(1) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in
the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (or
repurchase agreements with respect thereto) or securities issued
or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities (or
repurchase agreements with respect thereto):
(2) Purchase or sell real estate, except that the Global Account may
invest in securities secured by real estate or real estate interests
or issued by companies in the real estate industry or which invest
in real estate or real estate interests;
(3) Purchase securities on margin (except for use of short-term
credit necessary for clearance of purchases and sales of
securities), except that to the extent the Global Account engages
in transactions in options, futures, and options on futures, the
Global Account may make margin deposits in connection with those
transactions and except that effecting short sales will be deemed
not to constitute a margin purchase for purposes of this
restriction;
(4) Lend any funds or other assets, except that the Global Account
may, consistent with its investment objective and policies:
14
<PAGE>
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission and any guidelines established by Account D's Board
of Governors;
(5) Issue senior securities, except insofar as the Global Account may be
deemed to have issued a senior security by reason of borrowing money
in accordance with the Global Account's borrowing policies, or in
connection with any repurchase agreement, and except, for purposes
of this investment restriction, collateral or escrow arrangements
with respect to the making of short sales, purchase or sale of
futures contracts or related options, purchase or sale of forward
currency contracts, writing of stock options, and collateral
arrangements with respect to margin or other deposits respecting
futures contracts, related options, and forward currency contracts
are not deemed to be an issuance of a senior security;
(6) Act as an underwriter of securities of other issuers, except, when
in connection with the disposition of portfolio securities, the
Global Account may be deemed to be an underwriter under Federal
securities laws;
(7) Borrow money or pledge, mortgage, or hypothecate its assets, except
that the Global Account may: (a) borrow from banks but only if
immediately after each borrowing and continuing thereafter, there
is asset coverage of 300%; and (b) enter into reverse repurchase
agreements and transactions in options, futures, options on futures,
and forward currency contracts as described in the prospectus and in
this Statement of Additional Information. (The deposit of assets in
escrow in connection with the writing of covered put and call
options and the purchase of securities on a "when-issued" or delayed
delivery basis and collateral arrangements with respect to
initial or variation margin and other deposits for futures
contracts, options on futures contracts, and forward currency
contracts will not be deemed to be pledges of the Global
Account's assets for purposes of this restriction.)
The Global Account is also subject to the following restrictions and
policies that are not fundamental and may, therefore, be changed by the Board of
Governors (without contract owner approval) relating to the investment of its
assets and activities. Unless otherwise indicated, the Global Account may not:
(1) Invest in securities that are illiquid because they are subject to
legal or contractual restrictions on resale, in repurchase
agreements maturing in more than seven days, or other securities
which in the determination of the Portfolio Manager are illiquid
if, as a result of such investment, more than 15% of the
total assets of the Global Account (taken at market value at the
time of such investment) would be invested in such securities;
and
(2) Purchase or sell commodities or commodities contracts (which, for
the purpose of this restriction, shall not include foreign currency
or forward foreign currency contracts or futures contracts on
currencies), except that the Global Account may engage in interest
rate futures contracts, stock index futures contracts, futures
contracts based on other financial instruments, and in options on
such futures contracts.
MANAGEMENT OF SEPARATE ACCOUNT D
BOARD OF GOVERNORS
The business and affairs of Account D are managed under the direction of a
Board of Governors, which consists of four members. The Board of Governors has
responsibility for matters relating to the portfolio of
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<PAGE>
Account D and matters arising under the Investment Company Act of 1940.
The Board of Governors does not have responsibility for the payment of
obligations under the Contracts and administration of the Contracts. These
matters are Golden American's responsibility. The business and affairs of
Account D are governed under a set of rules adopted by the Board of Governors
called "Rules and Regulations of Separate Account D".
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<PAGE>
The members of the Board of Governors and principal officers, their business
addresses, and principal occupation(s) during the past five years are as
follows:
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS ACCOUNT D DURING PAST FIVE YEARS
- ---------------- ------------- -----------------------
<S> <C> <C>
Terry L. Kendall* Chairman and President Chief Executive Officer,
Golden American Life Insurance Co. Golden American Life
1001 Jefferson Street Insurance Company, October
Wilmington, DE 19801 1993 to present; Chairman,
President and Chief
Executive Officer, BT
Variable, Inc. October 1993
to present; Chairman and
Chief Executive Officer,
Directed Services, Inc.,
October 1993 to present;
President and Chief
Executive Officer, United
Pacific Life Insurance
Company, September 1982 to
September 1993.
Bernard R. Beckerlegge Secretary Secretary and General
Golden American Life Insurance Co. Counsel, Directed Services,
1001 Jefferson Street Inc. March 1988 to
Wilmington, DE 19801 present; Secretary and
General Counsel, Golden
American Life Insurance
Company, March 1988 to
present; Secretary, BT
Variable, Inc., October
1992 to present; Vice
President and General
Counsel, MBL Variable,
Inc., February 1991 to
September 1992; General
Counsel, The Golden
Financial Group, Inc.,
March 1988 to October 1990.
Robert A. Grayson Member Co-founder, Grayson
Grayson Associates Associates, Inc.; Adjunct
108 Loma Media Road Professor of Marketing, New
Santa Barbara, CA 93103 York University School of
Business Administration;
Former Director, The Golden
Financial Group, Inc.;
Former Senior Vice
President, David & Charles
Advertising
Barnett Chernow Executive Vice President Executive Vice President,
Golden American Life Insurance Co. and Principal Financial BT Variable and Directed
1001 Jefferson Street Officer Services, Inc., October
Wilmington, DE 19801 1993 to present; From 1977
through 1993, various
positions with Reliance
Insurance Companies, and
Senior vice President and
Chief Financial Officer of
United Pacific Life
Insurance Company from 1984
through 1993.
Stephen J. Preston Comptroller Senior Vice President, BT
Golden American Life Insurance Co. Variable and Directed
1001 Jefferson Street Services, Inc., December
Wilmington, DE 19801 1993 to present; From
September 1993 through
November 1993, Senior Vice
President and Actuary for
Mutual of America Insurance
Company; From July 1987
through August 1993,
various positions with
United Pacific Life
Insurance Company and was
Vice president and Actuary
upon leaving.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
M. Norvel Young Member Chancellor Emeritus and
Pepperdine University Board of Regents,
Malibu, CA 90263 Pepperdine University;
Director, Imperial Bancorp,
Imperial Bank and Imperial
Trust Company and 20th
Century Christian
Publishing Company
Roger B. Vincent Member President, Springwell
230 Park Avenue Corporation; Director,
New York, NY 10169 Petralone, Inc; formerly,
Managing Director, Bankers
Trust Company
____________________________
<FN>
*Mr. Kendall is an "interested person" of Account D (as that term is defined in
the Investment Company Act of 1940) by reason of his affiliation with Directed
Services, Inc..
</TABLE>
THE MANAGER
DSI also serves as the manager (the "Manager") to Account D pursuant to a
management agreement effective October 2, 1992. The Manager is a New York
corporation. Its address is 280 Park Avenue, New York, New York 10017. DSI is
a wholly owned indirect subsidiary of Bankers Trust Company, which in turn, is a
wholly owned subsidiary of Bankers Trust New York Corporation. DSI's business
activities include those of a distributor and underwriter of variable insurance
products, broker-dealer and investment manager. DSI is registered with the SEC
as a broker-dealer and investment advisor and is a member of the National
Association of Securities Dealers, Inc. ("NASD"). It is also registered as a
broker-dealer and/or investment advisor in various states.
Under the management agreement, the Manager, subject to the direction of
the Board of Governors, is responsible for providing all supervisory and
management services reasonably necessary for the operation of Account D,
including the Global Account, other than the investment advisory services
performed by the Portfolio Manager. These services include, but are not limited
to, (i) coordinating all matters relating to the functions of the Portfolio
Manager, Custodian, Recordkeeping Agent (including pricing and valuation of the
Global Account), accountants, attorneys, and other parties performing services
or operational functions for Account D; (ii) providing Account D and the Global
Account, at the Manager's expense, with the services of a sufficient number of
persons competent to perform such administrative and clerical functions as are
necessary to provide effective supervision and administration of Account D;
(iii) maintaining or supervising the maintenance by the Portfolio Manager or
third parties approved by Account D of such books and records of Account D and
the Global Account as may be required by applicable Federal or state law; (iv)
preparing or supervising the preparation by third parties approved by Account D
of all Federal, state and local tax returns and reports of Account D required by
applicable law; (v) preparing and filing and arranging for the distribution of
proxy materials and periodic reports to contract owners of Account D as required
by applicable law; (vi) preparing and arranging for the filing of such
registration statements and other documents with the Securities and Exchange
Commission and other Federal and state regulatory authorities as may be required
by applicable law; (vii) taking such other action with respect to Account D as
may be required by applicable law, including without limitation the rules and
regulations of the SEC and other regulatory agencies; and (viii) providing
Account D at the Manager's expense, with adequate personnel, office space,
communications facilities, and other facilities necessary for its operations as
contemplated in the Management Agreement. Other responsibilities of the Manager
are described in the prospectus.
The Manager shall make its officers and employees available to the Board of
Governors and Officers of Account D for consultation and discussions regarding
the supervision and administration of the Global Account.
Pursuant to the Management Agreement, the Manager is authorized to exercise
full investment discretion and make all determinations with respect to the
investment of Global Account's assets and the purchase and sale of securities in
the event that at any time no portfolio manager is engaged to manage the assets
of the Global Account.
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<PAGE>
The Management Agreement was continued by the Board of Governors in
September, 1994 and shall continue in effect until October 2, 1995, and from
year to year thereafter, provided such continuance is approved annually by a
majority of the Board of Governors who are not parties to such Management
Agreement or "interested persons" (as defined in the Investment Company Act of
1940, the "1940 Act") of any such party. The Management Agreement may be
terminated without penalty by vote of the Board of Governors or the contract
owners of the Global Account, or by the Manager, on 60 days' written notice by
the Board or the Manager and will terminate automatically if assigned as that
term is described in the 1940 Act.
The Global Account pays the Manager a monthly fee based upon the following
annual percentages of the Global Account's average daily net assets: 0.40% of
the first $500 million and 0.30% of the amount over $500 million.
The initial organizational expenses of the Global Account will be amortized
by Account D for accounting purposes on a straight line basis over a period of
five years from the date that the Global Account commences operations.
PORTFOLIO MANAGER
The Global Account and Warburg, Pincus Counsellors, Inc. entered into a
Portfolio Management Agreement dated June 9, 1994. The Portfolio Management
Agreement, which became effective July 1, 1994, provides that, subject to the
supervision of Account D's Board of Governors and the Manager, the Portfolio
Manager will provide a continuous investment program for the Global Account and
will determine the composition of the assets of the Global Account, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments contained in the portfolio. The Portfolio Manager is required
to provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Global Account's assets. The
Portfolio Management Agreement may be terminated without penalty by the vote of
the Board of Governors or the contract owners of the Global Account, by the
Portfolio Manager, or by the Manager, on 60 days' written notice by any party to
the Portfolio Management Agreement and will terminate automatically if assigned
as that term is described in the 1940 Act.
Pursuant to the Portfolio Management Agreement, the Global Account pays the
Portfolio Manager a monthly fee equal to an annual rate based upon the following
percentages of the Global Account's average daily net assets: 0.60% of the
first $500 million and 0.50% of the amount over $500 million.
CUSTODIAN AND PORTFOLIO ACCOUNTING AGENT
The Custodian for Account D is Bankers Trust Company, 280 Park Avenue, New
York, New York 10017. DSI provides portfolio accounting services for the
Global Account.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for the Global Account are made by the Portfolio
Manager which has investment advisory clients other than the Global Account. A
particular security may be bought or sold by the Portfolio Manager for certain
clients even though it could have been bought or sold for other clients at the
same time. Two or more clients also may simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, allocated between such clients in a manner deemed fair and
reasonable by the Portfolio Manager. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Portfolio Manager, and the results of such allocations, are subject to periodic
review by Account D's Manager and Board of Governors. There may be
circumstances when purchases or sales of securities for one or more clients will
have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager places all orders for the purchase and sale of
securities, options, and futures contracts for the Global Account through a
substantial number of brokers and dealers or futures commission merchants. In
19
<PAGE>
executing transactions, the Portfolio Manager will attempt to obtain the best
execution for the Global Account taking into account such factors as price
(including the applicable brokerage commission or dollar spread), size of order,
the nature of the market for the security, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer involved,
the quality of the service, the difficulty of execution and operational
facilities of the firms involved, and the firm's risk in positioning a block of
securities. In transactions on stock exchanges in the United States, payments
of brokerage commissions are negotiated. In effecting purchases and sales of
securities in transactions on U.S. stock exchanges for the Global Account, the
Portfolio Manager may pay higher commission rates than the lowest available when
the Portfolio Manager believes it is reasonable to do so in light of the value
of the brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded on some
foreign stock exchanges, brokerage commissions may be fixed and the Portfolio
Manager may be unable to negotiate commission rates for these transactions. In
the case of securities traded on the over-the-counter markets, there is
generally no stated commission, but the price includes an undisclosed commission
or markup.
There is generally no stated commission in the case of fixed-income
securities, which are generally traded in the over-the-counter markets, but the
price paid by the Global Account usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the Global
Account includes a disclosed, fixed commission or discount retained by the
underwriter or dealer. Transactions on U.S. stock exchanges and other agency
transactions involve the payment by the Global Account of negotiated brokerage
commission. Such commissions vary among different brokers. Also, a particular
broker may charge different commissions according to such factors as the
difficulty and size of the transaction.
It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisors. Consistent with this practice,
the Portfolio Manager for the Global Account may receive research services from
many broker-dealers with which the Portfolio Manager places the Global Account's
portfolio transactions. These services, which in some cases may also be
purchased for cash, include such matters as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services may be of value to the Portfolio Manager and its affiliates in
advising its various clients (including the Global Account), although not all of
these services are necessarily useful and of value in managing the Global
Account. The advisory fee paid by the Global Account to the Portfolio Manager
is not reduced because the Portfolio Manager and its affiliates receive such
services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager may cause the Global Account to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the 1934 Act) to the
Portfolio Manager, a disclosed commission for effecting a securities transaction
for the Global Account in excess of the commission which another broker-
dealer would have charged for effecting that transaction.
A Portfolio Manager may place orders for the purchase and sale of
exchange-listed portfolio securities with a broker-dealer that is an affiliate
of the Portfolio Manager where, in the judgment of the Portfolio Manager, such
firm will be able to obtain a price and execution at least as favorable as other
qualified brokers. Counsellors Securities Inc. is a registered broker-dealer
and is an affiliate of the Portfolio Manager.
Pursuant to rules of the Securities and Exchange Commission, a
broker-dealer that is an affiliate of the Manager or Portfolio Manager or, if it
is also a broker-dealer, the Portfolio Manager may receive and retain
compensation for effecting portfolio transactions for the Global Account on a
national securities exchange of which the broker-dealer is a member if the
transaction is "executed" on the floor of the exchange by another broker which
is not an "associated person" of the affiliated broker-dealer or Portfolio
Manager, and if there is in effect a written contract between the Portfolio
Manager and the Global Account expressly permitting the affiliated broker-dealer
or Portfolio Manager to receive and retain such compensation. The Portfolio
Management Agreement provides that the Portfolio Manager may retain compensation
on transactions effected for the Global Account in accordance with the terms of
these rules.
Securities and Exchange Commission rules further require that commissions
paid to such an affiliated broker-dealer or Portfolio Manager by the Global
Account on exchange transactions not exceed "usual and customary
20
<PAGE>
brokerage commission." The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Board
of Governors has adopted procedures for evaluating the reasonableness of
commissions paid to broker-dealers that are affiliated with the Portfolio
Manager and will review these procedures periodically.
PURCHASE AND PRICING OF THE GLOBAL ACCOUNT
The valuation of the Global Account's assets is determined once each
business day, Monday through Friday, exclusive of Federal holidays, at 4:00
p.m., New York City time, on each day that the New York Stock Exchange is open
for trading. In general, valuation of the Global Account's assets is based on
actual or estimated market value, with special provisions for assets not having
readily available market quotations and short-term debt securities. The value
of the Global Account will fluctuate in response to changes in market conditions
and other factors.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are valued
at their fair value as determined in good faith by the Board of Governors,
although the actual calculations will be made by persons acting under the
direction of the Board of Governors and subject to the Board of Governor's
review.
Money market instruments are valued at market value, except that
instruments maturing in sixty days or less may be valued using the amortized
cost method of valuation. The value of a foreign security is determined in its
national currency based upon the price on the pertinent foreign exchange as of
its close of business immediately preceding the time of valuation. Securities
traded in over-the-counter markets outside the United States are valued at the
last available price in the over-the-counter market prior to the time of
valuation.
Other debt securities, including those to be purchased under firm
commitment agreements (other than obligations having a maturity date sixty days
or less after their date of acquisition, valued under the amortized cost
method), are normally valued on the basis of quotes obtained from brokers and
dealers or pricing services, which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data. Debt obligations having a maturity of sixty days or less may be valued at
amortized cost, unless the Portfolio Manager believes that amortized cost does
not approximate market value.
When the Global Account writes a put or call option, the amount of the
premium is included in the Global Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the
current market value of the option. The premium paid for an option purchased by
the Global Account is recorded as an asset and subsequently adjusted to market
value.
21
<PAGE>
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B
The audited financial statements of Separate Account B are listed below and are
included in this Statement of Additional Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Combined Statement of Operations for the Year ended December 31, 1994
Combined Statements of Changes in Net Assets for the Years ended
December 31, 1994 and 1993
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
The audited financial statements of The Managed Global Account of Separate
Account D are listed below and are included in this Statement of Additional
Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the Year ended December 31, 1994
Statements of Changes in Net Assets for the Years ended December 31,
1994 and 1993
Statement of Investments as of December 31, 1994
Notes to Audited Financial Statements
22
<PAGE>
APPENDIX: DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. ("Moody's) description of its
bond ratings:
Aaa: Judged to be the best quality; they carry the smallest degree of
investment risk.
Aa: Judged to be of high quality by all standards; together with the Aaa
group, they comprise what are generally known as high grade bonds.
A: Possess many favorable investment attributes and are to be considered
as "upper medium grade obligations."
Baa: Considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured; interest payments and principal security
appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of
time.
Ba: Judged to have speculative elements; their future cannot be considered
as well assured.
B: Generally lack characteristics of the desirable investment.
Caa: Are of poor standing; such issues may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Speculative in a high degree; often in default.
C: Lowest rate class of bonds; regarded as having extremely poor
prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward the
lower end of the category.
Excerpts from Standard & Poor's Corporation ("Standard & Poor's")
description of its bond ratings:
AAA: Highest grade obligations; capacity to pay interest and repay
principal is extremely strong.
AA: Also qualify as high grade obligations; a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small
degree.
A: Regarded as upper medium grade; they have a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
BBB: Regarded as having an adequate capacity to pay interest and repay
principal; whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity than in higher rated categories -- this group
is the lowest which qualifies for commercial bank investment.
BB, B,
CCC,
CC: Predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with terms of the obligation: BB indicates
the lowest degree of speculation and CC the highest.
Standard & Poor's applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Variable Annuity Contractowners
SEPARATE ACCOUNT B
We have audited the accompanying statement of assets and liabilities of
Separate Account B (the "Account") as of December 31, 1994, and the related
combined statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account's 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 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. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian. 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 financial position of Separate Account B at
December 31, 1994, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 14, 1995
24
<PAGE>
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 45,387,280 shares
(Cost $45,387,280)...................................................... $ 45,387,280
Limited Maturity Bond Series, 7,174,931 shares
(Cost $76,441,934)...................................................... 71,605,813
Natural Resources Series, 2,360,675 shares
(Cost $31,960,922)...................................................... 32,766,167
All-Growth Series, 5,958,509 shares
(Cost $74,833,551)...................................................... 70,668,772
Real Estate Series, 3,273,594 shares
(Cost $37,973,481)...................................................... 36,958,871
Fully Managed Series, 8,452,554 shares
(Cost $106,998,483)..................................................... 98,894,625
Multiple Allocation Series, 26,275,715 shares
(Cost $311,456,760)..................................................... 297,702,661
Capital Appreciation Series, 7,795,369 shares
(Cost $89,125,585)...................................................... 88,399,229
Rising Dividends Series, 4,933,167 shares
(Cost $51,022,111)...................................................... 50,416,965
Emerging Markets Series, 5,932,065 shares
(Cost $69,617,468)...................................................... 59,795,219
Market Manager Series, 274,824 shares
(Cost $2,754,250)....................................................... 2,753,739
-------------
Total Invested Assets
(Cost $897,571,825)................................................... 855,349,341
LIABILITIES
Payable to Golden American for Charges and Fees -- (Note 3)................ 530,918
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
NET ASSETS
For Variable Annuity Contracts............................................. $ 810,810,446
Retained in Separate Account B by Golden American -- (Note 3).............. 44,007,977
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
</TABLE>
See notes to financial statements.
25
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
----------------------------------------------------------------------------------------------------
LIMITED NATURAL MULTIPLE
LIQUID ASSET MATURITY RESOURCES ALL-GROWTH REAL ESTATE FULLY MANAGED ALLOCATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES
------------- ------------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,443,621 $ 3,500,972 $ 286,872 $ 668,418 $ 1,862,701 $ 2,839,238 $ 10,655,655
Capital gain
distribution.......... -- -- 540,421 -- -- -- --
------------- ------------- ----------- ------------ ------------- -------------- ------------
Total investment
income.............. 1,443,621 3,500,972 827,293 668,418 1,862,701 2,839,238 10,655,655
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 361,615 736,430 282,948 613,111 348,164 1,078,655 2,955,387
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net investment
income.............. 1,082,006 2,764,542 544,345 55,307 1,514,537 1,760,583 7,700,268
------------- ------------- ----------- ------------ ------------- ------------- -------------
Realized gain on
investments
Proceeds from sales.... 40,758,078 22,640,885 7,724,804 4,427,509 9,351,495 15,241,359 28,761,003
Cost of securities
sold.................. 40,758,078 22,575,099 6,038,663 4,350,791 8,812,382 14,181,236 25,917,030
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net realized gain on
investments......... -- 65,786 1,686,141 76,718 539,113 1,060,123 2,843,973
------------- ------------- ----------- ------------ ------------- ------------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... -- (407,617) 2,953,720 3,650,218 (373,993) 4,424,678 3,296,333
End of year............ -- (4,836,121) 805,245 (4,164,779) (1,014,610) (8,103,858) (13,754,098)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. -- (4,428,504) (2,148,475) (7,814,997) (640,617) (12,528,536) (17,050,431)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,082,006 $(1,598,176) $ 82,011 $(7,682,972) $ 1,413,033 $ (9,707,830) $ (6,506,190)
------------- ------------- ----------- ------------ ------------- ------------- -------------
------------- ------------- ----------- ------------ ------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
-----------------------------------------------------------------------
CAPITAL RISING EMERGING MARKETS
APPRECIATION DIVIDENDS MARKET SERIES MANAGER
SERIES SERIES (a) (a) SERIES (b) COMBINED
-------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,777,023 $ 685,072 $ -- $ 6,199 $ 23,725,771
Capital gain
distribution.......... -- -- 2,686,591 316 3,227,328
-------------- ------------ ------------- ----------- -------------
Total investment
income.............. 1,777,023 685,072 2,686,591 6,515 26,953,099
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 909,077 367,964 560,823 -- 8,214,174
-------------- ------------ ------------- ----------- -------------
Net investment
income.............. 867,946 317,108 2,125,768 6,515 18,738,925
-------------- ------------ ------------- ----------- -------------
Realized gain on
investments
Proceeds from sales.... 11,164,715 2,770,019 6,933,220 1,334 149,774,421
Cost of securities
sold.................. 9,738,102 2,715,467 6,096,514 1,331 141,184,693
-------------- ------------ ------------- ----------- -------------
Net realized gain on
investments......... 1,426,613 54,552 836,706 3 8,589,728
-------------- ------------ ------------- ----------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... 4,004,838 220,884 3,970,717 -- 21,739,778
End of year............ (726,357) (605,146) (9,822,249) (511) (42,222,484)
-------------- ------------ ------------- ----------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. (4,731,195) (826,030) (13,792,966) (511) (63,962,262)
-------------- ------------ ------------- ----------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ (2,436,636) $ (454,370) $ (10,830,492) $ 6,007 $ (36,633,609)
-------------- ------------ ------------- ----------- -------------
-------------- ------------ ------------- ----------- -------------
<FN>
(a) Commencement of operations, October 4, 1993.
(b) Commencement of operations, November 14, 1994.
</TABLE>
See notes to financial statements.
26
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
NATURAL
LIQUID ASSET LIMITED MATURITY BOND RESOURCE
SERIES SERIES SERIES
-------------------------- -------------------------- ------------
1994 1993 1994 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 1,082,006 $ 251,524 $ 2,764,542 $ 2,344,976 $ 544,345
Net realized gain (loss) on investments.............. -- -- 65,786 677,243 1,686,141
Net change in unrealized appreciation (depreciation)
of investments...................................... -- -- (4,428,504) (434,962) (2,148,475)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 1,082,006 251,524 (1,598,176) 2,587,257 82,011
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 43,297,390 22,808,053 32,040,952 54,680,072 8,595,119
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 4,159,230 (15,604,916) (22,001,625) (19,820,224) 5,715,775
Benefits, surrenders and other withdrawals........... (18,470,294) (3,497,357) (7,603,846) (5,188,057) (2,768,491)
Contract related charges and fees.................... (1,200,931) (229,252) (886,527) (498,019) (314,191)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 27,785,395 3,476,528 1,548,954 29,173,772 11,228,212
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 28,867,401 3,728,052 (49,222) 31,761,029 11,310,223
Net Assets:
Beginning of Year.................................... 16,497,588 12,769,536 71,622,231 39,861,202 21,436,544
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 45,364,989 $ 16,497,588 $ 71,573,009 $ 71,622,231 $ 32,746,767
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
ALL-GROWTH REAL ESTATE
SERIES SERIES
---------------------------------------- --------------------------
1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 8,983 $ 55,307 $ (177,810) $ 1,514,537 $ 640,795
Net realized gain (loss) on investments.............. 426,591 76,718 476,553 539,113 513,528
Net change in unrealized appreciation (depreciation)
of investments...................................... 3,295,092 (7,814,997) 2,648,629 (640,617) (548,785)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 3,730,666 (7,682,972) 2,947,372 1,413,033 605,538
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 10,191,488 18,242,132 34,573,445 9,862,267 22,416,140
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 5,176,672 9,624,494 (2,151,633) 208,409 4,008,119
Benefits, surrenders and other withdrawals........... (465,000) (4,906,264) (2,429,632) (2,918,618) (1,716,743)
Contract related charges and fees.................... (79,699) (709,171) (302,798) (401,259) (140,619)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 14,823,461 22,251,191 29,689,382 6,750,799 24,566,897
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 18,554,127 14,568,219 32,636,754 8,163,832 25,172,435
Net Assets:
Beginning of Year.................................... 2,882,417 56,055,565 23,418,811 28,772,896 3,600,461
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 21,436,544 $ 70,623,784 $ 56,055,565 $ 36,936,728 $ 28,772,896
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
27
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------------------------------
FULLY MANAGED SERIES MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
-------------------------------- -------------------------------- ----------------------------
1994 1993 1994 1993 1994 1993
--------------- --------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 1,760,583 $ 2,384,033 $7,700,268 $ 15,125,636 $ 867,946 $565,868
Net realized gain on
investments........... 1,060,123 524,624 2,843,973 295,483 1,426,613 246,599
Net change in
unrealized
appreciation
(depreciation) of
investments........... (12,528,536) 1,699,232 (17,050,431) 672,723 (4,731,195) 2,955,304
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations.............. (9,707,830) 4,607,889 (6,506,190) 16,093,842 (2,436,636) 3,767,771
--------------- --------------- --------------- --------------- ------------- -------------
Contract related
transactions (Note 3)
Premiums............... 21,742,235 70,788,527 74,594,438 150,788,747 19,196,186 63,986,159
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (11,098,109) 108,564 (9,842,434) 5,675,110 (6,162,504) 3,402,619
Benefits, surrenders and
other withdrawals....... (9,049,892) (4,050,100) (30,149,866) (12,915,093) (7,902,148) (2,392,822)
Contract related charges
and fees................ (1,341,160) (516,502) (3,746,076) (1,609,228) (1,148,856) (331,307)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 253,074 66,330,489 30,856,062 141,939,536 3,982,678 64,664,649
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets........... (9,454,756) 70,938,378 24,349,872 158,033,378 1,546,042 68,432,420
Net Assets:
Beginning of Year...... 108,290,963 37,352,585 273,158,122 115,124,744 86,798,642 18,366,222
--------------- --------------- --------------- --------------- ------------- -------------
End of Year............ $ 98,836,207 $ 108,290,963 $297,507,994 $ 273,158,122 $ 88,344,684 $86,798,642
--------------- --------------- --------------- --------------- ------------- -------------
--------------- --------------- --------------- --------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------
MARKET
MANAGER
RISING DIVIDENDS SERIES EMERGING MARKETS SERIES SERIES COMBINED
---------------------------- ---------------------------- ------------ ---------------
1994 1993 (a) 1994 1993 (a) 1994 (b) 1994
------------- ------------- ------------- ------------- ------------ ---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $317,108 $ 4,934 $ 2,125,768 $ (24,280) $ 6,515 $ 18,738,925
Net realized gain on
investments........... 54,552 -- 836,706 -- 3 8,589,728
Net change in
unrealized
appreciation
(depreciation) of
investments........... (826,030) 220,884 (13,792,966) 3,970,717 (511) (63,962,262)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase in net
assets resulting from
operations.............. (454,370) 225,818 (10,830,492) 3,946,437 6,007 (36,633,609)
------------- ------------- ------------- ------------- ------------ ---------------
Contract related
transactions (Note 3)
Premiums............... 25,149,913 11,566,378 30,112,986 13,923,417 1,414,129 284,247,747
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. 15,544,356 2,632,922 14,777,915 12,702,200 1,334,937 2,260,444
Benefits, surrenders and
other withdrawals....... (3,843,523) (25,387) (4,285,144) (62,486) -- (91,898,086)
Contract related charges
and fees................ (398,993) (12,349) (516,806) (20,979) (2,625) (10,666,595)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 36,451,753 14,161,564 40,088,951 26,542,152 2,746,441 183,943,510
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets........... 35,997,383 14,387,382 29,258,459 30,488,589 2,752,448 147,309,901
Net Assets:
Beginning of Year...... 14,387,382 -- 30,488,589 -- -- 707,508,522
------------- ------------- ------------- ------------- ------------ ---------------
End of Year............ $50,384,765 $ 14,387,382 $ 59,747,048 $ 30,488,589 $ 2,752,448 $ 854,818,423
------------- ------------- ------------- ------------- ------------ ---------------
------------- ------------- ------------- ------------- ------------ ---------------
<CAPTION>
1993
---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 21,124,659
Net realized gain on
investments........... 3,160,621
Net change in
unrealized
appreciation
(depreciation) of
investments........... 14,478,834
---------------
Net increase in net
assets resulting from
operations.............. 38,764,114
---------------
Contract related
transactions (Note 3)
Premiums............... 455,722,426
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (3,870,567)
Benefits, surrenders and
other withdrawals....... (32,742,677)
Contract related charges
and fees................ (3,740,752)
---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 415,368,430
---------------
Net increase (decrease)
in net assets........... 454,132,544
Net Assets:
Beginning of Year...... 253,375,978
---------------
End of Year............ $ 707,508,522
---------------
---------------
<FN>
(a) Commencement of Operations, October 4, 1990.
(b) Commencement of Operations, November 14, 1994.
</TABLE>
See notes to financial statements.
28
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account B (the "Account") was established on June 14, 1988, by
Golden American Life Insurance Company ("Golden American"), under Minnesota
insurance law to support the operations of variable annuity contracts
("Contracts"). Effective September 30, 1992, Golden American became a
wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned
subsidiary of Bankers Trust Company ("Bankers Trust"). Previously, Golden
American was owned by Mutual Benefit Life Insurance Company in Rehabilitation
("Mutual Benefit"). Golden American is primarily engaged in the issuance of
variable insurance products and is licensed as a life insurance company in the
District of Columbia and all states except New York. Effective December 30,
1993, Golden American was redomesticated from the State of Minnesota to the
State of Delaware.
Operations of the Account commenced on January 25, 1989. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to one or more divisions within the Account or to the
Golden American Guaranteed Interest Division and the Managed Global Division of
Separate Account D, which are not part of the Account, as elected by the
Contractowners. The assets of the Account are owned by Golden American. The
portion of the Account's assets applicable to Contracts will not be chargeable
with liabilities arising out of any other business Golden American may conduct,
but obligations of the Account, including the promise to make benefit payments,
are obligations of Golden American.
The Account makes available, under GoldenSelect Contracts, eleven investment
divisions: the Liquid Asset, the Limited Maturity Bond, the Natural Resources,
the All-Growth, the Real Estate, the Fully Managed, the Multiple Allocation, the
Capital Appreciation (commenced operations on May 4, 1992), the Rising Dividends
(commenced operations October 4, 1993), the Emerging Markets (commenced
operations on October 4, 1993) and the Market Manager (commenced operations
November 14, 1994) Divisions ("Divisions"). The assets in each Division are
invested in shares of a designated series ("Series") of a mutual fund, The GCG
Trust (the "Trust"). The account also includes The Fund For Life Division, which
is not included in the accompanying financial statements, and which, ceased to
accept new contracts effective December 31, 1994.
The Account is a unit investment trust and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the amount required under state law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
Contract benefits. Additional assets are held in Golden American's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risk under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The transaction had no effect on the
accompanying financial statements of the Account.
29
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS: Investments are made in shares of a Series of the Trust and
are valued at the net asset value per share of the respective Series of the
Trust.
Investment transactions in each Series of the Trust are recorded on the
trade date. Distributions of net investment income and capital gains of each
Series of the Trust are recognized on the ex-distribution date. Realized gains
and losses on redemptions of the shares of the Series of the Trust are
determined on the identified cost basis.
For the years ended December 31, 1994 and 1993, the cost of purchases of
shares of the Trust aggregated $352,604,679 and $483,230,191, respectively and
the proceeds from sales of shares of the Trust aggregated $149,774,421 and
$46,471,631, respectively.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. Following is a summary of these charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.25% of the assets attributable
to Contracts to cover these risks.
ADMINISTRATIVE CHARGE: An administrative charge of $40 per Contract year is
deducted from accumulation value of Deferred Annuity Contracts to cover ongoing
administrative expenses. The charge is deducted on the Contract processing date
at the end of the Contract processing period. This charge has been waived for
certain offerings of the Contract. For certain Contracts, a daily charge at an
annual rate of .10% is deducted from assets attributable to such Contracts.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: For certain Contracts, a minimum
death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death
benefit per Contract year is deducted from the accumulation value of Deferred
Annuity Contracts on each Contract processing date.
PREMIUM TAXES: For certain contracts, premium taxes are deducted, where
applicable, from the accumulation value of each Contract. The amount and timing
of the deduction depend on the annuitant's state of residence and currently
ranges up to 3.5% of premiums.
OTHER CHARGES: Five free investment re-allocations among Divisions per
Contract are allowed each Contract year. For each additional investment
re-allocation, a $25 charge is deducted from the amount transferred from each
Division.
CONTRACT SALES LOAD AND PREMIUM TAXES: A sales load of up to 7 1/2% is
applicable to each premium payment for sales related expenses as specified in
the Contracts (see Note 4), as is an amount equal to the premium tax applicable
to certain Contracts. Although this sales load and the premium tax are
chargeable to each premium when it is received by Golden American, the amount of
such
30
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. CHARGES AND FEES (CONTINUED)
charges is initially advanced by Golden American to Contractowners and included
in the accumulation value and then deducted in equal installments on each
contract processing date over a period specified in the Contract. For Deferred
Annuity Contracts, the charges are recovered over a period which is the lesser
of either six or ten years or the amount of time between the contract date and
the annuity commencement date. For Annuity Certain Contracts, the charges are
recovered over a period which is the lesser of either six or ten years or the
length of the "certain" period, as defined in each Contract. Upon surrender of
the Contract, the unamortized deferred sales load and premium taxes are deducted
from the accumulation value by Golden American. The net assets retained in the
Account by Golden American in the accompanying financial statements represent
the unamortized deferred sales load and premium taxes.
Net assets retained in the Account by Golden American:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Balance at January 1.......................................................... $ 37,363,830 $ 13,024,324
Sales load advanced........................................................... 16,137,638 27,069,471
Premium tax advanced.......................................................... 73,178 206,633
Net transfer from Guaranteed Interest Division and Separate Account D......... 665,964 359,229
Amortization of deferred sales load and premium tax........................... (10,232,633) (3,295,827)
-------------- --------------
Balance at December 31........................................................ $ 44,007,977 $ 37,363,830
-------------- --------------
-------------- --------------
</TABLE>
4. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer,acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For 1994
and 1993, fees paid by Golden American to DSI aggregated $15,939,331 and
$30,495,805, respectively.
Under the terms of an expense limitation agreement ("Expense Agreement")
between DSI and the Trust, DSI paid the Trust for ordinary expenses which
exceeded certain prescribed limits. For the year ended December 31, 1993, DSI
paid the Trust $255,476 relating to the Expense Agreement. The Expense Agreement
was terminated effective September 30, 1993, and was replaced by a unified fee
payable by the Trust to DSI, covering all expenses of the Trust, except trustee
fees which are borne by the Trust.
31
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 0.83 0.82 0.83 0.85 0.87 0.79 0.85 0.84 0.89 0.87 0.82 1.20 0.72 0.83 0.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.87% 1.82% 2.30% 4.81% 6.88% (1.98)% 5.35% 4.00% 10.38% 7.00% 1.71% 48.73% (10.53)% 3.87% (14.53)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 0.71 0.86 0.78 1.09 0.75 0.85 0.94 0.91 1.07 0.64 0.74 0.86 0.85 1.04 0.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.49)% 5.70% (3.37)% 35.39% (8.09)% 5.49% 16.33% 12.96% 32.99% (21.42)% (8.01)% 6.73% 5.38% 27.89% (3.96)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 0.78 0.89 0.82 0.95 0.84 0.79 0.87 0.59 0.80 0.20 0.67 0.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (1.96)% 10.24% 1.06% 19.07% 3.90% (2.38)% 7.44% 10.28% (0.21)% 2.94% (15.85)% 24.16%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent the mortality and expense risk charges at an
annual rate of .80% of the assets of the Account.
</TABLE>
32
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(d)... 1.04 1.03 1.04 1.06 1.08 0.98 1.06 1.05 1.11 1.08 1.02 1.50 0.90 1.04 0.86
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.66% 1.61% 2.09% 4.60% 6.67% (2.17)% 5.14% 3.79% 10.16% 6.79% 1.51% 48.43% (10.71)% 3.66% (14.70)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(d)... 0.89 1.07 0.98 1.36 0.94 1.06 1.17 1.14 1.34 0.80 0.93 1.08 1.07 1.29 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.67)% 5.49% (3.57)% 35.12% (8.28)% 5.28% 16.10% 12.73% 32.72% (21.58)% (8.20)% 6.51% 5.16% 27.64% (4.15)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING MARKET
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS MANAGER
-------------------------------------- ---------------------- -------------- -------------- -------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b) 1994 (c)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --% 0.24%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40 0.44
Expense
charges
(d)... 0.98 1.11 1.02 1.19 1.06 0.98 1.09 0.74 1.00 0.25 0.84 0.30 0(e)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (2.16)% 10.02% 0.86% 18.83% 3.68% (2.57)% 7.22% 10.13% (0.41)% 2.89% (16.02)% 24.10% 0.44%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Commencement of operations November 14, 1994. Net return is not annualized
(d) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.00% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.00% had been in effect
since January 1, 1990.
(e) During the period November 14, 1994 through December 31, 1994, all fund
operative expense and mortality and expense risk charges were waived. Such
expenses would have aggregated 0.26% of average assets.
</TABLE>
33
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 1.40 1.39 1.40 1.43 1.46 1.33 1.43 1.42 1.50 1.46 1.38 2.03 1.22 1.41 1.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.30% 1.25% 1.73% 4.23% 6.29% (2.52)% 4.77% 3.42% 9.77% 6.41% 1.15% 47.90% (11.03)% 3.29% (15.01)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 1.20 1.44 1.32 1.84 1.26 1.43 1.58 1.54 1.80 1.07 1.25 1.46 1.44 1.74 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.98)% 5.12% (3.91)% 34.64% (8.60)% 4.91% 15.69% 12.33% 32.26% (21.85)% (8.52)% 6.13% 4.79% 27.19% (4.49)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 1.33 1.50 1.38 1.61 1.42 1.33 1.46 1.00 1.35 0.34 1.14 0.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (2.51)% 9.63% 0.50% 18.41% 3.32% (2.92)% 6.85% 9.87% (0.76)% 2.80% (16.32)% 23.99%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.35% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.35% had been in effect
since January 1, 1990.
</TABLE>
34
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners and Board of Governors
THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
We have audited the accompanying statement of assets and liabilities of The
Managed Global Account of Separate Account D, including the statement of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Account's 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. Our procedures included
verification by examination of securities held by the custodian as of December
31, 1994 and confirmation of securities not held by the custodian by
correspondence with others. 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 financial position of The Managed Global Account
of Separate Account D at December 31, 1994, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 10, 1995
35
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $90,208,934).................................... $85,946,412
Cash........................................................................ 278,515
Dividends and interest receivable........................................... 98,042
Prepaid expenses and other assets........................................... 7,918
-----------
Total Assets............................................................ 86,330,887
-----------
LIABILITIES
Payable to Golden American for contract related expenses.................... 46,106
Accrued expenses............................................................ 76,226
-----------
Total Liabilities....................................................... 122,332
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
NET ASSETS
For variable annuity contracts.............................................. $81,674,591
Retained in The Managed Global Account of Separate Account D by Golden
American................................................................... 4,533,964
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
</TABLE>
See notes to financial statements.
36
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of $53,740 foreign taxes withheld)........................... $ 457,838
Interest (Net of $1,330 foreign taxes withheld)............................. 1,211,036
------------
Total investment income................................................. 1,668,874
EXPENSES:
Management and advisory fees................................................ 834,367
Mortality and expense risk and administrative charges....................... 831,890
Custodian fees.............................................................. 84,877
Fund accounting fees........................................................ 68,428
Amortization of organizational expenses..................................... 29,200
Legal fees.................................................................. 28,916
Auditing fees............................................................... 25,536
Interest.................................................................... 23,218
Insurance premiums for fidelity bond........................................ 22,535
Proxy....................................................................... 19,368
Printing and mailing........................................................ 12,445
Registration fees........................................................... 3,463
Directors' fees and expenses................................................ 3,289
Other....................................................................... 12,284
------------
Total expenses.......................................................... 1,999,816
Less amounts paid by the investment manager pursuant to expense limitation
agreement.................................................................. (71,175)
------------
Net expenses............................................................ 1,928,641
------------
NET INVESTMENT LOSS........................................................... (259,767)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments............................................................... 357,057
Options................................................................... (14,024)
Futures................................................................... (100,164)
Foreign currency transactions............................................. (1,606,427)
------------
(1,363,558)
------------
Net change in unrealized appreciation (depreciation) of:
Investments............................................................... (10,287,249)
Futures and options....................................................... (1,063,664)
Foreign currency transactions............................................. (161,039)
------------
(11,511,952)
------------
Net realized and unrealized loss............................................ (12,875,510)
------------
Net decrease in net assets resulting from operations...................... (13,135,277)
------------
------------
</TABLE>
See notes to financial statements.
37
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss............................................................ $ (259,767) $ (269,919)
Net realized loss from investment and foreign currency transactions............ (1,363,558) (3,529,193)
Net unrealized (depreciation) appreciation of investment and foreign currency
transactions.................................................................. (11,511,952) 7,269,059
-------------- --------------
Net (decrease) increase in net assets resulting from operations................ (13,135,277) 3,469,947
-------------- --------------
CONTRACT RELATED TRANSACTIONS:
Premiums....................................................................... 22,680,207 45,381,393
Benefits, surrenders and other withdrawals..................................... (8,496,158) (3,073,207)
Net transfers (to) from Separate Account B and Guaranteed Interest Division of
Golden American............................................................... (2,244,552) 4,544,018
Contract related charges and fees.............................................. (1,073,158) (544,060)
-------------- --------------
Net increase in net assets resulting from contract related transactions........ 10,866,339 46,308,144
-------------- --------------
Net (decrease) increase in net assets.......................................... (2,268,938) 49,778,091
NET ASSETS:
Beginning of year.............................................................. 88,477,493 38,699,402
-------------- --------------
End of year.................................................................... $ 86,208,555 $ 88,477,493
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
38
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT
OF NET PRINCIPAL
ASSETS AMOUNT VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 5.8% $ 4,966,000 PNC Securities, 5.50%, dated 12/30/94,
due 01/03/95, collateralized by
$5,055,000 in principal amount of U.S.
Treasury Notes 5.875%, due 05/31/96
(Cost $4,966,000)...................... $ 4,966,000
-----------
CONVERTIBLE BONDS 6.0% $ 920,000 United Micro Electronics Conv. Bonds,
1.25%, 6/8/04 (Taiwan)................. 1,423,700
AUD 33,000 BTR Nylex LTD, 9% Conv. Notes 11/30/49,
(Australia)............................ 258,307
Y111,000,000 Matsushita Electric Works Conv. Bonds,
2.70%, 5/31/02 (Japan)................. 1,193,788
$ 800,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan) (c)................... 916,000
90,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan)....................... 103,050
FF 7,512,750 SCOR SA 3%, Conv. Bonds, 1/1/01
(France)............................... 1,299,230
-----------
Total Convertible Bonds
(Cost $5,275,355)...................... 5,194,075
-----------
COMMON STOCKS 85.2% SHARES
-------------
BANKS 3.2% 16,000 Arab Malaysian Merchant Bank BHD
(Malaysia)............................. 151,665
4,000 Banco Frances Rio Plata ADR
(Argentina)............................ 85,500
18,300 Banco Frances Del Rio Plata
(Argentina)............................ 121,022
119,000 Development Bank of Singapore
(Singapore)............................ 1,224,280
422,000 Foereningsbanken AB Serjes A (a)
(Sweden)............................... 824,219
79,500 Thailand Military Bank LTD (Thailand)... 335,737
-----------
2,742,423
-----------
BEVERAGES 1.7% 764,500 Lion Nathan LTD (New Zealand)........... 1,455,776
-----------
BUILDING & CONSTRUCTION 5.1% 113,400 Cementos De Mexico SA ADR (a)
(Mexico)............................... 1,151,237
5,000 Grupo Mexicand De Desarollo (Mexico).... 38,125
47,100 Grupo Tribasa SA ADR (a) (Mexico)....... 783,038
2,400 Maculan Holdings AG (Austria)........... 198,165
23,800 Tsuchiya Home (Japan)................... 586,089
100,000 United Construction (a) (Australia)..... 73,625
15,500 VA Technologie (a) (Australia).......... 1,561,376
-----------
4,391,655
-----------
CHEMICALS 6.1% 43,700 Norsk Hydro AS ADR (Norway)............. 1,709,763
20,600 PT TriPolyta Indonesia ADR (a)
(Indonesia)............................ 499,550
51,200 Reliance Industries GDS (a) (India)..... 1,011,200
98,000 Shin - Etsu Chemical (Japan)............ 1,950,347
-----------
5,170,860
-----------
COSMETICS 3.2% 164,000 KAO Corp. (Japan)....................... 1,862,700
79,000 NEC Corp. (Japan)....................... 905,217
-----------
2,767,917
-----------
DIVERSIFIED 1.9% 676,000 BTR Nylex LTD (Australia)............... 1,257,360
64,000 Westmont Berhad (Malaysia).............. 398,590
-----------
1,655,950
-----------
DRUGS 1.5% 50,200 Astra AB (Sweden)....................... 1,284,752
-----------
</TABLE>
39
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
COMMON STOCKS -- CONTINUED
<S> <C> <C> <C> <C>
ELECTRONICS 9.6% 4,400 Austria Mikro System (Austria).......... $ 331,817
1,465 BBC Brown Boveri (Switzerland).......... 1,261,310
80,000 Hitachi LTD (Japan)..................... 795,256
464,000 IPC LTD (Singapore)..................... 316,653
9,500 Sony ADR (Japan)........................ 533,187
44,000 Sony (Japan)............................ 2,498,744
53,000 TDK Corp. (Japan)....................... 2,573,022
-----------
8,309,989
-----------
ENTERTAINMENT 3.3% 77,200 Thorn EMI PLC (United Kingdom).......... 1,250,466
9,100 TOHO (Japan)............................ 1,600,664
-----------
2,851,130
-----------
FINANCIAL SERVICES 14.2% 75,000 Ampal American Israel Cl. A (a)
(Israel)............................... 496,875
35,900 Anglovaal LTD (South Africa)............ 1,101,227
3,565 Banco DeGalica Buenos Aires SA ADR
(Argentina)............................ 61,496
58,100 Banco Santander SA ADR (Spain).......... 2,222,325
38,732 Banesto SA ADS (a) (Spain).............. 115,094
2,583,854 Brierley Investment LTD (New Zealand)... 1,865,723
2,640 Cetelem (France)........................ 472,400
50,000 Goven & Company PLC (United Kingdom).... 278,570
71,200 Grupo Financiero Bancomer SA ADR (a)
(Mexico)............................... 844,218
466,800 Industrial Finance Corporation of
Thailand (Thailand).................... 994,972
65,000 Japan Securities Finance (Japan)........ 1,077,998
630,000 Singer & Friedlander Group (United
Kingdom)............................... 847,917
88,200 YPF SA ADR (Argentina).................. 1,885,275
-----------
12,264,090
-----------
HOSPITAL MANAGEMENT 1.2% 295,400 Takare PLC (United Kingdom)............. 1,017,062
-----------
INDUSTRIAL 2.2% 32,100 Celsius Industries Cl. B (Sweden)....... 713,429
31,900 Murata Manufacturing LTD (Japan)........ 1,234,446
-----------
1,947,875
-----------
INSURANCE 0.3% 10,080 SCOR SA (France)........................ 224,755
-----------
LEISURE RELATED 0.3% 4,000 Sankyo Company, LTD (Japan)............. 269,374
-----------
METALS & MINING 2.6% 49,000 Hindalco Industries GDR (a) (India)..... 1,641,500
79,100 Niugini Mining (a) (Australia).......... 242,145
287,000 Pasminco LTD (a) (Australia)............ 400,365
-----------
2,284,010
-----------
OFFICE EQUIPMENT 3.2% 2,900 Canon ADR (Japan)....................... 246,500
149,000 Canon (Japan)........................... 2,531,008
-----------
2,777,508
-----------
OIL & GAS 5.6% 51,000 Elf Aquitaine ADR (France).............. 1,797,750
19,200 Francaise de Petroleum Total (France)... 1,115,953
516,900 Woodside Petroleum LTD (Australia)...... 1,898,832
-----------
4,812,535
-----------
PAPER 3.0% 420,000 Fletcher Challenge LTD (New Zealand).... 984,955
36,650 Metsa Serla B (Finland)................. 1,608,609
-----------
2,593,564
-----------
</TABLE>
40
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
PHOTO & OPTICAL 0.6% 114,000 Pt Modern Photo Film Company
(Indonesia)............................ $ 482,128
-----------
PRINTING & PUBLISHING 1.2% 253,734 News Corporation LTD (Australia)........ 993,051
-----------
RETAIL 1.7% 33,600 York--Benimaru (Japan).................. 1,475,847
-----------
TELECOMMUNICATIONS 3.4% 46,000 Lagardere Groupe (France)............... 1,068,765
61 Nippon Telegraph & Telephone (Japan).... 540,165
31,600 Telefonos de Mexico Cl. L ADR
(Mexico)............................... 1,295,600
-----------
2,904,530
-----------
TEXTILES 0.9% 58,700 Tuntex Distinct GDS (Taiwan)............ 763,100
-----------
TRANSPORTATION 5.7% 188,000 British Airport Authority (United
Kingdom)............................... 1,391,661
150 Danzas Holding AG (Switzerland)......... 135,218
682 East Japan Railway (Japan).............. 3,413,770
-----------
4,940,649
-----------
UTILITIES 3.5% 8,100 ASEA AB (Sweden)........................ 586,988
71,900 Capex SA GDR (a) (c) (Argentina)........ 1,213,313
3,000 Capex SA GDR (a) (Argentina)............ 50,625
140 DDI (Japan)............................. 1,210,172
-----------
3,061,098
-----------
Total Common Stocks (Cost $77,338,313) 73,441,628
-----------
CONVERTIBLE PREFERRED STOCKS 1.2%
BUILDING & CONSTRUCTION 0.7% 6,800 Maclun Holdings AG (Australia).......... 561,468
PRINTING & PUBLISHING 0.5% 126,867 News Corporation Ltd Preferred
(Australia)............................ 437,533
-----------
Total Convertible Preferred Stocks
(Cost $1,154,019)....................... 999,001
-----------
WARRANTS AND OPTIONS 1.5% 40,250 Korean Stock Index Option, Expires
7/1/95 at 100,000 Won (Korea) (b)...... 1,343,302
600 Danza Holding AG., Expires 08/26/96
(Switzerland).......................... 2,406
-----------
Total Warrants and Options (Cost
$1,475,247)............................ 1,345,708
-----------
99.7% Total Investments (Cost $90,208,934).... 85,946,412
0.4% Total Other Assets...................... 384,475
(0.1%) Liabilities............................. (122,332)
-----------
100.0% Total Net Assets........................ $86,208,555
-----------
-----------
<FN>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of Notes to Financial Statements.
(a) Non-income producing security.
(b) Security is illiquid. Investments in illiquid securities with an aggregate
market value of $1,343,302 represent approximately 1.5% of net assets. The
valuation of this investment has been determined under the direction of the
Board of Governors:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION
ISSUE ISSUER DATE PURCHASE PRICE VALUATION
- ------------------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Korean Stock Index Peninsula Trust 7/26/94 $ 36.14 $ 33.37
<FN>
(c) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At December 31,
1994, the value of these securities amounted to $3,263,457 or 3.8% of net
assets.
</TABLE>
See notes to financial statements.
41
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Managed Global Account of Separate Account D (the "Account") was
established on April 18, 1990, by Golden American Life Insurance Company
("Golden American"), under Minnesota insurance law to support the operations of
variable annuity contracts ("Contracts"). Golden American is a wholly-owned
subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned subsidiary of
Bankers Trust Company ("Bankers Trust"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
Operations of the Account commenced on October 21, 1992. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to the Account. The assets of the Account are owned by
Golden American. The portion of the Account's assets applicable to Contracts
will not be chargeable with liabilities arising out of any other business Golden
American may conduct, but obligations of the Account, including the promise to
make benefit payments, are obligations of Golden American.
The Account is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, as a non-diversified open-end
investment company.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the reserves and other contract liabilities with respect to the
Account. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risks under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS VALUATION: The valuation of the Account's assets is determined
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price at which domestic and foreign securities are traded, or, if no sales
are reported, the mean between representative bid and ask quotations obtained
from a quotation reporting system or from established market makers. In other
cases, securities are valued at their fair value as determined in good faith
under the direction of the Board of Governors. The value of a foreign security
is determined in its national currency based upon the price on the pertinent
foreign exchange as of its close of business immediately preceding the time of
valuation. Domestic and foreign denominated debt securities, including those to
be purchased under firm commitment agreements, are normally valued on the basis
of quotes obtained from brokers and dealers or pricing services. Debt
obligations having a maturity of sixty days or less may be valued at amortized
cost unless the Portfolio Manager believes that amortized cost does not
approximate market value.
CURRENCY TRANSLATION: Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency exchange contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar as of the close of business
42
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
immediately preceding the time of valuation. Purchases and sales of portfolio
securities are translated at the rates of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates of
exchange prevailing when accrued. Net realized and unrealized losses on foreign
currency transactions of $1,606,427 and $161,039, respectively, represent
foreign exchange gains and losses from holdings of foreign currencies, options
on foreign currencies, exchange gains and losses realized between the trade and
settlement date on security transactions, and the difference between the amounts
of interest and dividends and expenses recorded on the Account's books and the
U.S. dollar equivalent amounts actually received or paid. The Account does not
separate that portion of the realized and unrealized gains and losses resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of investments.
INVESTMENT INCOME AND SECURITY TRANSACTIONS: Investment transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
Interest income, including the amortization of premiums and discounts, and
estimated expenses are accrued daily. Realized gains and losses from investment
transactions are recorded on an identified cost basis which is the same basis
used for federal income tax purposes.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American, which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. SECURITIES TRANSACTIONS
(a) Purchases and sales of investment securities, excluding short-term
securities and options transactions, during the year ended December 31, 1994,
were $116,075,263 and $83,822,618, respectively.
(b) The Account may enter into repurchase agreements in accordance with
guidelines approved by the Board of Governors. The account bears a risk of loss
in the event that the counterparty to a repurchase agreement defaults on its
obligations and the Account is delayed or prevented from exercising its right to
dispose of the underlying securities collateralizing the repurchase agreement,
including the risk of a possible decline in the value of the underlying
securities during the period while the Series seeks to assure its rights. The
Account takes possession of the collateral, and reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Account enters into repurchase agreements to evaluate potential risks. The
market value of the underlying securities received as collateral must be at
least equal to the total amount of the repurchase obligation. In the event of
counterparty default, the Account has the right to use the underlying securities
to offset the loss.
(c) The Account may write exchange-listed and over-the-counter call and put
options on securities, currencies and other financial investments to enhance
investment performance. When the Account writes a put or call option, the amount
of received premium is included in the Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the current
market value of the option. Premiums received from writing options which expire
unexercised are treated by the Account on the expiration date as realized gains.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security in determining whether the Account has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Account. In writing an option, the Account
bears the market risk of
43
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
unfavorable changes in the price of the security or currency underlying the
written option. Exercise of an option written by the Account could result in the
Account selling or buying a security or currency at a price different from the
current market value.
The Account realized losses on written options of $232,104 for the year
ended December 31, 1994. Transactions in call and put options written for the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
------------ --------------
<S> <C> <C>
CALL OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 276 1,211,700
Options terminated in closing purchase transactions............... (276) (1,211,700)
------------ --------------
Options outstanding at end of period.............................. 0 0
------------ --------------
------------ --------------
PUT OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 181 809,540
Options terminated in closing purchase transactions............... (181) (809,540)
------------ --------------
Options outstanding at end of period.............................. 0 $ 0
------------ --------------
------------ --------------
</TABLE>
In addition, the Account may purchase exchange-traded and over-the-counter
call and put options on securities, currencies and securities indices. The risk
in buying an option is that the Account pays for a premium whether or not the
option is exercised. The Account also has the additional risk of not being able
to enter into a transaction if a liquid secondary market does not exist.
Additionally, the account bears the risk of loss should the counterparty not
perform under the contract.
(d) The Account enters into forward foreign exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward foreign exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the cost of the
original contracts and the amount realized upon the closing of such contracts is
included in realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward foreign currency exchange contracts held
are recorded for financial reporting purposes as unrealized gains or losses by
the Account on a daily basis. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar. At December 31,
1994, the Account had no forward foreign currency exchange contracts
outstanding.
(e) The Account may engage in trading financial futures contracts to hedge
its portfolio holdings or to enhance investment performance. Consequently, the
Account is exposed to market risk as a result of changes in the value of the
underlying financial instruments. Investments in financial futures require the
Account to "mark to market" on a daily basis, which reflects the change in the
market value of the contract at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized gains
or losses. When the contracts are closed, the Account recognizes a realized gain
or loss. These investments require initial margin deposits
44
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
which consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the exchange or
the board of trade on which the contract is traded and is subject to change. At
December 31, 1994, the Account had no open futures contracts.
4. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. The following is a summary of these
charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.35% of the assets attributable
to Contracts to cover these risks.
ASSET BASED ADMINISTRATIVE CHARGE: To compensate Golden American for the
administrative expenses under the Contract, a daily charge at an annual rate of
0.10% is deducted from assets attributable to the Contracts.
PARTIAL WITHDRAWAL CHARGE: A partial withdrawal charge of the lower of 2%
of the withdrawal or $25 is deducted from the accumulation value for each
additional partial withdrawal after the first partial withdrawal in a contract
year.
DEFERRED SALES LOAD: A sales load of 6% is applicable to each premium
payment for sales related expenses as specified in the Contracts. Although the
sales load is chargeable to each premium when it is received by Golden American,
the amount of such charge is initially advanced by Golden American to
Contractowners and included in the accumulation value and then deducted in equal
installments on each Contract processing date over a period of six years. For
the year ended December 31, 1994, contract sales loads of $1,039,651 initially
advanced by Golden American to the Account were deducted from contractowners'
accumulation value. Upon surrender of the Contract, the unamortized deferred
sales load is deducted from the accumulation value by Golden American. In
addition, when partial withdrawal limits are exceeded, a portion of the
unamortized deferred sales load is deducted.
The net assets retained in the Account by Golden American in the
accompanying financial statements represent the unamortized deferred sales load
and premium taxes advanced by Golden American, noted above.
Net Assets Retained in the Account by Golden American are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------- -------------
<S> <C> <C>
Balance at beginning of year........................................................ $ 4,668,658 $ 2,313,333
Sales load advanced................................................................. 1,338,526 2,671,408
Premium tax advanced................................................................ 6,823 5,997
Net transfer (to) from Separate Account B and the Guaranteed Interest Division...... (427,829) 197,052
Amortization of deferred sales load................................................. (1,052,214) (519,132)
------------- -------------
$ 4,533,964 $ 4,668,658
------------- -------------
------------- -------------
</TABLE>
45
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHARGES AND FEES (CONTINUED)
PREMIUM TAXES: Premium taxes are deducted, where applicable, from the
accumulation value of each Contract. The amount and timing of the deduction
depend on the annuitant's state of residence and currently ranges up to 3.5% of
premiums. Premium taxes are generally incurred on the annuity commencement date
and a charge for such premium taxes is then deducted from the accumulation value
on such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity commencement
date. In those states, Golden American advances the amount of the charge for
premium taxes to Contractowners and then deducts it from the accumulation value
in equal installments on each contract processing date over a six year period.
During the year ended December 31, 1994, premium taxes of $6,823 were advanced
by Golden American to Contractowners. Golden American is currently waiving the
deduction of the applicable installments of the charge for premium taxes
previously advanced by Golden American to Contractowners. Golden American
reserves the right to deduct the total amount of the charge for premium taxes
previously waived and unrecovered on the annuity commencement date or upon
surrender of the Contract.
OPERATING EXPENSES: The Account is charged for management expenses by DSI,
the Manager of the Account, based upon the following annual percentage of the
Account's average daily net assets: 0.40% of the first $500 million and 0.30% of
the amount over $500 million. In addition, Zulauf Asset Management AG, the
Account's Portfolio Manager, was paid a monthly advisory fee equal to an annual
rate based upon the following percentages of the Account's average daily net
assets: 0.60% of the first $500 million and 0.50% of the amount over $500
million. The Board of Governors of the Account terminated, effective June 30,
1994, the Portfolio Management Agreement between Zulauf Asset Management AG and
the Account. Effective July 1, 1994, the Board of Governors appointed Warburg
Pincus Counsellors, Inc. ("Warburg") as the new portfolio manager of the
Account. The Account pays Warburg an advisory fee, payable monthly, based on the
average daily net assets of the Account at an annual rate of 0.60% of the first
$500 million and 0.50% on the excess thereof. For the year ended December 31,
1994, the Account incurred management and advisory fees of $333,747 and
$500,620, respectively.
The Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, legal and auditing services, registration fees and other
related operating expenses. Bankers Trust is the custodian of the assets in the
Account. For the year ended December 31, 1994, the Account incurred $84,877 for
custodian fees.
ORGANIZATION EXPENSES: The initial organizational expenses of the Account
of approximately $150,000 were paid by Golden American. The Account reimburses
Golden American for such expenses over a period of five years from the date of
the Account's commencement of operations. At December 31, 1994, the unamortized
balance of such expenses was $94,382.
EXPENSE LIMITATION: The Account and DSI entered into an agreement to limit
the total expenses of the Account, excluding mortality and expense risk charges,
interest expense, and other contractual charges, through December 31, 1994, so
that such expenses do not exceed on an annual basis: 1.25% of the first $500
million of the average daily net assets 1.05% of the excess over $500 million.
For the year ended December 31, 1994, $71,175 was reimbursed by DSI to the
Account pursuant to this limitation. Such agreement was extended under the same
terms through December 31, 1995.
46
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer, acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For the
years ended December 31, 1994 and 1993, fees paid by Golden American to DSI in
connection with sales of the contracts aggregated approximately $1,343,000 and
$3,070,000, respectively.
6. NET RETURN
The following table shows the net return as a percentage of average net
assets with respect to the Account for the years ended December 31, 1994 and
1993, and the period October 21, 1992 (commencement of operations) to December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992*
--------- --------- ---------
<S> <C> <C> <C>
Investment income................................................................... 2.00% 1.97% 0.62%
Expense charges..................................................................... 2.31 2.42 0.36
--------- --------- ---------
Net investment income (loss)........................................................ (0.31) (0.45) 0.26
Net realized and unrealized (loss) gain on investments.............................. (13.26) 6.19 (.18)
--------- --------- ---------
Net return.......................................................................... (13.57)% 5.74% 0.08%
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
*Not annualized.
</TABLE>
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GOLDENSELECT DVA SERIES 100
DEFERRED COMBINATION VARIABLE
AND FIXED ANNUITY CONTRACT
issued by
SEPARATE ACCOUNT B ("Account B")
and
SEPARATE ACCOUNT D ("Account D")
(collectively, the "Accounts")
of
GOLDEN AMERICAN LIFE INSURANCE COMPANY
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THE
INFORMATION CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS FOR THE GOLDEN AMERICAN LIFE INSURANCE COMPANY DEFERRED
VARIABLE ANNUITY CONTRACT WHICH IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT
TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, SEND A WRITTEN
REQUEST TO GOLDEN AMERICAN LIFE INSURANCE COMPANY, CUSTOMER SERVICE
CENTER, P.O. BOX 8794, WILMINGTON, DE 19899-8794 OR TELEPHONE 1-800-366-0066.
DATE OF PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
INTRODUCTION............................................................... 1
PART I
Description of Golden American Life Insurance Company...................... 1
Safekeeping of Assets...................................................... 1
The Administrator.......................................................... 1
Independent Auditors....................................................... 1
Reinsurance................................................................ 2
Distribution of Contracts.................................................. 2
Performance Information.................................................... 2
IRA Partial Withdrawal Option.............................................. 5
Other Information.......................................................... 6
PART II
Securities and Investment Techniques....................................... 6
U.S. Government Securities.............................................. 6
Debt Securities......................................................... 7
Short Sales Against the Box............................................. 7
Futures Contracts and Options on Futures Contracts...................... 7
Options on Securities................................................... 8
Options of Securities Indexes........................................... 9
Foreign Currency Transactions........................................... 9
Options on Foreign Currencies........................................... 10
Repurchase Agreements................................................... 11
Banking Industry and Savings Industry Obligations....................... 11
Commercial Paper........................................................ 12
When Issued or Delayed Delivery Securities.............................. 12
Investment Restrictions.................................................... 12
Management of Separate Account of Account D................................ 14
The Manager................................................................ 15
Portfolio Manager.......................................................... 16
Custodian and Portfolio Accounting Agent................................... 16
Portfolio Transactions and Brokerage....................................... 16
Purchase and Pricing of the Global Account................................. 17
Financial Statements of Separate Account B................................. 18
Financial Statements of The Managed Global Account of Separate Account D... 18
Appendix - Description of Bond Ratings
<PAGE>
INTRODUCTION
Part I of this Statement of Additional Information provides background
information regarding Account B and Account D. Part II of this Statement of
Additional Information (beginning on page 7) provides information regarding
the investment activities of Account D and The Managed Global Account (the
"Global Account"), including its investment policies.
PART I
DESCRIPTION OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior
to December 30, 1993, Golden American was a Minnesota corporation. From
January 2, 1973 through December 31, 1987, the name of the company was St.
Paul Life Insurance Company. On December 31, 1987, after all of St. Paul
Life Insurance Company's business was sold, the name was changed to Golden
American. On March 7, 1988, all of the stock of Golden American was acquired
by The Golden Financial Group, Inc. ("GFG"), a financial services holding
company. On October 19, 1990, GFG merged with and into MBL Variable, Inc.
("MBLV"), a wholly owned direct subsidiary of The Mutual Benefit Life
Insurance Company ("MBL"). On January 1, 1991, MBLV became a wholly owned
indirect subsidiary of MBL and Golden American became a wholly owned direct
subsidiary of MBL. Golden American's name had been changed to MB Variable
Life Insurance Company in the state of Minnesota but subsequently has been
changed back to Golden American. In a transaction that closed on September
30, 1992, Golden American was acquired by a subsidiary of Bankers Trust
Company ("Bankers Trust"). As of December 31, 1994, Golden American had over
$89.5 million in stockholders' equity and approximately $1.04 billion in
total assets, including approximately $950.3 million of separate account
assets. Golden American is authorized to do business in all jurisdictions
except New York. Golden American offers variable annuities and variable life
insurance.
SAFEKEEPING OF ASSETS
Golden American acts as its own custodian for Account B.
THE ADMINISTRATOR
Effective January 1, 1994, 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) has 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 are reimbursed by Golden
American on an allocated cost basis. Charges billed to Golden American by
Bankers Trust (Delaware) pursuant to the service agreement were $816,264 for
1994.
Prior to 1994, Golden American had arranged with BT Variable to perform
services related to the development and administration of its products. For
the year 1993 and the period from September 30, 1992 to December 31, 1992,
fees earned by BT Variable from Golden American for these services aggregated
$2,701,000 and $209,000, respectively. The agreement was terminated as of
January 1, 1994.
In addition, BT Variable provided to Golden American certain of its personnel
to perform management, administrative and clerical services and the use of
certain of its facilities. BT Variable charged Golden American for such
expenses and all other general and administrative costs, first on the basis
of direct charges when identifiable, and second allocated based on the
estimated amount of time spent by BT Variable's employees on behalf of Golden
American. For the year 1993 and the period from September 30, 1992 to
December 31, 1992, BT Variable allocated to Golden American $1,503,000 and
$450,000, respectively. The agreement was terminated on January 1, 1994.
During 1994, such expenses were allocated directly by BT New York Corporation
to Golden American and totaled $1,395,966 for the year.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, NY 10019, independent
auditors, will perform annual audits of Golden American and the Accounts.
1
<PAGE>
REINSURANCE
Golden American reinsures its mortality risk associated with the guaranteed
death benefit with Security Life of Denver Insurance Company ("Security Life
Reinsurance").
DISTRIBUTION OF CONTRACTS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from
September 30, 1992 to December 31, 1992, Golden American incurred $311,000
and $35,000, respectively, for such services. The agreement was terminated
as of January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which, as of December 31, 1994,
are sold primarily through two broker/dealer institutions. For the years
ended 1994 and 1993 and the period from September 30, 1992 to December 31,
1992, commissions paid by Golden American to DSI aggregated, $17,569,000,
$34,260,000, and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged 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. For the years
ended December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000
and $2,013,000, respectively.
PERFORMANCE INFORMATION
Performance information for the divisions of Account B and the Global
Account, including the yield and effective yield of the Liquid Asset
Division, the yield of the remaining divisions and the Global Account, and
the total return of all divisions, may appear in reports or promotional
literature to current or prospective owners. Negative values are denoted by
parentheses. Performance information for measures other than total return do
not reflect sales load which can have a maximum level of 6.5% of premium, and
any applicable premium tax that can range from 0% to 3.5%.
SEC STANDARD MONEY MARKET DIVISION YIELDS
Current yield for the Liquid Asset Division will be based on the change in
the value of a hypothetical investment (exclusive of capital changes) over a
particular 7-day period, less a pro-rata share of division expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The
base period return is then annualized by multiplying by 365/7, with the
resulting yield figure carried to at least the nearest hundredth of one
percent. Calculation of "effective yield" begins with the same "base period
return" used in the calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return) +1) (365/7)] - 1
For the 7-day period December 24, 1994 to December 31, 1994, the current
yield of the Liquid Asset Division was 3.89% and the effective yield of the
Division was 3.97%.
SEC STANDARD 30-DAY YIELD FOR NON-MONEY MARKET DIVISIONS
Quotations of yield for the remaining divisions will be based on all
investment income per Unit (accumulation value divided by the index of
investment experience) earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an accumulation
unit on the last day of the period, according to the following formula:
2
<PAGE>
YIELD = 2 [ ( a - b +1)(6) - 1]
-----
cd
Where:
[a] equals the net investment income earned during the period by
the Series attributable to shares owned by a division
[b] equals the expenses accrued for the period (net of
reimbursements)
[c] equals the average daily number of Units outstanding during
the period based on the index of investment experience
[d] equals the value (maximum offering price) per index of
investment experience on the last day of the period
Yield on divisions of Account B is earned from the increase in net asset
value of shares of the Series in which the Division invests and from
dividends declared and paid by the Series, which are automatically reinvested
in shares of the Series. Yield on the Global Account is earned from the
increase in asset value of shares of the securities in which the Global
Account invests.
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of average annual total return for any division will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and 10 years (or, if
less, up to the life of the division), calculated pursuant to the formula:
P(1+T)(N)=ERV
Where:
(1) [P] equals a hypothetical initial premium
payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of
a hypothetical $1,000 initial premium payment
made at the beginning of the period (or fractional
portion thereof)
All total return figures reflect the deduction of the maximum sales load, the
asset based administrative charge, and the mortality and expense risk charge.
The SEC requires that an assumption be made that the contract owner
surrenders the entire contract at the end of the one, five and 10 year
periods (or, if less, up to the life of the security) for which performance
is required to be calculated. This assumption may not be consistent with the
typical contract owner's intentions in purchasing a contract and may
adversely affect returns. Quotations of total return may simultaneously be
shown for other periods, as well as quotations of total return that do not
take into account certain contractual charges such as sales load.
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- STANDARDIZED
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD INCEPTION TO
DIVISION ENDING 12/31/94 ENDING 12/31/94 12/31/94 INCEPTION DATE
- -------- --------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Multiple Allocation -3.16% 5.04%* 5.45%* 1/25/89
Fully Managed -9.17% 3.75%* 3.50%* 1/25/89
Capital Appreciation -3.57% N/A 4.36%* 5/4/92
Rising Dividends -1.41% N/A 0.58% 10/4/93
All-Growth -12.63% 1.22%* 1.91%* 1/25/89
Real Estate 4.26% 6.46%* 4.85%* 1/25/89
Natural Resources 0.50% 2.44%* 4.85%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -16.97% N/A 2.07% 10/4/93
Limited Maturity Bond -3.17% 3.71%* 4.45%* 1/25/89
Global Account -14.52%* N/A -5.11%* 10/21/92
<FN>
____________________________
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
3
<PAGE>
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS
Quotations of non-standard average annual total return for any division will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five and 10 years
(or, if less, up to the life of the division), calculated pursuant to the
formula:
[P(1+T)(N)]=ERV
Where:
(1) [P] equals a hypothetical initial premium payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical
$1,000 initial premium payment made at the beginning of the
period (or fractional portion thereof) assuming certain loading
and charges are zero.
All total return figures reflect the deduction of the mortality and expense
risk charge and the administrative charges, but not the deduction of the
maximum sales load.
AVERAGE ANNUALIZED TOTAL RETURN FOR PERIODS ENDING 12/31/94 -- NON-STANDARDIZED
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD INCEPTION TO
DIVISION ENDING 12/31/94 ENDING 12/31/94 12/31/94 INCEPTION DATE
- -------- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Multiple Allocation -2.51% 5.61%* 6.01%* 1/25/89
Fully Managed -8.52% 4.33%* 4.08%* 1/25/89
Capital Appreciation -2.92% N/A 5.04%* 5/4/92
Rising Dividends -0.76% N/A 1.62% 10/4/93
All-Growth -11.98% 1.81%* 2.51%* 1/25/89
Real Estate 4.91% 7.10%* 5.51%* 1/25/89
Natural Resources 1.15% 3.16%* 5.49%* 1/25/89
Value Equity N/A N/A N/A 1/1/95
Emerging Markets -16.32% N/A 3.02% 10/4/93
Limited Maturity Bond -2.52% 4.29%* 5.01%* 1/25/89
Global Account -13.87%* N/A -4.56%* 10/21/92
<FN>
____________________________
* Total return calculation reflects partial waiver of fees and expenses.
</TABLE>
Performance information for a division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a
pertinent group of securities so that investors may compare a division's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which
ranks mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank such investment companies on overall
performance or other criteria; and (iii) the Consumer Price Index (measure
for inflation) to assess the real rate of return from an investment in the
Contract. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs
and expenses.
Performance information for any division reflects only the performance of a
hypothetical Contract under which accumulation value is allocated to a
division during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Series of the Trust in which the Account B divisions invest and the
securities in which the Global Account invests, and the market conditions
during the given time period, and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other information
including the ranking of any division derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on
overall performance or other criteria.
4
<PAGE>
PUBLISHED RATINGS
From time to time, the rating of Golden American as an insurance company by
A.M. Best may be referred to in advertisements or in reports to contract
owners. Each year the A.M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to
the norms of the life/health insurance industry. Best's ratings range from
A+ to C. An A+ rating means, in the opinion of A.M. Best, that the insurer
has demonstrated the strongest ability to meet its respective policyholder
and other contractual obligations.
PORTFOLIO TURNOVER
For reporting purposes, the Global Account's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value
of the portfolio securities owned by the Global Account during the fiscal
year. In determining such portfolio turnover, all securities whose
maturities at the time of acquisition were one year or less are excluded. A
100% portfolio turnover rate would occur, for example, if all the securities
in the portfolio (other than short-term securities) were replaced once during
the fiscal year.
INDEX OF INVESTMENT EXPERIENCE
The calculation of the Index of Investment Experience ("IIE") is discussed in
the prospectus for the Contracts under Measurement of Investment Experience.
The following illustrations show a calculation of a new IIE and the purchase
of Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF IIE
Example 1.
- ----------
1. IIE, beginning of period.......................................$1.80000000
2. Value of securities, beginning of period............................$21.20
3. Change in value of securities.........................................$.50
4. Gross investment return (3) divided by (2)........................02358491
5. Less daily mortality and expense charge...........................00003446
6. Less asset based administrative charge............................00000276
7. Net investment return (4) minus (5) minus (6).....................02354769
8. Net investment factor (1.000000) plus (7).......................1.02354769
9. IIE, end of period (1) multiplied by (8).......................$1.84238584
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 2.
- ----------
1. Initial Premium Payment.............................................$100.00
2. IIE on effective date of purchase (see Example 1)................$1.8000000
3. Number of Units purchased [(1) divided by (2)].....................55.55556
4. IIE for valuation date following purchase (see Example 1).......$1.84238584
5. Accumulation Value in account for valuation date following
purchase [(3) multiplied by (4)]....................................$102.35
IRA PARTIAL WITHDRAWAL OPTION
If the contract owner has an IRA contract and will attain age 70 1/2 in
the current calendar year, distributions will be made to you in accordance
with the requirements of Federal tax law. This option is available to assure
that the required minimum distributions from qualified plans under the
Internal Revenue Code (the "Code") are made. Under the Code, distributions
must begin no later than April 1st of the calendar year following the
calendar year in which the contract owner attains age 70 1/2. If the
required minimum distribution is not withdrawn, there may be a penalty tax in
an amount equal to 50% of the difference between the amount required to be
withdrawn and the amount actually withdrawn. Even if the IRA partial
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withdrawal option is not elected, distributions must nonetheless be made in
accordance with the requirements of Federal tax law.
Golden American notifies the contract owner of these regulations with a
letter mailed on January 1st of the calendar year in which the contract owner
reaches age 70 1/2 which explains the IRA Partial Withdrawal Option and
supplies an election form. If the contract owner chooses to elect this
option, he or she specifies whether the withdrawal amount will be based on a
life expectancy calculated on a single life basis (contract owner's life
only) or, if the contract owner is married, on a joint life basis (contract
owner's and spouse's life combined). The contract owner selects the payment
mode on a monthly, quarterly or annual basis. If the payment mode selected
on the election form is more frequent than annually, the payments in the
first calendar year in which the option is in effect will be based on the
amount of payment modes remaining when Golden American receives the completed
election form.
Golden American calculates the IRA Partial Withdrawal amount each year
based on the minimum distribution rules. We do this by dividing the
accumulation value by the life expectancy. In the first year withdrawals
begin, we use the accumulation value as of the date of the first payment.
Thereafter, we use the accumulation value on December 31st of each year. The
life expectancy is recalculated each year. Certain minimum distribution
rules govern payouts if the designated beneficiary is other than the contract
owner's spouse and the beneficiary is more than ten years younger than the
contract owner.
OTHER INFORMATION
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of
the information set forth in the registration statements, amendments and
exhibits thereto has been included in this Statement of Additional
Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal
instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed
with the Securities and Exchange Commission.
PART II
SECURITIES AND INVESTMENT TECHNIQUES
This description of the Global Account of Account D securities and
investment techniques is not comprehensive and is intended to supplement the
discussion contained in Part II of the prospectus under "Securities and
Investment Techniques."
U.S. GOVERNMENT SECURITIES
The Global Account may invest in U.S. Government securities. U.S. Government
securities are obligations of, or are guaranteed by, the U.S. Government, its
agencies or instrumentalities. Treasury bills, notes, and bonds are direct
obligations of the U.S. Treasury supported by the full faith and credit of
the United States. Securities guaranteed by the U.S. Government include
Federal agency obligations guaranteed as to principal and interest by the
U.S. Treasury (such as GNMA certificates and Federal Housing Administration
debentures). In guaranteed securities, the payment of principal and interest
is unconditionally guaranteed by the U.S. Government, and thus they are
generally of the highest credit quality. Such direct obligations or
guaranteed securities are subject to variations in market value due to
fluctuations in interest rates, but, if held to maturity, the U.S. Government
is obligated to or guarantees to pay them in full.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of, nor guaranteed, by the
Treasury. However, they involve Federal sponsorship in one way or another:
some are backed by specific types of collateral; some are supported by the
issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of
the issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC"), Student Loan Mortgage Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, and Federal Home Loan Banks.
The Global Account may also purchase obligations of the International
Bank for Reconstruction and Development ("IBRD"), which, while technically
not a U.S. Government Agency or instrumentality has the right to borrow from
IBRD participating countries, including the United States.
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DEBT SECURITIES
The Global Account may invest in debt securities of domestic and foreign
issuers including bonds, debentures, asset-backed securities, and notes which
meet the minimum ratings criteria set forth for the Global Account, or, if
unrated, are, in the Portfolio Manager's determination, comparable in quality
to corporate debt securities in which the Global Account may invest.
The investment return on a debt security reflects interest earnings and
changes in the market value of the security. The market value of debt
obligations may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may
not be able to meet their obligations on interest or principal payments at
the time called for by an instrument. Any bond may be susceptible to
changing conditions, particularly to economic downturns, which could lead to
a weakened capacity to pay interest and principal.
New issues of certain debt securities are often offered on a when-issued
or firm-commitment basis; that is, the payment obligation and the interest
rate are fixed at the time the buyer enters into the commitment, but delivery
and payment for the securities normally takes place after the customary
settlement time. The value of when-issued securities or securities purchased
on a firm-commitment basis may vary prior to and after delivery depending on
market conditions and changes in interest rate levels. However, the Global
Account will not accrue any income on these securities prior to delivery.
The Global Account will maintain in a segregated account with its custodian
an amount of cash or high-quality debt securities equal (on a daily
mark-to-market basis) in the amount of its commitment to purchase the
when-issued securities or securities purchased on a firm-commitment basis.
Many debt securities of foreign issuers are not rated by Moody's
Investors Services, Inc. ("Moody's") or Standard and Poor's Corporation
("Standard & Poor's"); therefore, the selection of such issuers depends, to a
large extent, on the credit analysis performed or used by the Portfolio
Manager.
SHORT SALES AGAINST THE BOX
The Global Account may make short sales "against the box." A short sale
"against the box" is a short sale where, at time of the short sale, the
Global Account owns or has the immediate and unconditional right, at no added
cost, to obtain the identical security. The Global Account would enter into
such a transaction to defer a gain or loss for Federal income tax purposes on
the security owned by the Global Account. Short sales against the box are
not subject to the percentage limitations on short sales as described in the
prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Global Account may purchase and sell stock index futures contracts,
interest rate futures contracts, and futures contracts based upon securities,
which may be domestic or foreign, and corporate or governmental, foreign
exchange futures contracts and other financial futures contracts, and may
purchase and write options on such contracts. A futures contract provides
for the future sale by one party and purchase by another party of a specified
amount of a particular financial instrument (debt security), or currency for
a specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for
financial instruments or currencies, futures contracts are usually closed out
before the delivery date. Closing out an open futures contract position is
effected by entering into an offsetting sale or purchase, respectively, for
the same aggregate amount of the same financial instrument and the same
delivery date. Where the Global Account has sold a futures contract, if the
offsetting purchase price is less than the original futures contract sale
price, the Global Account realizes a gain; if it is more, the Global Account
realizes a loss. Where the Global Account has purchased a futures contract,
if the offsetting price is more than the original futures contract purchase
price, the Global Account realizes a gain; if it is less, the Global Account
realizes a loss. The transaction costs must also be included in these
calculations.
Using futures to effect a particular strategy instead of using the
underlying or related security or index or currency will frequently result in
lower transaction costs being incurred. The Global Account's use of futures
contracts and futures options may include hedging transactions. For example,
the Global Account might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Global Account's securities or the price of the securities which the Global
Account intends to purchase. The Global Account's hedging may include sales
of futures contracts as an offset against the effect of expected increases in
interest rates and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques
could be used to reduce the Global
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Account's exposure to interest rate fluctuations, the Global Account may be
able to hedge its exposure more effectively and perhaps at a lower cost by
using futures contracts and futures options.
The Global Account may sell stock index futures to protect against a
market decline in an attempt to offset partially or wholly a decrease in the
market value of securities that the Global Account intends to sell.
Similarly, to protect against a market advance when the Global Account is not
fully invested in the securities market, the Global Account may purchase
stock index futures that may partly or entirely offset increases in the cost
of securities that the Global Account intends to purchase. A stock index is
a method of reflecting in a single number the market values of many different
stocks, or, in the case of capitalization weighted indices that take into
account both stock prices and the number of shares outstanding, of many
different companies. An index fluctuates generally with changes in the
market values of the common stocks so included. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take
or make delivery of an amount of cash equal to a specified dollar amount
multiplied by the difference between the stock index value at the close of
the last trading day of the contract and the price at which the futures
contract is originally purchased or sold. No physical delivery of the
underlying stocks in the index is made.
If a purchase or sale of a futures contract is made by the Global
Account, the Global Account is required to deposit with its custodian a
specified amount of cash or U.S. Government securities ("initial margin").
Generally, the margin required for a futures contract is set by the exchange
or board of trade on which the contract is traded and may be modified during
the term of the contract. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract which is
returned to the Global Account upon termination of the contract, assuming all
contractual obligations have been satisfied. The Global Account expects to
earn interest income on its initial margin deposits. A futures contract held
by the Global Account is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Global Account pays or receives
cash, called "variation margin" equal to the daily change in value of the
futures contract. This process is known as "marking-to-market". The payment
or receipt of the variation margin does not represent a borrowing or loan by
the Global Account but is settlement between the Global Account and the
broker of the amount one would owe the other if the futures contract expired.
In computing daily net asset value, each fund will mark-to-market its open
futures positions.
The Global Account is also required to deposit and maintain margin with
respect to put and call options on futures contracts it writes. Such margin
deposits will vary depending on the nature of the underlying futures contract
(including the related initial margin requirements), the current market value
of the option, and other futures positions held by the Global Account.
When purchasing a futures contract or selling a put option on a futures
contract, the Global Account is required to maintain with its custodian
high-quality liquid debt securities, cash, or cash equivalents (including any
margin) equal to the purchase price of such contract or option to
collateralize the position, or to otherwise cover the position. When selling
a futures contract or selling a call option on a futures contract, the Global
Account is required to maintain with its custodian high-quality liquid debt
securities, cash, or cash equivalents (including any margin) equal to the
market value of such contract or option, or to otherwise cover the position.
In compliance with the requirements of the Commodity Futures Trading
Commission ("CFTC") under which an investment company may engage in futures
transactions, the Global Account will comply with certain regulations of the
CFTC to qualify for an exclusion from being a "commodity pool." The
regulations require that the Global Account enter into futures and options
(1) for "bona fide hedging" purposes, without regard to the percentage of
assets committed to initial margin and options premiums, or (2) for other
strategies, provided that the aggregate initial margin and premiums required
to establish such positions do not exceed 5% of the liquidation value of the
Global Account's portfolio, after taking into account unrealized profits and
unrealized gains on any such contracts entered into.
OPTIONS ON SECURITIES
In pursuing its investment objective, the Global Account may engage in
transactions on options on securities. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option.
One reason the Global Account may purchase put options on securities is to
protect holdings in an underlying or related security against a substantial
decline in market value. Securities are considered related if their price
movements generally correlate to one another. For example, the purchase of
put options on debt securities held by the Global Account would enable the
Global Account to protect, at least partially, an unrealized gain in an
appreciated security without actually selling the security. In addition, the
Global Account would continue to receive interest income on such security.
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The Global Account may purchase call options on securities in furtherance
of its investment objective, which may include a call option to protect
against substantial increases in prices of securities the Global Account
intends to purchase pending its ability to invest in such securities in an
orderly manner. The Global Account may sell put or call options it has
previously purchased, which could result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the premium and
other transactional costs paid on the put or call option which is sold.
In order to earn additional income on its portfolio securities or to
protect partially against declines in the value of such securities, the
Global Account may write covered call options. The exercise price of a call
option may be below, equal to, or above the current market value of the
underlying security at the time the option is written. During the option
period, a covered call option writer may be assigned an exercise notice by
the broker-dealer through whom such call option was sold requiring the writer
to deliver the underlying security against payment of the exercise price.
This obligation is terminated upon the expiration of the option period or at
such earlier time in which the writer effects a closing purchase transaction.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Global Account to write another call option on the underlying security with
either a different exercise price or expiration date or both.
In order to earn additional income or to facilitate its ability to
purchase a security at a price lower than the current market price of such
security, the Global Account may write secured put options. During the
option period, the writer of a put option may be assigned an exercise notice
by the broker-dealer through whom the option was sold requiring the writer to
purchase the underlying security at the exercise price.
The Global Account may write a call or put option only if the option is
"covered" or "secured". This means that so long as the Global Account is
obligated as the writer of a call option, it will own the underlying
securities subject to the option or if the Global Account holds a call at the
same exercise price, for the same exercise period, and on the same securities
as the written call. Alternatively, the Global Account may maintain, in a
segregated account with Account D's custodian, cash, cash equivalents, or
high-quality liquid debt securities with a value sufficient to meet its
obligation as writer of the option. A put is secured if the Global Account
maintains cash, cash equivalents, or high-quality debt securities with a
value equal to the exercise price in a segregated account, or holds a put on
the same underlying security at an equal or greater exercise price. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase
or sale of an option of the same series.
Unless otherwise indicated above, the Global Account will enter only into
options which are standardized and traded on a U.S. or foreign exchange or
board of trade, or for which an established over-the-counter market exists.
OPTIONS ON SECURITIES INDEXES
Call and put options on securities indexes also may be purchased or sold by
the Global Account in furtherance of its investment objective. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not
involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations
in a single security. When such options are written, the Global Account is
required to maintain a segregated account consisting of cash, cash
equivalents or high grade obligations with a value equal to the exercise
price or the Global Account must purchase a like option of greater value that
will expire no earlier than the option sold. Purchased options may not
enable the Global Account to hedge effectively against stock market risk if
they are not highly correlated with the value of the Global Account's
securities. Moreover, the ability to hedge effectively depends upon the
ability to predict movements in the stock market.
FOREIGN CURRENCY TRANSACTIONS
The Global Account may enter into forward currency contracts, currency
exchange transactions on a spot (i.e. cash) basis and options on currencies.
A forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Global Account may either accept or make delivery of the
currency at the maturity of the forward contract or, prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. The Global Account will engage in forward currency transactions in
furtherance of its investment objective, which may include hedging purposes
such as transactions in anticipation of or to protect the Global Account
against fluctuations in currency exchange rates. The Global Account might
sell a particular currency forward, for example, when it wanted to hold bonds
or bank obligations denominated in that currency but anticipated or wished to
be protected against a decline in the currency against the dollar.
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The Global Account may enter into a long position in a forward currency
contract for a fixed amount of foreign currency in anticipation of an
increase in the value of that currency. The Global Account may enter into
forward foreign currency contracts in other circumstances, as described in
Part II of the prospectus under Investment Objective and Policies of the
Global Account. When the Global Account enters into a contract for the
purchase or sale of a security denominated in a foreign currency, the Global
Account may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Global Account will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency during the period between the date
on which the security is purchased or sold and the date on which payment is
made or received.
Also, when the Portfolio Manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract for a fixed amount of dollars to
sell the amount of foreign currency approximating the value of some or all of
the Global Account's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
At the maturity of a forward contract, the Global Account may either sell
the security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. It is impossible to forecast the market value of a
particular security at the expiration of the contract. Accordingly, if a
decision is made to sell the security and make delivery of the foreign
currency, it may be necessary for the Global Account to purchase additional
foreign currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of foreign
currency that the Global Account is obligated to deliver.
If the Global Account retains the security and engages in an offsetting
transaction, the Global Account will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Global Account's
entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Global Account will realize a gain to the extent that the price
of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Global Account
will suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
When entering into a long position on a forward currency contract or
selling a put option on a forward currency contract, the Global Account is
required to maintain with its custodian high-quality liquid debt securities,
cash, or cash equivalents (including any margin) equal to the purchase price
of such contract or option to collateralize the position or to otherwise
cover the position. When entering into a short position in a forward
currency contract or selling a call option on a forward currency contract,
the Global Account is required to maintain with its custodian high-quality
liquid debt securities, cash, or cash equivalents (including any margin)
equal to the market value of such contract or option or to otherwise cover
the position.
Forward contracts are not traded on regulated commodities exchanges.
There can be no assurance that a liquid market will exist when the Global
Account seeks to close out a forward currency position, and in such an event,
the Global Account might not be able to effect a closing purchase transaction
at any particular time. In addition, the Global Account entering into a
forward foreign currency contract incurs the risk of default by the counter
party to the transaction. The CFTC has indicated that it may in the future
assert jurisdiction over certain types of forward contracts in foreign
currencies and attempt to prohibit certain entities from engaging in such
foreign currency forward transactions.
OPTIONS ON FOREIGN CURRENCIES
The Global Account may write and purchase call and put options on foreign
currencies. Such strategies may be employed for purposes of exposing the
Global Account to a foreign (or domestic) currency or to shift exposure to
foreign currency fluctuations from one country to another or to function as a
hedge against changes in the value of the U.S. dollar (or another currency)
in relation to a foreign currency in which securities of the Global Account
may be denominated. A call option on a foreign currency gives the buyer the
right to buy, and a put option gives the buyer the right to sell, a certain
amount of foreign currency at a specified price during a fixed period of
time. The Global Account may enter into closing sale transactions with
respect to such options, exercise them, or permit them to expire.
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The Global Account may enter into an option on a currency before the
Global Account purchases a foreign security denominated in the currency the
Global Account anticipates acquiring, during the period the Global Account
holds the foreign security, or between the date the foreign security is
purchased or sold and the date on which payment therefor is made or received.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which a hedge is desired, the hedge may be obtained by purchasing or selling
an option on a "surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two currencies.
A surrogate currency is a currency that can act, for hedging purposes, as a
substitute for a particular currency because the surrogate currency's
exchange rate movements parallel that of the primary currency. Surrogate
currencies are used to hedge an illiquid currency risk, when no liquid hedge
instruments exist in world currency markets for the primary currency.
REPURCHASE AGREEMENTS
The Global Account may invest in repurchase agreements. A repurchase
agreement is a transaction in which the seller of a security commits itself
at the time of the sale to repurchase that security from the buyer at a
mutually agreed upon time and price. These agreements may be considered to
be loans by the purchaser collateralized by the underlying securities. The
term of such an agreement is generally quite short, possibly overnight or for
a few days, although it may extend over a number of months (up to one year)
from the date of delivery. The resale price is in excess of the purchase
price by an amount which reflects an agreed upon market rate of return,
effective for the period of time the Global Account is invested in the
security. This results in a fixed rate of return protected from market
fluctuations during the period of the agreement. This rate is not tied to
the coupon rate on the security subject to the repurchase agreement.
The Global Account may engage in repurchase transactions in accordance
with guidelines approved by the Board of Governors of Account D, which
include monitoring the creditworthiness of the parties with which the Global
Account engages in repurchase transactions, obtaining collateral at least
equal in value to the repurchase obligation, and marking the collateral to
market on a daily basis. The Global Account may not enter into a repurchase
agreement having more than seven days remaining to maturity if, as a result,
such agreements, together with any other securities that are not readily
marketable, would exceed 15% of the net assets of the Global Account. If the
seller should become bankrupt or default on its obligations to repurchase
the securities, the Global Account may experience delays or difficulties in
exercising its rights to the securities held as collateral and might incur a
loss if the value of the securities should decline. The Global Account also
might incur disposition costs in connection with liquidating the securities.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
The Global Account may invest in (i) certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by
commercial banks and in (ii) certificates of deposit, time deposits, and
other short-term obligations issued by savings and loan or other depository
associations ("S&L").
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument
on maturity. Fixed-time deposits are bank obligations payable at a stated
maturity date and bearing interest at a fixed rate. Fixed-time deposits may
be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions
on the right to transfer a beneficial interest in a fixed-time deposit to a
third party, because there is no market for such deposits. The Global
Account will not invest in fixed-time deposits (i) which are not subject to
prepayment or (ii) which provide for withdrawal penalties upon prepayment
(other than overnight deposits), if, in the aggregate, more than 15% of its
assets would be invested in such deposits, in repurchase agreements maturing
in more than seven days, and in other illiquid assets.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, which include: (i) the
possibility that their liquidity could be impaired because of future
political and economic developments; (ii) their obligations may be less
marketable than comparable obligations of U.S. banks; (iii) a foreign
jurisdiction might impose withholding taxes on interest income payable on
those obligations; (iv) foreign deposits may be seized or nationalized; (v)
foreign governmental restrictions, such as exchange controls, may be adopted
which might adversely affect the payment of principal and interest on those
obligations; and (vi) the selection of those obligations may be more
difficult because there may be less publicly available information concerning
foreign banks and/or because the
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accounting, auditing, and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to examination by any
U.S. Government agency or instrumentality.
The Global Account will not invest in obligations issued by a U.S. or foreign
commercial bank or S&L unless:
(i) the bank or S&L has total assets of at least $10 billion (U.S.),
or the equivalent in other currencies, and the institution has
outstanding securities rated A or better by Moody's or Standard &
Poor's, or, if the institution has no outstanding securities rated by
Moody's or Standard & Poor's, it has, in the determination of the
Portfolio Manager, similar creditworthiness to institutions having
outstanding securities so rated; and
(ii) in the case of a U.S. bank or S&L, its deposits are insured by the FDIC
or the Savings Association Insurance Fund ("SAIF"), as the case may be.
COMMERCIAL PAPER
The Global Account may invest in commercial paper (including variable amount
master demand notes), denominated in U.S. dollars, issued by U.S.
corporations or foreign corporations. The Global Account may invest in
commercial paper (i) rated, at the date of investment, P-2 or better by
Moody's or A-2 or better by Standard & Poor's; (ii) if not rated by either
Moody's or Standard & Poor's, issued by a corporation having an outstanding
debt issue rated A or better by Moody's or A or better by Standard & Poor's;
or (iii) if not rated, are determined to be of an investment quality
comparable to rated commercial paper in which the Global Account may invest.
Generally, commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations, and finance
companies.
Commercial paper obligations may include variable amount master demand
notes. These notes are obligations that permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements between
the Global Account, as lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The lender has the right to increase or to
decrease the amount under the note at any time up to the full amount provided
by the note agreement; and the borrower may prepay up to the full amount of
the note without penalty. Because variable amount master demand notes are
direct lending arrangements between the lender and borrower, and because no
secondary market exists for those notes, such instruments will probably not
be traded. However, the notes are redeemable (and thus immediately repayable
by the borrower) at face value, plus accrued interest, at any time. In
connection with master demand note arrangements, the Portfolio Manager will
monitor, on an ongoing basis, the earning power, cash flow, and other
liquidity ratios of the borrower and its ability to pay principal and
interest on demand. The Portfolio Manager also will consider the extent to
which the variable amount master demand notes are backed by bank letters of
credit. These notes generally are not rated by Moody's or Standard & Poor's;
the Global Account may invest in them only if the Portfolio Manager believes
that at the time of investment the notes are of comparable quality to the
other commercial paper in which the Global Account may invest. Master demand
notes are considered by the Global Account to have a maturity of one day,
unless the Portfolio Manager has reason to believe that the borrower could
not make immediate repayment upon demand. See the Appendix for a description
of Moody's and Standard & Poor's ratings applicable to commercial paper.
WHEN ISSUED OR DELAYED DELIVERY SECURITIES
The Global Account may purchase securities on a when-issued or delayed
delivery basis if the Global Account holds, and maintains until the
settlement date in a segregated account, cash, U.S. Government securities, or
high-grade liquid debt obligations in an amount sufficient to meet the
purchase price, or if the Global Account enters into offsetting contracts for
the forward sale of other securities it owns. Purchasing securities on a
when-issued or delayed delivery basis involves a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which
risk is in addition to the risk of decline in value of the Global Account's
other assets. Although the Global Account would generally purchase
securities on a when-issued basis or enter into forward commitments with the
intention of acquiring securities, the Global Account may dispose of a
when-issued or delayed delivery security prior to settlement if the Portfolio
Manager deems it appropriate to do so. The Global Account may realize
short-term profits or losses upon such sales.
INVESTMENT RESTRICTIONS
The Global Account's investment objective as set forth under "Investment
Objective and Policies" in Part II of the prospectus, together with the
investment restrictions set forth below are, unless otherwise noted,
fundamental policies of the Global Account and may not be changed without the
approval of a majority of the outstanding voting interests of the Global
Account. The vote of a majority of the outstanding voting interests of the
Global Account means the vote, at an annual or special meeting, of the lesser
of: (a) 67% or more of the voting interest present at such meeting, if the
holders of more than
12
<PAGE>
50% of the outstanding voting interests of the Global Account are present or
represented by proxy; or (b) more than 50% of the outstanding voting interest
of the Global Account. In accordance with its investment restrictions, the
Global Account will not:
(1) Invest in a security if more than 25% of its total assets (taken
at market value at the time of such investment) would be invested in
the securities of issuers in any particular industry, except that this
restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto) or securities issued or guaranteed by
a foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities (or repurchase agreements
with respect thereto):
(2) Purchase or sell real estate, except that the Global Account
may invest in securities secured by real estate or real estate
interests or issued by companies in the real estate industry or which
invest in real estate or real estate interests;
(3) Purchase securities on margin (except for use of short-term
credit necessary for clearance of purchases and sales of securities),
except that to the extent the Global Account engages in transactions
in options, futures, and options on futures, the Global Account may
make margin deposits in connection with those transactions and except
that effecting short sales will be deemed not to constitute a margin
purchase for purposes of this restriction;
(4) Lend any funds or other assets, except that the Global Account
may, consistent with its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange Commission and
any guidelines established by Account D's Board of Governors;
(5) Issue senior securities, except insofar as the Global Account
may be deemed to have issued a senior security by reason of borrowing
money in accordance with the Global Account's borrowing policies, or
in connection with any repurchase agreement, and except, for purposes
of this investment restriction, collateral or escrow arrangements with
respect to the making of short sales, purchase or sale of futures
contracts or related options, purchase or sale of forward currency
contracts, writing of stock options, and collateral arrangements with
respect to margin or other deposits respecting futures contracts,
related options, and forward currency contracts are not deemed to be
an issuance of a senior security;
(6) Act as an underwriter of securities of other issuers, except,
when in connection with the disposition of portfolio securities, the
Global Account may be deemed to be an underwriter under Federal
securities laws;
(7) Borrow money or pledge, mortgage, or hypothecate its assets,
except that the Global Account may: (a) borrow from banks but only if
immediately after each borrowing and continuing thereafter, there is
asset coverage of 300%; and (b) enter into reverse repurchase
agreements and transactions in options, futures, options on futures,
and forward currency contracts as described in the prospectus and in
this Statement of Additional Information. (The deposit of assets in
escrow in connection with the writing of covered put and call options
and the purchase of securities on a "when-issued" or delayed delivery
basis and collateral arrangements with respect to initial or variation
margin and other deposits for futures contracts, options on futures
contracts, and forward currency contracts will not be deemed to be
pledges of the Global Account's assets for purposes of this
restriction.)
The Global Account is also subject to the following restrictions and policies
that are not fundamental and may, therefore, be changed by the Board of
Governors (without contract owner approval) relating to the investment of its
assets and activities. Unless otherwise indicated, the Global Account may
not:
(1) Invest in securities that are illiquid because they are subject
to legal or contractual restrictions on resale, in repurchase
agreements maturing in more than seven days, or other securities which
in the determination of the Portfolio Manager are illiquid if, as a
result of such investment, more than 15% of the total assets of the
Global Account (taken at market value at the time of such investment)
would be invested in such securities; and
(2) Purchase or sell commodities or commodities contracts (which,
for the purpose of this restriction, shall not include foreign
currency or forward foreign currency contracts or futures contracts on
currencies), except that the Global Account may engage in interest
rate futures contracts, stock index futures contracts, futures
contracts based on other financial instruments, and in options on such
futures contracts.
13
<PAGE>
MANAGEMENT OF SEPARATE ACCOUNT D
BOARD OF GOVERNORS
The business and affairs of Account D are managed under the direction of a
Board of Governors, which consists of four members. The Board of Governors
has responsibility for matters relating to the portfolio of Account D and
matters arising under the Investment Company Act of 1940. The Board of
Governors does not have responsibility for the payment of obligations under
the Contracts and administration of the Contracts. These matters are Golden
American's responsibility. The business and affairs of Account D are
governed under a set of rules adopted by the Board of Governors called "Rules
and Regulations of Separate Account D".
The members of the Board of Governors and the principal officers, their
business addresses, and principal occupation(s) during the past five years
are as follows:
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS ACCOUNT D DURING PAST FIVE YEARS
- ---------------- ------------- -----------------------
<S> <C> <C>
Terry L. Kendall* Chairman and President Chairman, President and Chief Executive
Golden American Life Insurance Co. Officer, Golden American Life Insurance
280 Park Avenue, 14 West Company, October 1993 to present;
New York, N.Y. 10017 Chairman, President and Chief Executive
Officer, BT Variable, Inc. October 1993 to
present; Chairman and Chief Executive
Officer, Directed Services, Inc., October 1993
to present; President and Chief Executive
Officer, United Pacific Life Insurance
Company, September 1982 to September
1993.
Bernard R. Beckerlegge Secretary Secretary and General Counsel, Directed
Golden American Life Insurance Co. Services, Inc. March 1988 to present;
280 Park Avenue, 14 West Secretary and General Counsel, Golden
New York, N.Y. 10017 American Life Insurance Company, March
1988 to present; Secretary, BT Variable,
Inc., October 1992 to present; Vice
President and General Counsel, MBL
Variable, Inc., February 1991 to September
1992; General Counsel, The Golden
Financial Group, Inc., March 1988 to
October 1990.
Robert A. Grayson Member Co-founder, Grayson Associates, Inc.;
Grayson Associates Adjunct Professor of Marketing, New York
108 Loma Media Road University School of Business
Santa Barbara, CA 93103 Administration; Former Director, The
Golden Financial Group, Inc.; Former
Senior Vice President, David & Charles
Advertising
Barnett Chernow Executive Vice President Executive Vice President, BT Variable and
Golden American Life Insurance Co. and Principal Financial Directed Services, Inc., October 1993 to
1001 Jefferson Street Officer present; From 1977 through 1993, various
Wilmington, DE 19801 positions with Reliance Insurance
Companies, and Senior vice President and
Chief Financial Officer of United Pacific
Life Insurance Company from 1984
through 1993.
14
<PAGE>
Stephen J. Preston Comptroller Senior Vice President, BT Variable and
Golden American Life Insurance Co. Directed Services, Inc., December 1993 to
1001 Jefferson Street present; From September 1993 through November
Wilmington, DE 19801 1993, Senior Vice President and Actuary for
Mutual of America Insurance Company;
From July 1987 through August 1993,
various positions with
United Pacific Life Insurance Company and
was Vice President and Actuary upon
leaving.
M. Norvel Young Member Chancellor Emeritus and Board of Regents,
Pepperdine University Pepperdine University; Director, Imperial
Malibu, CA 90263 Bancorp, Imperial Bank and Imperial Trust
Company and 20th Century Christian
Publishing Company
Roger B. Vincent Member President, Springwell Corporation; Director,
230 Park Avenue Petralone, Inc; formerly, Managing Director,
New York, NY 10169 Bankers Trust Company.
<FN>
________________________________
*Mr. Kendall is an "interested persons" of Account D (as that term is defined
in the Investment Company Act of 1940) by reason of his affiliation with
Directed Services, Inc.
</TABLE>
THE MANAGER
DSI also serves as the manager (the "Manager") to Account D pursuant to a
management agreement effective October 2, 1992. The Manager is a New York
corporation. Its address is 280 Park Avenue, New York, New York 10017. DSI
is a wholly owned indirect subsidiary of Bankers Trust Company, which in
turn, is a wholly owned subsidiary of Bankers Trust New York Corporation.
DSI's business activities include those of a distributor and underwriter of
variable insurance products, broker-dealer and investment manager. DSI is
registered with the SEC as a broker-dealer and investment advisor and is a
member of the National Association of Securities Dealers, Inc. ("NASD"). It
is also registered as a broker-dealer and/or investment advisor in various
states.
Under the management agreement, the Manager, subject to the direction of
the Board of Governors, is responsible for providing all supervisory and
management services reasonably necessary for the operation of Account D,
including the Global Account, other than the investment advisory services
performed by the Portfolio Manager. These services include, but are not
limited to, (i) coordinating all matters relating to the functions of the
Portfolio Manager, Custodian, Recordkeeping Agent (including pricing and
valuation of the Global Account), accountants, attorneys, and other parties
performing services or operational functions for Account D; (ii) providing
Account D and the Global Account, at the Manager's expense, with the services
of a sufficient number of persons competent to perform such administrative
and clerical functions as are necessary to provide effective supervision and
administration of Account D; (iii) maintaining or supervising the maintenance
by the Portfolio Manager or third parties approved by Account D of such books
and records of Account D and the Global Account as may be required by
applicable Federal or state law; (iv) preparing or supervising the
preparation by third parties approved by Account D of all Federal, state and
local tax returns and reports of Account D required by applicable law; (v)
preparing and filing and arranging for the distribution of proxy materials
and periodic reports to contract owners of Account D as required by
applicable law; (vi) preparing and arranging for the filing of such
registration statements and other documents with the Securities and Exchange
Commission and other Federal and state regulatory authorities as may be
required by applicable law; (vii) taking such other action with respect to
Account D as may be required by applicable law, including without limitation
the rules and regulations of the SEC and other regulatory agencies; and
(viii) providing Account D at the Manager's expense, with adequate personnel,
office space, communications facilities, and other facilities necessary for
its operations as contemplated in the Management Agreement. Other
responsibilities of the Manager are described in the prospectus.
The Manager shall make its officers and employees available to the Board
of Governors and Officers of Account D for consultation and discussions
regarding the supervision and administration of the Global Account.
15
<PAGE>
Pursuant to the Management Agreement, the Manager is authorized to
exercise full investment discretion and make all determinations with respect
to the investment of Global Account's assets and the purchase and sale of
securities in the event that at any time no portfolio manager is engaged to
manage the assets of the Global Account.
The Management Agreement shall continue in effect until October 2, 1994,
and from year to year thereafter, provided such continuance is approved
annually by (i) the holders of a majority of the outstanding voting
securities of Account D or by the Board of Governors, and (ii) a majority of
the Board of Governors who are not parties to such Management Agreement or
"interested persons" (as defined in the Investment Company Act of 1940, the
"1940 Act") of any such party. The Management Agreement was approved by the
Board of Governors including a majority of the Board of Governors who are not
parties to the Management Agreement, or interested persons of such parties,
at a meeting held on August 12, 1992. The Management Agreement may be
terminated without penalty by vote of the Board of Governors or the contract
owners of the Global Account, or by the Manager, on 60 days' written notice
by the Board or the Manager and will terminate automatically if assigned as
that term is described in the 1940 Act.
The Global Account pays the Manager a monthly fee based upon the
following annual percentages of the Global Account's average daily net
assets: 0.40% of the first $500 million and 0.30% of the amount over $500
million.
The initial organizational expenses of the Global Account will be
amortized by Account D for accounting purposes on a straight line basis over
a period of five years from the date that the Global Account commences
operations.
PORTFOLIO MANAGER
The Global Account and Warburg, Pincus Counsellors, Inc. entered into a
Portfolio Management Agreement dated June 9, 1994. The Portfolio Management
Agreement, which became effective July 1, 1994, provides that, subject to the
supervision of Account D's Board of Governors and the Manager, the Portfolio
Manager will provide a continuous investment program for the Global Account
and will determine the composition of the assets of the Global Account,
including determination of the purchase, retention, or sale of the
securities, cash, and other investments contained in the portfolio. The
Portfolio Manager is required to provide investment research and conduct a
continuous program of evaluation, investment, sales, and reinvestment of the
Global Account's assets. The Portfolio Management Agreement may be
terminated without penalty by the vote of the Board of Governors or the
contract owners of the Global Account, by the Portfolio Manager, or by the
Manager, on 60 days' written notice by any party to the Portfolio Management
Agreement and will terminate automatically if assigned as that term is
described in the 1940 Act.
Pursuant to the Portfolio Management Agreement, the Global Account pays
the Portfolio Manager a monthly fee equal to an annual rate based upon the
following percentages of the Global Account's average daily net assets:
0.60% of the first $500 million and 0.50% of the amount over $500 million.
CUSTODIAN AND PORTFOLIO ACCOUNTING AGENT
The Custodian for Account D is Bankers Trust Company, 280 Park Avenue,
New York, New York 10017. DSI provides portfolio accounting services for
the Global Account.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for the Global Account are made by the Portfolio Manager
which has investment advisory clients other than the Global Account. A
particular security may be bought or sold by the Portfolio Manager for
certain clients even though it could have been bought or sold for other
clients at the same time. Two or more clients also may simultaneously
purchase or sell the same security, in which event each day's transactions in
such security are, insofar as possible, allocated between such clients in a
manner deemed fair and reasonable by the Portfolio Manager. Although there
is no specified formula for allocating such transactions, the various
allocation methods used by the Portfolio Manager, and the results of such
allocations, are subject to periodic review by Account D's Manager and Board
of Governors. There may be circumstances when purchases or sales of
securities for one or more clients will have an adverse effect on other
clients.
BROKERAGE AND RESEARCH SERVICES
The Portfolio Manager places all orders for the purchase and sale of
securities, options, and futures contracts for the Global Account through a
substantial number of brokers and dealers or futures commission merchants.
In executing transactions, the Portfolio Manager will attempt to obtain the
best execution for the Global Account taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size
of order, the nature of the market for the security, the timing of the
transaction, the reputation, experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of
execution and operational facilities of the firms involved, and the firm's
risk in positioning a block of securities. In transactions on stock
exchanges in the United States, payments of brokerage
16
<PAGE>
commissions are negotiated. In effecting purchases and sales of securities
in transactions on U.S. stock exchanges for the Global Account, the Portfolio
Manager may pay higher commission rates than the lowest available when the
Portfolio Manager believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded on some
foreign stock exchanges, brokerage commissions may be fixed and the Portfolio
Manager may be unable to negotiate commission rates for these transactions.
In the case of securities traded on the over-the-counter markets, there is
generally no stated commission, but the price includes an undisclosed
commission or markup.
There is generally no stated commission in the case of fixed-income
securities, which are generally traded in the over-the-counter markets, but
the price paid by the Global Account usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Global Account includes a disclosed, fixed commission or discount retained by
the underwriter or dealer. Transactions on U.S. stock exchanges and other
agency transactions involve the payment by the Global Account of negotiated
brokerage commission. Such commissions vary among different brokers. Also,
a particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction.
It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional
investors to receive research services from broker-dealers which execute
portfolio transactions for the clients of such advisors. Consistent with
this practice, the Portfolio Manager for the Global Account may receive
research services from many broker-dealers with which the Portfolio Manager
places the Global Account's portfolio transactions. These services, which in
some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Portfolio Manager
and its affiliates in advising its various clients (including the Global
Account), although not all of these services are necessarily useful and of
value in managing the Global Account. The advisory fee paid by the Global
Account to the Portfolio Manager is not reduced because the Portfolio Manager
and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager may cause the Global Account to pay a broker-dealer, which
provides "brokerage and research services" (as defined in the 1934 Act) to
the Portfolio Manager, a disclosed commission for effecting a securities
transaction for the Global Account in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
A Portfolio Manager may place orders for the purchase and sale of
exchange-listed portfolio securities with a broker-dealer that is an
affiliate of the Portfolio Manager where, in the judgment of the Portfolio
Manager, such firm will be able to obtain a price and execution at least as
favorable as other qualified brokers. Counsellors Securities Inc. is a
registered broker-dealer and is an affiliate of the Portfolio Manager.
Pursuant to rules of the Securities and Exchange Commission, a
broker-dealer that is an affiliate of the Manager or Portfolio Manager or, if
it is also a broker-dealer, the Portfolio Manager may receive and retain
compensation for effecting portfolio transactions for the Global Account on a
national securities exchange of which the broker-dealer is a member if the
transaction is "executed" on the floor of the exchange by another broker
which is not an "associated person" of the affiliated broker-dealer or
Portfolio Manager, and if there is in effect a written contract between the
Portfolio Manager and the Global Account expressly permitting the affiliated
broker-dealer or Portfolio Manager to receive and retain such compensation.
The Portfolio Management Agreement provides that the Portfolio Manager may
retain compensation on transactions effected for the Global Account in
accordance with the terms of these rules.
Securities and Exchange Commission rules further require that commissions
paid to such an affiliated broker-dealer or Portfolio Manager by the Global
Account on exchange transactions not exceed "usual and customary brokerage
commission." The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Board
of Governors has adopted procedures for evaluating the reasonableness of
commissions paid to broker-dealers that are affiliated with the Portfolio
Manager and will review these procedures periodically.
PURCHASE AND PRICING OF THE GLOBAL ACCOUNT
The valuation of the Global Account's assets is determined once each
business day, Monday through Friday, exclusive of Federal holidays, at 4:00
p.m., New York City time, on each day that the New York Stock Exchange is
open for trading. In general, valuation of the Global Account's assets is
based on actual or estimated market value, with special provisions for assets
not having readily available market quotations and short-term debt
securities. The value of the Global Account will fluctuate in response to
changes in market conditions and other factors.
17
<PAGE>
Portfolio securities for which market quotations are readily available
are stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are
valued at their fair value as determined in good faith by the Board of
Governors, although the actual calculations will be made by persons acting
under the direction of the Board of Governors and subject to the Board of
Governor's review.
Money market instruments are valued at market value, except that
instruments maturing in sixty days or less may be valued using the amortized
cost method of valuation. The value of a foreign security is determined in
its national currency based upon the price on the pertinent foreign exchange
as of its close of business immediately preceding the time of valuation.
Securities traded in over-the-counter markets outside the United States are
valued at the last available price in the over-the-counter market prior to
the time of valuation.
Other debt securities, including those to be purchased under firm
commitment agreements (other than obligations having a maturity date sixty
days or less after their date of acquisition, valued under the amortized cost
method), are normally valued on the basis of quotes obtained from brokers and
dealers or pricing services, which take into account appropriate factors such
as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics, and
other market data. Debt obligations having a maturity of sixty days or less
may be valued at amortized cost, unless the Portfolio Manager believes that
amortized cost does not approximate market value.
When the Global Account writes a put or call option, the amount of the
premium is included in the Global Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the
current market value of the option. The premium paid for an option purchased
by the Global Account is recorded as an asset and subsequently adjusted to
market value.
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT B
The audited Financial Statements of Separate Account B are listed below and
included in this Statement of Additional Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Combined Statement of Operations for the Year ended December 31, 1994
Combined Statements of Changes in Net Assets for the Years ended
December 31, 1994 and 1993
Notes to Audited Financial Statements
FINANCIAL STATEMENTS OF THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
The audited financial statements of The Managed Global Account of Separate
Account D are listed below and are included in this Statement of Additional
Information:
Report of Independent Auditors
Financial Statements -- Audited
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the Year ended December 31, 1994
Statements of Changes in Net Assets for the Year ended
December 31, 1994 and 1993
Statement of Investments as of December 31, 1994
Notes to Audited Financial Statements
18
<PAGE>
APPENDIX: DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc. ("Moody's) description of its
bond ratings:
Aaa: Judged to be the best quality; they carry the smallest degree of
investment risk.
Aa: Judged to be of high quality by all standards; together with the
Aaa group, they comprise what are generally known as high grade bonds.
A: Possess many favorable investment attributes and are to be
considered as "upper medium grade obligations."
Baa: Considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured; interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over
any great length of time.
Ba: Judged to have speculative elements; their future cannot be
considered as well assured.
B: Generally lack characteristics of the desirable investment.
Caa: Are of poor standing; such issues may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Speculative in a high degree; often in default.
C: Lowest rate class of bonds; regarded as having extremely poor
prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.
Excerpts from Standard & Poor's Corporation ("Standard & Poor's") description
of its bond ratings:
AAA: Highest grade obligations; capacity to pay interest and repay
principal is extremely strong.
AA: Also qualify as high grade obligations; a very strong capacity to
pay interest and repay principal and differs from AAA issues only in
small degree.
A: Regarded as upper medium grade; they have a strong capacity to pay
interest and repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB: Regarded as having an adequate capacity to pay interest and repay
principal; whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity than in higher rated
categories -- this group is the lowest which qualifies for
commercial bank investment.
BB, B,
CCC,
CC: Predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with terms of the obligation: BB
indicates the lowest degree of speculation and CC the highest.
Standard & Poor's applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
19
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Variable Annuity Contractowners
SEPARATE ACCOUNT B
We have audited the accompanying statement of assets and liabilities of
Separate Account B (the "Account") as of December 31, 1994, and the related
combined statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account's 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 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. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian. 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 financial position of Separate Account B at
December 31, 1994, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 14, 1995
20
<PAGE>
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 45,387,280 shares
(Cost $45,387,280)...................................................... $ 45,387,280
Limited Maturity Bond Series, 7,174,931 shares
(Cost $76,441,934)...................................................... 71,605,813
Natural Resources Series, 2,360,675 shares
(Cost $31,960,922)...................................................... 32,766,167
All-Growth Series, 5,958,509 shares
(Cost $74,833,551)...................................................... 70,668,772
Real Estate Series, 3,273,594 shares
(Cost $37,973,481)...................................................... 36,958,871
Fully Managed Series, 8,452,554 shares
(Cost $106,998,483)..................................................... 98,894,625
Multiple Allocation Series, 26,275,715 shares
(Cost $311,456,760)..................................................... 297,702,661
Capital Appreciation Series, 7,795,369 shares
(Cost $89,125,585)...................................................... 88,399,229
Rising Dividends Series, 4,933,167 shares
(Cost $51,022,111)...................................................... 50,416,965
Emerging Markets Series, 5,932,065 shares
(Cost $69,617,468)...................................................... 59,795,219
Market Manager Series, 274,824 shares
(Cost $2,754,250)....................................................... 2,753,739
-------------
Total Invested Assets
(Cost $897,571,825)................................................... 855,349,341
LIABILITIES
Payable to Golden American for Charges and Fees -- (Note 3)................ 530,918
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
NET ASSETS
For Variable Annuity Contracts............................................. $ 810,810,446
Retained in Separate Account B by Golden American -- (Note 3).............. 44,007,977
-------------
Total Net Assets....................................................... $ 854,818,423
-------------
-------------
</TABLE>
See notes to financial statements.
21
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
----------------------------------------------------------------------------------------------------
LIMITED NATURAL MULTIPLE
LIQUID ASSET MATURITY RESOURCES ALL-GROWTH REAL ESTATE FULLY MANAGED ALLOCATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES
------------- ------------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,443,621 $ 3,500,972 $ 286,872 $ 668,418 $ 1,862,701 $ 2,839,238 $ 10,655,655
Capital gain
distribution.......... -- -- 540,421 -- -- -- --
------------- ------------- ----------- ------------ ------------- -------------- ------------
Total investment
income.............. 1,443,621 3,500,972 827,293 668,418 1,862,701 2,839,238 10,655,655
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 361,615 736,430 282,948 613,111 348,164 1,078,655 2,955,387
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net investment
income.............. 1,082,006 2,764,542 544,345 55,307 1,514,537 1,760,583 7,700,268
------------- ------------- ----------- ------------ ------------- ------------- -------------
Realized gain on
investments
Proceeds from sales.... 40,758,078 22,640,885 7,724,804 4,427,509 9,351,495 15,241,359 28,761,003
Cost of securities
sold.................. 40,758,078 22,575,099 6,038,663 4,350,791 8,812,382 14,181,236 25,917,030
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net realized gain on
investments......... -- 65,786 1,686,141 76,718 539,113 1,060,123 2,843,973
------------- ------------- ----------- ------------ ------------- ------------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... -- (407,617) 2,953,720 3,650,218 (373,993) 4,424,678 3,296,333
End of year............ -- (4,836,121) 805,245 (4,164,779) (1,014,610) (8,103,858) (13,754,098)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. -- (4,428,504) (2,148,475) (7,814,997) (640,617) (12,528,536) (17,050,431)
------------- ------------- ----------- ------------ ------------- ------------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,082,006 $(1,598,176) $ 82,011 $(7,682,972) $ 1,413,033 $ (9,707,830) $ (6,506,190)
------------- ------------- ----------- ------------ ------------- ------------- -------------
------------- ------------- ----------- ------------ ------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
-----------------------------------------------------------------------
CAPITAL RISING EMERGING MARKETS
APPRECIATION DIVIDENDS MARKET SERIES MANAGER
SERIES SERIES (a) (a) SERIES (b) COMBINED
-------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 1,777,023 $ 685,072 $ -- $ 6,199 $ 23,725,771
Capital gain
distribution.......... -- -- 2,686,591 316 3,227,328
-------------- ------------ ------------- ----------- -------------
Total investment
income.............. 1,777,023 685,072 2,686,591 6,515 26,953,099
Expenses (Note 3)
Mortality and expense
risk and
administrative
charges............... 909,077 367,964 560,823 -- 8,214,174
-------------- ------------ ------------- ----------- -------------
Net investment
income.............. 867,946 317,108 2,125,768 6,515 18,738,925
-------------- ------------ ------------- ----------- -------------
Realized gain on
investments
Proceeds from sales.... 11,164,715 2,770,019 6,933,220 1,334 149,774,421
Cost of securities
sold.................. 9,738,102 2,715,467 6,096,514 1,331 141,184,693
-------------- ------------ ------------- ----------- -------------
Net realized gain on
investments......... 1,426,613 54,552 836,706 3 8,589,728
-------------- ------------ ------------- ----------- -------------
Unrealized appreciation
(depreciation) of
investments
Beginning of year...... 4,004,838 220,884 3,970,717 -- 21,739,778
End of year............ (726,357) (605,146) (9,822,249) (511) (42,222,484)
-------------- ------------ ------------- ----------- -------------
Net change in unrealized
appreciation
(depreciation) of
investments............. (4,731,195) (826,030) (13,792,966) (511) (63,962,262)
-------------- ------------ ------------- ----------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $ (2,436,636) $ (454,370) $ (10,830,492) $ 6,007 $ (36,633,609)
-------------- ------------ ------------- ----------- -------------
-------------- ------------ ------------- ----------- -------------
<FN>
(a) Commencement of operations, October 4, 1993.
(b) Commencement of operations, November 14, 1994.
</TABLE>
See notes to financial statements.
22
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
NATURAL
LIQUID ASSET LIMITED MATURITY BOND RESOURCE
SERIES SERIES SERIES
-------------------------- -------------------------- ------------
1994 1993 1994 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 1,082,006 $ 251,524 $ 2,764,542 $ 2,344,976 $ 544,345
Net realized gain (loss) on investments.............. -- -- 65,786 677,243 1,686,141
Net change in unrealized appreciation (depreciation)
of investments...................................... -- -- (4,428,504) (434,962) (2,148,475)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 1,082,006 251,524 (1,598,176) 2,587,257 82,011
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 43,297,390 22,808,053 32,040,952 54,680,072 8,595,119
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 4,159,230 (15,604,916) (22,001,625) (19,820,224) 5,715,775
Benefits, surrenders and other withdrawals........... (18,470,294) (3,497,357) (7,603,846) (5,188,057) (2,768,491)
Contract related charges and fees.................... (1,200,931) (229,252) (886,527) (498,019) (314,191)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 27,785,395 3,476,528 1,548,954 29,173,772 11,228,212
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 28,867,401 3,728,052 (49,222) 31,761,029 11,310,223
Net Assets:
Beginning of Year.................................... 16,497,588 12,769,536 71,622,231 39,861,202 21,436,544
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 45,364,989 $ 16,497,588 $ 71,573,009 $ 71,622,231 $ 32,746,767
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
DIVISIONS INVESTING IN
--------------------------------------------------------------------
ALL-GROWTH REAL ESTATE
SERIES SERIES
---------------------------------------- --------------------------
1993 1994 1993 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss)......................... $ 8,983 $ 55,307 $ (177,810) $ 1,514,537 $ 640,795
Net realized gain (loss) on investments.............. 426,591 76,718 476,553 539,113 513,528
Net change in unrealized appreciation (depreciation)
of investments...................................... 3,295,092 (7,814,997) 2,648,629 (640,617) (548,785)
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 3,730,666 (7,682,972) 2,947,372 1,413,033 605,538
------------ ------------ ------------ ------------ ------------
Contract related transactions (Note 3)
Premiums............................................. 10,191,488 18,242,132 34,573,445 9,862,267 22,416,140
Net transfers among Divisions and Guaranteed Interest
Division and Separate Account D of Golden
American............................................ 5,176,672 9,624,494 (2,151,633) 208,409 4,008,119
Benefits, surrenders and other withdrawals........... (465,000) (4,906,264) (2,429,632) (2,918,618) (1,716,743)
Contract related charges and fees.................... (79,699) (709,171) (302,798) (401,259) (140,619)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
Contract related transactions....................... 14,823,461 22,251,191 29,689,382 6,750,799 24,566,897
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.................. 18,554,127 14,568,219 32,636,754 8,163,832 25,172,435
Net Assets:
Beginning of Year.................................... 2,882,417 56,055,565 23,418,811 28,772,896 3,600,461
------------ ------------ ------------ ------------ ------------
End of Year.......................................... $ 21,436,544 $ 70,623,784 $ 56,055,565 $ 36,936,728 $ 28,772,896
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
23
<PAGE>
SEPARATE ACCOUNT B
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------------------------------
FULLY MANAGED SERIES MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
-------------------------------- -------------------------------- ----------------------------
1994 1993 1994 1993 1994 1993
--------------- --------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 1,760,583 $ 2,384,033 $7,700,268 $ 15,125,636 $ 867,946 $565,868
Net realized gain on
investments........... 1,060,123 524,624 2,843,973 295,483 1,426,613 246,599
Net change in
unrealized
appreciation
(depreciation) of
investments........... (12,528,536) 1,699,232 (17,050,431) 672,723 (4,731,195) 2,955,304
--------------- --------------- --------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations.............. (9,707,830) 4,607,889 (6,506,190) 16,093,842 (2,436,636) 3,767,771
--------------- --------------- --------------- --------------- ------------- -------------
Contract related
transactions (Note 3)
Premiums............... 21,742,235 70,788,527 74,594,438 150,788,747 19,196,186 63,986,159
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (11,098,109) 108,564 (9,842,434) 5,675,110 (6,162,504) 3,402,619
Benefits, surrenders and
other withdrawals....... (9,049,892) (4,050,100) (30,149,866) (12,915,093) (7,902,148) (2,392,822)
Contract related charges
and fees................ (1,341,160) (516,502) (3,746,076) (1,609,228) (1,148,856) (331,307)
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 253,074 66,330,489 30,856,062 141,939,536 3,982,678 64,664,649
--------------- --------------- --------------- --------------- ------------- -------------
Net increase (decrease)
in net assets........... (9,454,756) 70,938,378 24,349,872 158,033,378 1,546,042 68,432,420
Net Assets:
Beginning of Year...... 108,290,963 37,352,585 273,158,122 115,124,744 86,798,642 18,366,222
--------------- --------------- --------------- --------------- ------------- -------------
End of Year............ $ 98,836,207 $ 108,290,963 $297,507,994 $ 273,158,122 $ 88,344,684 $86,798,642
--------------- --------------- --------------- --------------- ------------- -------------
--------------- --------------- --------------- --------------- ------------- -------------
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------
MARKET
MANAGER
RISING DIVIDENDS SERIES EMERGING MARKETS SERIES SERIES COMBINED
---------------------------- ---------------------------- ------------ ---------------
1994 1993 (a) 1994 1993 (a) 1994 (b) 1994
------------- ------------- ------------- ------------- ------------ ---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $317,108 $ 4,934 $ 2,125,768 $ (24,280) $ 6,515 $ 18,738,925
Net realized gain on
investments........... 54,552 -- 836,706 -- 3 8,589,728
Net change in
unrealized
appreciation
(depreciation) of
investments........... (826,030) 220,884 (13,792,966) 3,970,717 (511) (63,962,262)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase in net
assets resulting from
operations.............. (454,370) 225,818 (10,830,492) 3,946,437 6,007 (36,633,609)
------------- ------------- ------------- ------------- ------------ ---------------
Contract related
transactions (Note 3)
Premiums............... 25,149,913 11,566,378 30,112,986 13,923,417 1,414,129 284,247,747
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. 15,544,356 2,632,922 14,777,915 12,702,200 1,334,937 2,260,444
Benefits, surrenders and
other withdrawals....... (3,843,523) (25,387) (4,285,144) (62,486) -- (91,898,086)
Contract related charges
and fees................ (398,993) (12,349) (516,806) (20,979) (2,625) (10,666,595)
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 36,451,753 14,161,564 40,088,951 26,542,152 2,746,441 183,943,510
------------- ------------- ------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets........... 35,997,383 14,387,382 29,258,459 30,488,589 2,752,448 147,309,901
Net Assets:
Beginning of Year...... 14,387,382 -- 30,488,589 -- -- 707,508,522
------------- ------------- ------------- ------------- ------------ ---------------
End of Year............ $50,384,765 $ 14,387,382 $ 59,747,048 $ 30,488,589 $ 2,752,448 $ 854,818,423
------------- ------------- ------------- ------------- ------------ ---------------
------------- ------------- ------------- ------------- ------------ ---------------
<CAPTION>
1993
---------------
<S> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment
income................ $ 21,124,659
Net realized gain on
investments........... 3,160,621
Net change in
unrealized
appreciation
(depreciation) of
investments........... 14,478,834
---------------
Net increase in net
assets resulting from
operations.............. 38,764,114
---------------
Contract related
transactions (Note 3)
Premiums............... 455,722,426
Net transfers among
Divisions and
Guaranteed Interest
Division and Separate
Account D of Golden
American.............. (3,870,567)
Benefits, surrenders and
other withdrawals....... (32,742,677)
Contract related charges
and fees................ (3,740,752)
---------------
Net increase (decrease)
in net assets resulting
from Contract related
transactions............ 415,368,430
---------------
Net increase (decrease)
in net assets........... 454,132,544
Net Assets:
Beginning of Year...... 253,375,978
---------------
End of Year............ $ 707,508,522
---------------
---------------
<FN>
(a) Commencement of Operations, October 4, 1990.
(b) Commencement of Operations, November 14, 1994.
</TABLE>
See notes to financial statements.
24
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account B (the "Account") was established on June 14, 1988, by
Golden American Life Insurance Company ("Golden American"), under Minnesota
insurance law to support the operations of variable annuity contracts
("Contracts"). Effective September 30, 1992, Golden American became a
wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned
subsidiary of Bankers Trust Company ("Bankers Trust"). Previously, Golden
American was owned by Mutual Benefit Life Insurance Company in Rehabilitation
("Mutual Benefit"). Golden American is primarily engaged in the issuance of
variable insurance products and is licensed as a life insurance company in the
District of Columbia and all states except New York. Effective December 30,
1993, Golden American was redomesticated from the State of Minnesota to the
State of Delaware.
Operations of the Account commenced on January 25, 1989. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to one or more divisions within the Account or to the
Golden American Guaranteed Interest Division and the Managed Global Division of
Separate Account D, which are not part of the Account, as elected by the
Contractowners. The assets of the Account are owned by Golden American. The
portion of the Account's assets applicable to Contracts will not be chargeable
with liabilities arising out of any other business Golden American may conduct,
but obligations of the Account, including the promise to make benefit payments,
are obligations of Golden American.
The Account makes available, under GoldenSelect Contracts, eleven investment
divisions: the Liquid Asset, the Limited Maturity Bond, the Natural Resources,
the All-Growth, the Real Estate, the Fully Managed, the Multiple Allocation, the
Capital Appreciation (commenced operations on May 4, 1992), the Rising Dividends
(commenced operations October 4, 1993), the Emerging Markets (commenced
operations on October 4, 1993) and the Market Manager (commenced operations
November 14, 1994) Divisions ("Divisions"). The assets in each Division are
invested in shares of a designated series ("Series") of a mutual fund, The GCG
Trust (the "Trust"). The account also includes The Fund For Life Division, which
is not included in the accompanying financial statements, and which, ceased to
accept new contracts effective December 31, 1994.
The Account is a unit investment trust and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the amount required under state law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
Contract benefits. Additional assets are held in Golden American's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risk under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
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 Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The transaction had no effect on the
accompanying financial statements of the Account.
25
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS: Investments are made in shares of a Series of the Trust and
are valued at the net asset value per share of the respective Series of the
Trust.
Investment transactions in each Series of the Trust are recorded on the
trade date. Distributions of net investment income and capital gains of each
Series of the Trust are recognized on the ex-distribution date. Realized gains
and losses on redemptions of the shares of the Series of the Trust are
determined on the identified cost basis.
For the years ended December 31, 1994 and 1993, the cost of purchases of
shares of the Trust aggregated $352,604,679 and $483,230,191, respectively and
the proceeds from sales of shares of the Trust aggregated $149,774,421 and
$46,471,631, respectively.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. Following is a summary of these charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.25% of the assets attributable
to Contracts to cover these risks.
ADMINISTRATIVE CHARGE: An administrative charge of $40 per Contract year is
deducted from accumulation value of Deferred Annuity Contracts to cover ongoing
administrative expenses. The charge is deducted on the Contract processing date
at the end of the Contract processing period. This charge has been waived for
certain offerings of the Contract. For certain Contracts, a daily charge at an
annual rate of .10% is deducted from assets attributable to such Contracts.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: For certain Contracts, a minimum
death benefit guarantee charge of up to $1.20 per $1,000 of guaranteed death
benefit per Contract year is deducted from the accumulation value of Deferred
Annuity Contracts on each Contract processing date.
PREMIUM TAXES: For certain contracts, premium taxes are deducted, where
applicable, from the accumulation value of each Contract. The amount and timing
of the deduction depend on the annuitant's state of residence and currently
ranges up to 3.5% of premiums.
OTHER CHARGES: Five free investment re-allocations among Divisions per
Contract are allowed each Contract year. For each additional investment
re-allocation, a $25 charge is deducted from the amount transferred from each
Division.
CONTRACT SALES LOAD AND PREMIUM TAXES: A sales load of up to 7 1/2% is
applicable to each premium payment for sales related expenses as specified in
the Contracts (see Note 4), as is an amount equal to the premium tax applicable
to certain Contracts. Although this sales load and the premium tax are
chargeable to each premium when it is received by Golden American, the amount of
such
26
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. CHARGES AND FEES (CONTINUED)
charges is initially advanced by Golden American to Contractowners and included
in the accumulation value and then deducted in equal installments on each
contract processing date over a period specified in the Contract. For Deferred
Annuity Contracts, the charges are recovered over a period which is the lesser
of either six or ten years or the amount of time between the contract date and
the annuity commencement date. For Annuity Certain Contracts, the charges are
recovered over a period which is the lesser of either six or ten years or the
length of the "certain" period, as defined in each Contract. Upon surrender of
the Contract, the unamortized deferred sales load and premium taxes are deducted
from the accumulation value by Golden American. The net assets retained in the
Account by Golden American in the accompanying financial statements represent
the unamortized deferred sales load and premium taxes.
Net assets retained in the Account by Golden American:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Balance at January 1.......................................................... $ 37,363,830 $ 13,024,324
Sales load advanced........................................................... 16,137,638 27,069,471
Premium tax advanced.......................................................... 73,178 206,633
Net transfer from Guaranteed Interest Division and Separate Account D......... 665,964 359,229
Amortization of deferred sales load and premium tax........................... (10,232,633) (3,295,827)
-------------- --------------
Balance at December 31........................................................ $ 44,007,977 $ 37,363,830
-------------- --------------
-------------- --------------
</TABLE>
4. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer,acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For 1994
and 1993, fees paid by Golden American to DSI aggregated $15,939,331 and
$30,495,805, respectively.
Under the terms of an expense limitation agreement ("Expense Agreement")
between DSI and the Trust, DSI paid the Trust for ordinary expenses which
exceeded certain prescribed limits. For the year ended December 31, 1993, DSI
paid the Trust $255,476 relating to the Expense Agreement. The Expense Agreement
was terminated effective September 30, 1993, and was replaced by a unified fee
payable by the Trust to DSI, covering all expenses of the Trust, except trustee
fees which are borne by the Trust.
27
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 0.83 0.82 0.83 0.85 0.87 0.79 0.85 0.84 0.89 0.87 0.82 1.20 0.72 0.83 0.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.87% 1.82% 2.30% 4.81% 6.88% (1.98)% 5.35% 4.00% 10.38% 7.00% 1.71% 48.73% (10.53)% 3.87% (14.53)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 0.71 0.86 0.78 1.09 0.75 0.85 0.94 0.91 1.07 0.64 0.74 0.86 0.85 1.04 0.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.49)% 5.70% (3.37)% 35.39% (8.09)% 5.49% 16.33% 12.96% 32.99% (21.42)% (8.01)% 6.73% 5.38% 27.89% (3.96)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 0.78 0.89 0.82 0.95 0.84 0.79 0.87 0.59 0.80 0.20 0.67 0.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (1.96)% 10.24% 1.06% 19.07% 3.90% (2.38)% 7.44% 10.28% (0.21)% 2.94% (15.85)% 24.16%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent the mortality and expense risk charges at an
annual rate of .80% of the assets of the Account.
</TABLE>
28
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(d)... 1.04 1.03 1.04 1.06 1.08 0.98 1.06 1.05 1.11 1.08 1.02 1.50 0.90 1.04 0.86
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.66% 1.61% 2.09% 4.60% 6.67% (2.17)% 5.14% 3.79% 10.16% 6.79% 1.51% 48.43% (10.71)% 3.66% (14.70)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(d)... 0.89 1.07 0.98 1.36 0.94 1.06 1.17 1.14 1.34 0.80 0.93 1.08 1.07 1.29 0.97
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.67)% 5.49% (3.57)% 35.12% (8.28)% 5.28% 16.10% 12.73% 32.72% (21.58)% (8.20)% 6.51% 5.16% 27.64% (4.15)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING MARKET
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS MANAGER
-------------------------------------- ---------------------- -------------- -------------- -------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b) 1994 (c)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --% 0.24%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40 0.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40 0.44
Expense
charges
(d)... 0.98 1.11 1.02 1.19 1.06 0.98 1.09 0.74 1.00 0.25 0.84 0.30 0(e)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (2.16)% 10.02% 0.86% 18.83% 3.68% (2.57)% 7.22% 10.13% (0.41)% 2.89% (16.02)% 24.10% 0.44%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Commencement of operations November 14, 1994. Net return is not annualized
(d) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.00% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.00% had been in effect
since January 1, 1990.
(e) During the period November 14, 1994 through December 31, 1994, all fund
operative expense and mortality and expense risk charges were waived. Such
expenses would have aggregated 0.26% of average assets.
</TABLE>
29
<PAGE>
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 1994, 1993, 1992, 1991 and
1990 and assumes the combined expense rates indicated below were in effect for
all periods presented.
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY NATURAL RESOURCES
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.70% 2.64% 3.13% 5.66% 7.75% 4.84% 4.38% 5.88% 7.43% 7.97% 2.60% 0.74% 1.18% 1.24% 1.13%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... -- -- -- -- -- (6.03) 1.82 (1.04) 3.84 (0.10) (0.07) 49.19 (10.99) 3.46 (14.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... 3.70 2.64 3.13 5.66 7.75 (1.19) 6.20 4.84 11.27 7.87 2.53 49.93 (9.81) 4.70 (13.84)
Expense
charges
(c)... 1.40 1.39 1.40 1.43 1.46 1.33 1.43 1.42 1.50 1.46 1.38 2.03 1.22 1.41 1.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... 2.30% 1.25% 1.73% 4.23% 6.29% (2.52)% 4.77% 3.42% 9.77% 6.41% 1.15% 47.90% (11.03)% 3.29% (15.01)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
-------------------------------------- -------------------------------------- ---------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 0.84% 0.39% 0.55% 1.25% 1.54% 5.36% 3.30% 5.11% 6.12% 5.24% 2.66% 3.08% 2.13% 3.38% 3.22%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (11.62) 6.17 (3.14) 35.23 (8.88) 0.98 13.97 8.76 27.94 (26.02) (9.93) 4.51 4.10 25.55 (6.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Gross
return... (10.78) 6.56 (2.59) 36.48 (7.34) 6.34 17.27 13.87 34.06 (20.78) (7.27) 7.59 6.23 28.93 (3.18)
Expense
charges
(c)... 1.20 1.44 1.32 1.84 1.26 1.43 1.58 1.54 1.80 1.07 1.25 1.46 1.44 1.74 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net
return... (11.98)% 5.12% (3.91)% 34.64% (8.60)% 4.91% 15.69% 12.33% 32.26% (21.85)% (8.52)% 6.13% 4.79% 27.19% (4.49)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<CAPTION>
RISING EMERGING
MULTIPLE ALLOCATION CAPITAL APPRECIATION DIVIDENDS MARKETS
-------------------------------------- ---------------------- -------------- --------------
1994 1993 1992 1991 1990 1994 1993 1992 (a) 1994 1993 (b) 1994 1993 (b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income... 3.53% 6.92% 4.61% 5.69% 5.51% 1.98% 1.40% 0.87% 1.37% 0.14% 3.79% --%
Net
realized
and
unrealized
gain
(loss) on
invest-
ments... (4.71) 4.21 (2.73) 14.33 (0.77) (3.57) 6.91 10.00 (0.78) 3.00 (18.97) 24.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
return... (1.18) 11.13 1.88 20.02 4.74 (1.59) 8.31 10.87 0.59 3.14 (15.18) 24.40
Expense
charges
(c)... 1.33 1.50 1.38 1.61 1.42 1.33 1.46 1.00 1.35 0.34 1.14 0.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net
return... (2.51)% 9.63% 0.50% 18.41% 3.32% (2.92)% 6.85% 9.87% (0.76)% 2.80% (16.32)% 23.99%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<FN>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.35% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.35% had been in effect
since January 1, 1990.
</TABLE>
30
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners and Board of Governors
THE MANAGED GLOBAL ACCOUNT OF SEPARATE ACCOUNT D
We have audited the accompanying statement of assets and liabilities of The
Managed Global Account of Separate Account D, including the statement of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the Account's 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. Our procedures included
verification by examination of securities held by the custodian as of December
31, 1994 and confirmation of securities not held by the custodian by
correspondence with others. 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 financial position of The Managed Global Account
of Separate Account D at December 31, 1994, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 10, 1995
31
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $90,208,934).................................... $85,946,412
Cash........................................................................ 278,515
Dividends and interest receivable........................................... 98,042
Prepaid expenses and other assets........................................... 7,918
-----------
Total Assets............................................................ 86,330,887
-----------
LIABILITIES
Payable to Golden American for contract related expenses.................... 46,106
Accrued expenses............................................................ 76,226
-----------
Total Liabilities....................................................... 122,332
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
NET ASSETS
For variable annuity contracts.............................................. $81,674,591
Retained in The Managed Global Account of Separate Account D by Golden
American................................................................... 4,533,964
-----------
Total Net Assets........................................................ $86,208,555
-----------
-----------
</TABLE>
See notes to financial statements.
32
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of $53,740 foreign taxes withheld)........................... $ 457,838
Interest (Net of $1,330 foreign taxes withheld)............................. 1,211,036
------------
Total investment income................................................. 1,668,874
EXPENSES:
Management and advisory fees................................................ 834,367
Mortality and expense risk and administrative charges....................... 831,890
Custodian fees.............................................................. 84,877
Fund accounting fees........................................................ 68,428
Amortization of organizational expenses..................................... 29,200
Legal fees.................................................................. 28,916
Auditing fees............................................................... 25,536
Interest.................................................................... 23,218
Insurance premiums for fidelity bond........................................ 22,535
Proxy....................................................................... 19,368
Printing and mailing........................................................ 12,445
Registration fees........................................................... 3,463
Directors' fees and expenses................................................ 3,289
Other....................................................................... 12,284
------------
Total expenses.......................................................... 1,999,816
Less amounts paid by the investment manager pursuant to expense limitation
agreement.................................................................. (71,175)
------------
Net expenses............................................................ 1,928,641
------------
NET INVESTMENT LOSS........................................................... (259,767)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments............................................................... 357,057
Options................................................................... (14,024)
Futures................................................................... (100,164)
Foreign currency transactions............................................. (1,606,427)
------------
(1,363,558)
------------
Net change in unrealized appreciation (depreciation) of:
Investments............................................................... (10,287,249)
Futures and options....................................................... (1,063,664)
Foreign currency transactions............................................. (161,039)
------------
(11,511,952)
------------
Net realized and unrealized loss............................................ (12,875,510)
------------
Net decrease in net assets resulting from operations...................... (13,135,277)
------------
------------
</TABLE>
See notes to financial statements.
33
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss............................................................ $ (259,767) $ (269,919)
Net realized loss from investment and foreign currency transactions............ (1,363,558) (3,529,193)
Net unrealized (depreciation) appreciation of investment and foreign currency
transactions.................................................................. (11,511,952) 7,269,059
-------------- --------------
Net (decrease) increase in net assets resulting from operations................ (13,135,277) 3,469,947
-------------- --------------
CONTRACT RELATED TRANSACTIONS:
Premiums....................................................................... 22,680,207 45,381,393
Benefits, surrenders and other withdrawals..................................... (8,496,158) (3,073,207)
Net transfers (to) from Separate Account B and Guaranteed Interest Division of
Golden American............................................................... (2,244,552) 4,544,018
Contract related charges and fees.............................................. (1,073,158) (544,060)
-------------- --------------
Net increase in net assets resulting from contract related transactions........ 10,866,339 46,308,144
-------------- --------------
Net (decrease) increase in net assets.......................................... (2,268,938) 49,778,091
NET ASSETS:
Beginning of year.............................................................. 88,477,493 38,699,402
-------------- --------------
End of year.................................................................... $ 86,208,555 $ 88,477,493
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
34
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENT
OF NET PRINCIPAL
ASSETS AMOUNT VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT 5.8% $ 4,966,000 PNC Securities, 5.50%, dated 12/30/94,
due 01/03/95, collateralized by
$5,055,000 in principal amount of U.S.
Treasury Notes 5.875%, due 05/31/96
(Cost $4,966,000)...................... $ 4,966,000
-----------
CONVERTIBLE BONDS 6.0% $ 920,000 United Micro Electronics Conv. Bonds,
1.25%, 6/8/04 (Taiwan)................. 1,423,700
AUD 33,000 BTR Nylex LTD, 9% Conv. Notes 11/30/49,
(Australia)............................ 258,307
Y111,000,000 Matsushita Electric Works Conv. Bonds,
2.70%, 5/31/02 (Japan)................. 1,193,788
$ 800,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan) (c)................... 916,000
90,000 Yang Ming Marine Conv. Bonds, 2.00%,
10/6/01 (Taiwan)....................... 103,050
FF 7,512,750 SCOR SA 3%, Conv. Bonds, 1/1/01
(France)............................... 1,299,230
-----------
Total Convertible Bonds
(Cost $5,275,355)...................... 5,194,075
-----------
COMMON STOCKS 85.2% SHARES
-------------
BANKS 3.2% 16,000 Arab Malaysian Merchant Bank BHD
(Malaysia)............................. 151,665
4,000 Banco Frances Rio Plata ADR
(Argentina)............................ 85,500
18,300 Banco Frances Del Rio Plata
(Argentina)............................ 121,022
119,000 Development Bank of Singapore
(Singapore)............................ 1,224,280
422,000 Foereningsbanken AB Serjes A (a)
(Sweden)............................... 824,219
79,500 Thailand Military Bank LTD (Thailand)... 335,737
-----------
2,742,423
-----------
BEVERAGES 1.7% 764,500 Lion Nathan LTD (New Zealand)........... 1,455,776
-----------
BUILDING & CONSTRUCTION 5.1% 113,400 Cementos De Mexico SA ADR (a)
(Mexico)............................... 1,151,237
5,000 Grupo Mexicand De Desarollo (Mexico).... 38,125
47,100 Grupo Tribasa SA ADR (a) (Mexico)....... 783,038
2,400 Maculan Holdings AG (Austria)........... 198,165
23,800 Tsuchiya Home (Japan)................... 586,089
100,000 United Construction (a) (Australia)..... 73,625
15,500 VA Technologie (a) (Australia).......... 1,561,376
-----------
4,391,655
-----------
CHEMICALS 6.1% 43,700 Norsk Hydro AS ADR (Norway)............. 1,709,763
20,600 PT TriPolyta Indonesia ADR (a)
(Indonesia)............................ 499,550
51,200 Reliance Industries GDS (a) (India)..... 1,011,200
98,000 Shin - Etsu Chemical (Japan)............ 1,950,347
-----------
5,170,860
-----------
COSMETICS 3.2% 164,000 KAO Corp. (Japan)....................... 1,862,700
79,000 NEC Corp. (Japan)....................... 905,217
-----------
2,767,917
-----------
DIVERSIFIED 1.9% 676,000 BTR Nylex LTD (Australia)............... 1,257,360
64,000 Westmont Berhad (Malaysia).............. 398,590
-----------
1,655,950
-----------
DRUGS 1.5% 50,200 Astra AB (Sweden)....................... 1,284,752
-----------
</TABLE>
35
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
COMMON STOCKS -- CONTINUED
<S> <C> <C> <C> <C>
ELECTRONICS 9.6% 4,400 Austria Mikro System (Austria).......... $ 331,817
1,465 BBC Brown Boveri (Switzerland).......... 1,261,310
80,000 Hitachi LTD (Japan)..................... 795,256
464,000 IPC LTD (Singapore)..................... 316,653
9,500 Sony ADR (Japan)........................ 533,187
44,000 Sony (Japan)............................ 2,498,744
53,000 TDK Corp. (Japan)....................... 2,573,022
-----------
8,309,989
-----------
ENTERTAINMENT 3.3% 77,200 Thorn EMI PLC (United Kingdom).......... 1,250,466
9,100 TOHO (Japan)............................ 1,600,664
-----------
2,851,130
-----------
FINANCIAL SERVICES 14.2% 75,000 Ampal American Israel Cl. A (a)
(Israel)............................... 496,875
35,900 Anglovaal LTD (South Africa)............ 1,101,227
3,565 Banco DeGalica Buenos Aires SA ADR
(Argentina)............................ 61,496
58,100 Banco Santander SA ADR (Spain).......... 2,222,325
38,732 Banesto SA ADS (a) (Spain).............. 115,094
2,583,854 Brierley Investment LTD (New Zealand)... 1,865,723
2,640 Cetelem (France)........................ 472,400
50,000 Goven & Company PLC (United Kingdom).... 278,570
71,200 Grupo Financiero Bancomer SA ADR (a)
(Mexico)............................... 844,218
466,800 Industrial Finance Corporation of
Thailand (Thailand).................... 994,972
65,000 Japan Securities Finance (Japan)........ 1,077,998
630,000 Singer & Friedlander Group (United
Kingdom)............................... 847,917
88,200 YPF SA ADR (Argentina).................. 1,885,275
-----------
12,264,090
-----------
HOSPITAL MANAGEMENT 1.2% 295,400 Takare PLC (United Kingdom)............. 1,017,062
-----------
INDUSTRIAL 2.2% 32,100 Celsius Industries Cl. B (Sweden)....... 713,429
31,900 Murata Manufacturing LTD (Japan)........ 1,234,446
-----------
1,947,875
-----------
INSURANCE 0.3% 10,080 SCOR SA (France)........................ 224,755
-----------
LEISURE RELATED 0.3% 4,000 Sankyo Company, LTD (Japan)............. 269,374
-----------
METALS & MINING 2.6% 49,000 Hindalco Industries GDR (a) (India)..... 1,641,500
79,100 Niugini Mining (a) (Australia).......... 242,145
287,000 Pasminco LTD (a) (Australia)............ 400,365
-----------
2,284,010
-----------
OFFICE EQUIPMENT 3.2% 2,900 Canon ADR (Japan)....................... 246,500
149,000 Canon (Japan)........................... 2,531,008
-----------
2,777,508
-----------
OIL & GAS 5.6% 51,000 Elf Aquitaine ADR (France).............. 1,797,750
19,200 Francaise de Petroleum Total (France)... 1,115,953
516,900 Woodside Petroleum LTD (Australia)...... 1,898,832
-----------
4,812,535
-----------
PAPER 3.0% 420,000 Fletcher Challenge LTD (New Zealand).... 984,955
36,650 Metsa Serla B (Finland)................. 1,608,609
-----------
2,593,564
-----------
</TABLE>
36
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT "D"
STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 1994 (CONTINUED)
<TABLE>
<CAPTION>
PERCENT
OF NET
ASSETS SHARES VALUE(+)
------ ------------- -----------
<S> <C> <C> <C> <C>
PHOTO & OPTICAL 0.6% 114,000 Pt Modern Photo Film Company
(Indonesia)............................ $ 482,128
-----------
PRINTING & PUBLISHING 1.2% 253,734 News Corporation LTD (Australia)........ 993,051
-----------
RETAIL 1.7% 33,600 York--Benimaru (Japan).................. 1,475,847
-----------
TELECOMMUNICATIONS 3.4% 46,000 Lagardere Groupe (France)............... 1,068,765
61 Nippon Telegraph & Telephone (Japan).... 540,165
31,600 Telefonos de Mexico Cl. L ADR
(Mexico)............................... 1,295,600
-----------
2,904,530
-----------
TEXTILES 0.9% 58,700 Tuntex Distinct GDS (Taiwan)............ 763,100
-----------
TRANSPORTATION 5.7% 188,000 British Airport Authority (United
Kingdom)............................... 1,391,661
150 Danzas Holding AG (Switzerland)......... 135,218
682 East Japan Railway (Japan).............. 3,413,770
-----------
4,940,649
-----------
UTILITIES 3.5% 8,100 ASEA AB (Sweden)........................ 586,988
71,900 Capex SA GDR (a) (c) (Argentina)........ 1,213,313
3,000 Capex SA GDR (a) (Argentina)............ 50,625
140 DDI (Japan)............................. 1,210,172
-----------
3,061,098
-----------
Total Common Stocks (Cost $77,338,313) 73,441,628
-----------
CONVERTIBLE PREFERRED STOCKS 1.2%
BUILDING & CONSTRUCTION 0.7% 6,800 Maclun Holdings AG (Australia).......... 561,468
PRINTING & PUBLISHING 0.5% 126,867 News Corporation Ltd Preferred
(Australia)............................ 437,533
-----------
Total Convertible Preferred Stocks
(Cost $1,154,019)....................... 999,001
-----------
WARRANTS AND OPTIONS 1.5% 40,250 Korean Stock Index Option, Expires
7/1/95 at 100,000 Won (Korea) (b)...... 1,343,302
600 Danza Holding AG., Expires 08/26/96
(Switzerland).......................... 2,406
-----------
Total Warrants and Options (Cost
$1,475,247)............................ 1,345,708
-----------
99.7% Total Investments (Cost $90,208,934).... 85,946,412
0.4% Total Other Assets...................... 384,475
(0.1%) Liabilities............................. (122,332)
-----------
100.0% Total Net Assets........................ $86,208,555
-----------
-----------
<FN>
NOTES TO STATEMENT OF INVESTMENTS:
(+) See Note 1 of Notes to Financial Statements.
(a) Non-income producing security.
(b) Security is illiquid. Investments in illiquid securities with an aggregate
market value of $1,343,302 represent approximately 1.5% of net assets. The
valuation of this investment has been determined under the direction of the
Board of Governors:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION
ISSUE ISSUER DATE PURCHASE PRICE VALUATION
- ------------------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
Korean Stock Index Peninsula Trust 7/26/94 $ 36.14 $ 33.37
<FN>
(c) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At December 31,
1994, the value of these securities amounted to $3,263,457 or 3.8% of net
assets.
</TABLE>
See notes to financial statements.
37
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Managed Global Account of Separate Account D (the "Account") was
established on April 18, 1990, by Golden American Life Insurance Company
("Golden American"), under Minnesota insurance law to support the operations of
variable annuity contracts ("Contracts"). Golden American is a wholly-owned
subsidiary of BT Variable, Inc. ("BTV"), an indirect wholly-owned subsidiary of
Bankers Trust Company ("Bankers Trust"). Golden American is primarily engaged in
the issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
Operations of the Account commenced on October 21, 1992. Golden American
provides for variable accumulation and benefits under the Contracts by crediting
annuity considerations to the Account. The assets of the Account are owned by
Golden American. The portion of the Account's assets applicable to Contracts
will not be chargeable with liabilities arising out of any other business Golden
American may conduct, but obligations of the Account, including the promise to
make benefit payments, are obligations of Golden American.
The Account is registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended, as a non-diversified open-end
investment company.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Contracts. The net assets may
not be less than the reserves and other contract liabilities with respect to the
Account. Golden American has entered into a reinsurance agreement with an
unaffiliated reinsurer to cover insurance risks under the Contracts. Golden
American remains liable to the extent that the reinsurer does not meet its
obligations under the reinsurance agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS VALUATION: The valuation of the Account's assets is determined
once each business day, Monday through Friday, at or about 4:00 p.m., New York
City time, on each day that the New York Stock Exchange is open for trading.
Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last reported
sales price at which domestic and foreign securities are traded, or, if no sales
are reported, the mean between representative bid and ask quotations obtained
from a quotation reporting system or from established market makers. In other
cases, securities are valued at their fair value as determined in good faith
under the direction of the Board of Governors. The value of a foreign security
is determined in its national currency based upon the price on the pertinent
foreign exchange as of its close of business immediately preceding the time of
valuation. Domestic and foreign denominated debt securities, including those to
be purchased under firm commitment agreements, are normally valued on the basis
of quotes obtained from brokers and dealers or pricing services. Debt
obligations having a maturity of sixty days or less may be valued at amortized
cost unless the Portfolio Manager believes that amortized cost does not
approximate market value.
CURRENCY TRANSLATION: Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency exchange contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar as of the close of business
38
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
immediately preceding the time of valuation. Purchases and sales of portfolio
securities are translated at the rates of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates of
exchange prevailing when accrued. Net realized and unrealized losses on foreign
currency transactions of $1,606,427 and $161,039, respectively, represent
foreign exchange gains and losses from holdings of foreign currencies, options
on foreign currencies, exchange gains and losses realized between the trade and
settlement date on security transactions, and the difference between the amounts
of interest and dividends and expenses recorded on the Account's books and the
U.S. dollar equivalent amounts actually received or paid. The Account does not
separate that portion of the realized and unrealized gains and losses resulting
from changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of investments.
INVESTMENT INCOME AND SECURITY TRANSACTIONS: Investment transactions are
recorded on the trade date. Dividend income is recorded on the ex-dividend date.
Interest income, including the amortization of premiums and discounts, and
estimated expenses are accrued daily. Realized gains and losses from investment
transactions are recorded on an identified cost basis which is the same basis
used for federal income tax purposes.
FEDERAL INCOME TAXES: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American, which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capital
gains of the Account attributable to the Contractowners are excluded in the
determination of the federal income tax liability of Golden American.
3. SECURITIES TRANSACTIONS
(a) Purchases and sales of investment securities, excluding short-term
securities and options transactions, during the year ended December 31, 1994,
were $116,075,263 and $83,822,618, respectively.
(b) The Account may enter into repurchase agreements in accordance with
guidelines approved by the Board of Governors. The account bears a risk of loss
in the event that the counterparty to a repurchase agreement defaults on its
obligations and the Account is delayed or prevented from exercising its right to
dispose of the underlying securities collateralizing the repurchase agreement,
including the risk of a possible decline in the value of the underlying
securities during the period while the Series seeks to assure its rights. The
Account takes possession of the collateral, and reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Account enters into repurchase agreements to evaluate potential risks. The
market value of the underlying securities received as collateral must be at
least equal to the total amount of the repurchase obligation. In the event of
counterparty default, the Account has the right to use the underlying securities
to offset the loss.
(c) The Account may write exchange-listed and over-the-counter call and put
options on securities, currencies and other financial investments to enhance
investment performance. When the Account writes a put or call option, the amount
of received premium is included in the Account's assets and an equal amount is
included in its liabilities. The liability thereafter is adjusted to the current
market value of the option. Premiums received from writing options which expire
unexercised are treated by the Account on the expiration date as realized gains.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security in determining whether the Account has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities purchased by the Account. In writing an option, the Account
bears the market risk of
39
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
unfavorable changes in the price of the security or currency underlying the
written option. Exercise of an option written by the Account could result in the
Account selling or buying a security or currency at a price different from the
current market value.
The Account realized losses on written options of $232,104 for the year
ended December 31, 1994. Transactions in call and put options written for the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
------------ --------------
<S> <C> <C>
CALL OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 276 1,211,700
Options terminated in closing purchase transactions............... (276) (1,211,700)
------------ --------------
Options outstanding at end of period.............................. 0 0
------------ --------------
------------ --------------
PUT OPTIONS
Options outstanding at beginning of period........................ 0 $ 0
Options written................................................... 181 809,540
Options terminated in closing purchase transactions............... (181) (809,540)
------------ --------------
Options outstanding at end of period.............................. 0 $ 0
------------ --------------
------------ --------------
</TABLE>
In addition, the Account may purchase exchange-traded and over-the-counter
call and put options on securities, currencies and securities indices. The risk
in buying an option is that the Account pays for a premium whether or not the
option is exercised. The Account also has the additional risk of not being able
to enter into a transaction if a liquid secondary market does not exist.
Additionally, the account bears the risk of loss should the counterparty not
perform under the contract.
(d) The Account enters into forward foreign exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward foreign exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the cost of the
original contracts and the amount realized upon the closing of such contracts is
included in realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward foreign currency exchange contracts held
are recorded for financial reporting purposes as unrealized gains or losses by
the Account on a daily basis. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements in
the value of a foreign currency relative to the U.S. dollar. At December 31,
1994, the Account had no forward foreign currency exchange contracts
outstanding.
(e) The Account may engage in trading financial futures contracts to hedge
its portfolio holdings or to enhance investment performance. Consequently, the
Account is exposed to market risk as a result of changes in the value of the
underlying financial instruments. Investments in financial futures require the
Account to "mark to market" on a daily basis, which reflects the change in the
market value of the contract at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized gains
or losses. When the contracts are closed, the Account recognizes a realized gain
or loss. These investments require initial margin deposits
40
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS (CONTINUED)
which consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the exchange or
the board of trade on which the contract is traded and is subject to change. At
December 31, 1994, the Account had no open futures contracts.
4. CHARGES AND FEES
Under the terms of the Contracts, certain charges are allocated to the
Contracts to cover Golden American's expenses in connection with the issuance
and administration of the Contracts. The following is a summary of these
charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality and
expense risks related to the operations of the Account and, in accordance with
the terms of the Contracts, deducts a daily charge from the assets of the
Account at annual rates ranging from 0.80% to 1.35% of the assets attributable
to Contracts to cover these risks.
ASSET BASED ADMINISTRATIVE CHARGE: To compensate Golden American for the
administrative expenses under the Contract, a daily charge at an annual rate of
0.10% is deducted from assets attributable to the Contracts.
PARTIAL WITHDRAWAL CHARGE: A partial withdrawal charge of the lower of 2%
of the withdrawal or $25 is deducted from the accumulation value for each
additional partial withdrawal after the first partial withdrawal in a contract
year.
DEFERRED SALES LOAD: A sales load of 6% is applicable to each premium
payment for sales related expenses as specified in the Contracts. Although the
sales load is chargeable to each premium when it is received by Golden American,
the amount of such charge is initially advanced by Golden American to
Contractowners and included in the accumulation value and then deducted in equal
installments on each Contract processing date over a period of six years. For
the year ended December 31, 1994, contract sales loads of $1,039,651 initially
advanced by Golden American to the Account were deducted from contractowners'
accumulation value. Upon surrender of the Contract, the unamortized deferred
sales load is deducted from the accumulation value by Golden American. In
addition, when partial withdrawal limits are exceeded, a portion of the
unamortized deferred sales load is deducted.
The net assets retained in the Account by Golden American in the
accompanying financial statements represent the unamortized deferred sales load
and premium taxes advanced by Golden American, noted above.
Net Assets Retained in the Account by Golden American are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------- -------------
<S> <C> <C>
Balance at beginning of year........................................................ $ 4,668,658 $ 2,313,333
Sales load advanced................................................................. 1,338,526 2,671,408
Premium tax advanced................................................................ 6,823 5,997
Net transfer (to) from Separate Account B and the Guaranteed Interest Division...... (427,829) 197,052
Amortization of deferred sales load................................................. (1,052,214) (519,132)
------------- -------------
$ 4,533,964 $ 4,668,658
------------- -------------
------------- -------------
</TABLE>
41
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHARGES AND FEES (CONTINUED)
PREMIUM TAXES: Premium taxes are deducted, where applicable, from the
accumulation value of each Contract. The amount and timing of the deduction
depend on the annuitant's state of residence and currently ranges up to 3.5% of
premiums. Premium taxes are generally incurred on the annuity commencement date
and a charge for such premium taxes is then deducted from the accumulation value
on such date. However, some jurisdictions impose a premium tax at the time the
initial and additional premiums are paid, regardless of the annuity commencement
date. In those states, Golden American advances the amount of the charge for
premium taxes to Contractowners and then deducts it from the accumulation value
in equal installments on each contract processing date over a six year period.
During the year ended December 31, 1994, premium taxes of $6,823 were advanced
by Golden American to Contractowners. Golden American is currently waiving the
deduction of the applicable installments of the charge for premium taxes
previously advanced by Golden American to Contractowners. Golden American
reserves the right to deduct the total amount of the charge for premium taxes
previously waived and unrecovered on the annuity commencement date or upon
surrender of the Contract.
OPERATING EXPENSES: The Account is charged for management expenses by DSI,
the Manager of the Account, based upon the following annual percentage of the
Account's average daily net assets: 0.40% of the first $500 million and 0.30% of
the amount over $500 million. In addition, Zulauf Asset Management AG, the
Account's Portfolio Manager, was paid a monthly advisory fee equal to an annual
rate based upon the following percentages of the Account's average daily net
assets: 0.60% of the first $500 million and 0.50% of the amount over $500
million. The Board of Governors of the Account terminated, effective June 30,
1994, the Portfolio Management Agreement between Zulauf Asset Management AG and
the Account. Effective July 1, 1994, the Board of Governors appointed Warburg
Pincus Counsellors, Inc. ("Warburg") as the new portfolio manager of the
Account. The Account pays Warburg an advisory fee, payable monthly, based on the
average daily net assets of the Account at an annual rate of 0.60% of the first
$500 million and 0.50% on the excess thereof. For the year ended December 31,
1994, the Account incurred management and advisory fees of $333,747 and
$500,620, respectively.
The Account bears the expenses of its investment management operations,
including expenses associated with custody of securities, portfolio accounting,
the Board of Governors, legal and auditing services, registration fees and other
related operating expenses. Bankers Trust is the custodian of the assets in the
Account. For the year ended December 31, 1994, the Account incurred $84,877 for
custodian fees.
ORGANIZATION EXPENSES: The initial organizational expenses of the Account
of approximately $150,000 were paid by Golden American. The Account reimburses
Golden American for such expenses over a period of five years from the date of
the Account's commencement of operations. At December 31, 1994, the unamortized
balance of such expenses was $94,382.
EXPENSE LIMITATION: The Account and DSI entered into an agreement to limit
the total expenses of the Account, excluding mortality and expense risk charges,
interest expense, and other contractual charges, through December 31, 1994, so
that such expenses do not exceed on an annual basis: 1.25% of the first $500
million of the average daily net assets 1.05% of the excess over $500 million.
For the year ended December 31, 1994, $71,175 was reimbursed by DSI to the
Account pursuant to this limitation. Such agreement was extended under the same
terms through December 31, 1995.
42
<PAGE>
THE MANAGED GLOBAL ACCOUNT
OF
SEPARATE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer, acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For the
years ended December 31, 1994 and 1993, fees paid by Golden American to DSI in
connection with sales of the contracts aggregated approximately $1,343,000 and
$3,070,000, respectively.
6. NET RETURN
The following table shows the net return as a percentage of average net
assets with respect to the Account for the years ended December 31, 1994 and
1993, and the period October 21, 1992 (commencement of operations) to December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992*
--------- --------- ---------
<S> <C> <C> <C>
Investment income................................................................... 2.00% 1.97% 0.62%
Expense charges..................................................................... 2.31 2.42 0.36
--------- --------- ---------
Net investment income (loss)........................................................ (0.31) (0.45) 0.26
Net realized and unrealized (loss) gain on investments.............................. (13.26) 6.19 (.18)
--------- --------- ---------
Net return.......................................................................... (13.57)% 5.74% 0.08%
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
*Not annualized.
</TABLE>
43
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
(a) All financial statements are included in either the Prospectuses or the
Statements of Additional Information, as indicated therein.
EXHIBITS
(b) (1) Resolution of the board of directors of Depositor authorizing the
establishment of the Registrant(1)
(2) Form of Custodial Agreement(2)
(3) (i) Form of Distribution Agreement between the Depositor and
Directed Services, Inc.(2)
(ii) Form of Dealers Agreement(2)
(iii) Organizational Agreement(9)
(iv) (a) Addendum to Organizational Agreement(3)
(b) Expense Reimbursement Agreement(9)
(v) Form of Assignment Agreement for Organizational Agreement(9)
(4) (a) Individual Deferred Variable Annuity Contract(2)
(b) Individual Variable Annuity Certain Contract(2)
(c) Discretionary Group Deferred Variable Annuity Contract(4)
(d) Discretionary Group Variable Annuity Certain Contract(4)
(e) Amended Individual Deferred Variable Annuity Contract(5)
(f) Amended Individual Variable Annuity Certain Contract(5)
(g) Amended Discretionary Group Deferred Variable Annuity
Contract(5)
(h) Amended Discretionary Group Variable Annuity Certain
Contract(5)
(j) Amended Individual Deferred Variable Annuity Contract
Schedule Pages(6)
(k) Amended Individual Variable Annuity Certain Contract Schedule
Pages(6)
(l) Amended Discretionary Group Deferred Variable Annuity
Contract Schedule Pages(6)
(m) Amended Discretionary Group Variable Annuity Certain
Contract Schedule Pages(6)
(n) Amended Discretionary Group Deferred Variable Annuity
Certificate Schedule Pages(6)
(o) Amended Discretionary Group Variable Annuity Certain
Certificate Schedule Pages(6)
(p) Amended Individual Variable Annuity Certain Contract Schedule
Pages(7)
(q) Amended Discretionary Group Deferred Variable Annuity
Contract Schedule Pages(7)
C-1
<PAGE>
(r) Amended Discretionary Group Variable Annuity Certain
Contract Schedule Pages(7)
(s) Amended Discretionary Group Variable Annuity Certain
Certificate Schedule Pages(7)
(t) Contract Riders(6)
(u) Certificate Riders(6)
(v) Amended Individual Variable Annuity Certain Contract Schedule
Pages (5/91)(8)
(w) Amended Individual Deferred Variable Annuity Contract
Schedule Pages (5/91)(8)
(x) Amended Discretionary Group Variable Annuity Certain
Contract Schedule Pages (5/91)(8)
(y) Amended Discretionary Group Deferred Variable Annuity Contract
Schedule Pages (5/91)(8)
(z) Individual Deferred Variable Annuity Contract Schedule Pages
(5/92)(9)
(aa) Individual Variable Annuity Certain Contract Schedule Pages
(5/92)(9)
(bb) Discretionary Group Deferred Variable Annuity Contract
Schedule Pages (5/92)(9)
(cc) Discretionary Group Variable Annuity Certain Contract Schedule
Pages (5/92)(9)
(dd) Individual Deferred Variable Annuity Contract Schedule Pages
(5/93)(10)
(ee) Individual Variable Annuity Certain Contract Schedule Pages
(5/93)(10)
(ff) Discretionary Group Deferred Variable Annuity Contract
Schedule Pages (5/93)(10)
(gg) Discretionary Group Variable Annuity Certain Contract Schedule
Pages (5/93)(10)
(hh) Individual Deferred Variable Annuity Contract Schedule Pages
(10/93)(11)
(ii) Individual Variable Annuity Certain Contract Schedule Pages
(10/93)(11)
(jj) Discretionary Group Deferred Variable Annuity
Contract Schedule Pages (10/93)(11)
(kk) Discretionary Group Variable Annuity Certain
Contract Schedule Pages (10/93)(11)
(ll) Individual Deferred Combination Variable and Fixed Annuity
Contract (with GoldenSelect DVA
Schedule Pages)(14)
(mm) Individual Deferred Combination Variable and Fixed Annuity
Contract Schedule Pages (for GoldenSelect DVA
Series 100)(14)
(nn) Discretionary Group Deferred Combination Variable and Fixed
Annuity Contract (with GoldenSelect
DVA Schedule Pages)(14)
(oo) Discretionary Group Deferred Combination Variable and Fixed
Annuity Contract Schedule Pages (for GoldenSelect DVA Series
100) (14)
(5) (i) Individual Variable Annuity Application(2)
C-2
<PAGE>
(ii) Discretionary Group Variable Annuity Enrollment Form(5)
(iii) Individual Deferred Combination Variable and Fixed Annuity
Application(14)
(iv) Group Deferred Combination Variable and Fixed Enrollment
Form(14)
(6) (i) (a) Articles of Incorporation of Golden American
Life Insurance Company(1)
(b) Certificate of Amendment of the Restated
Articles of Incorporation
of Golden American Life Insurance
Company(8)
(c) Certificate of Amendment of the Restated
Articles of Incorporation
of MB Variable Life Insurance
Company(12)
(d) Certificate of Amendment of the Restated
Articles of Incorporation
of Golden American Life Insurance
Company (12/28/93)(13)
(ii) (a) By-Laws of Golden American Life Insurance
Company(1)
(b) By-Laws of Golden American Life Insurance
Company, as amended(8)
(c) Certificate of Amendment of the By-Laws of
MB Variable Life
Insurance Company, as amended(12)
(d) By-Laws of Golden American, as amended (12/21/93)(13)
(iii) Resolution of Board of Directors for Powers of Attorney(3)
(iv) Powers of Attorney(3)
(v) Powers of Attorney(5/91)(8)
(vi) Powers of Attorney(4/93)(10)
(vii) Powers of Attorney(12/93)(13)
(viii) Powers of Attorney(2/95) (14)
(7) Not applicable
(8) Not applicable
(9) (i) Consent of Bernard R. Beckerlegge
(ii) Opinion as to Legality of Securities(1)
(10) (i) Consent of Sutherland, Asbill & Brennan
(ii) Consent of Ernst & Young
C-3
<PAGE>
(11) Not applicable
(12) Not applicable
(13) Schedule of Performance Data(5)
_______________________________________________________________________________
(1) Incorporated herein by reference to the registrant's initial registration
statement filed with the Securities and Exchange Commission on July 27, 1988
(File No. 33-23351).
(2) Incorporated herein by reference to the registrant's pre-effective
amendment No. 1 to the registration statement filed with the Securities and
Exchange Commission on October 6, 1988 (File No. 33-23351).
(3) Incorporated herein by reference to Depositor's post-effective amendment
No. 2 to the registration statement for The Specialty Managers Separate
Account A filed on Form S-6 with the Securities and Exchange Commission on
September 13, 1989 (file No. 33-23458).
(4) Incorporated herein by reference to the registrant's pre-effective
amendment No. 2 to the registration statement filed with the Securities and
Exchange Commission on November 28, 1988 (File No. 33-23351).
(5) Incorporated herein by reference to the registrant's post-effective
amendment No. 1 to the registration statement filed with the Securities and
Exchange Commission on September 13, 1989. (File No. 33-23351).
(6) Incorporated herein by reference to the registrant's post-effective
amendment No. 2 to the registration statement filed with the Securities and
Exchange Commission on March 9, 1990. (File No. 33-23351).
(7) Incorporated herein by reference to the registrant's post-effective
amendment No. 3 to the registration statement filed with the Securities and
Exchange Commission on April 30, 1990. (File No. 33-23351).
(8) Incorporated herein by reference to the registrant's post-effective
amendment No. 5 to the registration statement filed with the Securities and
Exchange Commission on May 2, 1991. (File No. 33-23351).
(9) Incorporated herein by reference to the registrant's post-effective
amendment No. 8 to the registration statement filed with the Securities and
Exchange Commission on May 1, 1992. (File No. 33-23351).
(10)Incorporated herein by reference to the registrant's post-effective
amendment No. 12 to the registration statement filed with the Securities and
Exchange Commission on May 3, 1993. (File No. 33-23351).
(11)Incorporated herein by reference to the registrant's post-effective
amendment No. 14 to the registration statement filed with the Securities and
Exchange Commission on October 12, 1993. (Filed No. 33-23351).
(12)Incorporated herein by reference to the depositor's initial registration
statement on Form N-3 filed with the Securities and Exchange Commission on
August 19, 1992 (File No. 33-51028)
(13)Incorporated herein by reference to the registrant's post-effective
amendment No. 17 to the registration statement filed with the Securities and
Exchange Commission on May 2, 1994 (File No. 33-23351).
(14)Incorporated herein by reference to the registrant's post-effective
amendment No. 22 to the registration statement filed with the Securities and
Exchange Commission on February 15, 1995 (File No. 33-23351).
ITEM 25: DIRECTORS AND OFFICERS OF THE DEPOSITOR
Principal Position(s)
Name Business Address with Depositor
---- ---------------- --------------
Terry L. Kendall Golden American Life Ins. Co. Chairman, President and
1001 Jefferson Street Chief Executive Officer
Wilmington, DE 19801
Richard A. Marin Bankers Trust Company Director
Retirement Services
280 Park Avenue
New York, NY 10017
C-4
<PAGE>
ITEM 25 [continued]
Principal Position(s)
Name Business Address with Depositor
---- ---------------- --------------
John Herron, Jr. Bankers Trust Company Director
BT Ventures
280 Park Avenue
New York, NY 10017
Bernard R. Beckerlegge Golden American Life Ins. Co. General Counsel and
1001 Jefferson Street Secretary
Wilmington, DE 19801
Barnett Chernow Golden American Life Ins. Co. Executive Vice
1001 Jefferson Street President
Wilmington, DE 19801 and Principal
Financial Officer
Mitchell R. Katcher Golden American Life Ins. Co. Executive Vice
1001 Jefferson Street President
Wilmington, DE 19801
Stephen J. Preston Golden American Life Ins. Co. Senior Vice President
1001 Jefferson Street and Comproller
Wilmington, DE 19801
Elizabeth J. Crandall, American International Group Medical Director
M.D. 70 Pine Street
New York, NY 10270
ITEM 26: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Depositor does not directly or indirectly control any person.
The following persons control or are under common control with the Depositor:
BT VARIABLE, INC. ("BTV") - This corporation is a general business
corporation organized under the laws of the State of New York. The
primary purpose of BTV is to serve in an advisory, managerial and
consultative capacity to the Depositor and to engage generally in the
business of providing, promoting and establishing systems, methods
and controls for managerial efficiency and operation for such
company, as well as others. BT Variable, Inc. is an indirect,
wholly-owned subsidiary of Bankers Trust Company.
DIRECTED SERVICES, INC. ("DSI") - This corporation is a general
business corporation organized under the laws of the State of New
York, and is wholly owned by BTV. The primary purpose of DSI is to
act as a broker-dealer in securities. It acts as the principal
underwriter and distributor of variable insurance products including
variable annuities as required by the SEC. The contracts are issued
by the Depositor. DSI also has the power to carry on a general
financial, securities, distribution, advisory or investment advisory
business; to act as a general agent or broker for insurance companies
and to render advisory, managerial, research and consulting services
for maintaining and improving managerial efficiency and operation.
DSI is also registered with the SEC as an investment adviser.
C-5
<PAGE>
As of December 31, 1994, Bankers Trust New York Corporation subsidiaries
are as follows:
Bankers Trust Company
Bankers Trust (Delaware)
Bankers Trust Company of Florida, N.A.
Bankers Trust Company New Jersey Limited
Bankers Trust Company International
Bankers Trust International Private Banking Corporation
BT Brokerage Corporation
BT Capital Corporation
BT Commercial Corporation
BT Equipment Leasing, Inc.
BT Futures Corp.
BT Holdings (New York), Inc.
BT Securities Corporation
BT Private Clients Corporation
Bankers International Corporation
BT Financial Services Information Systems Corporation
BT International Trading Corporation
BT Investment Managers Inc.
Private Clients Group, Inc.
ITEM 27: NUMBER OF CONTRACT OWNERS
15,489 as of December 31, 1994.
ITEM 28: INDEMNIFICATION
Golden American shall indemnify (including therein the prepayment of
expenses) any person who is or was a director, officer or employee, or
who is or was serving at the request of Golden American as a director,
officer or employee of another corporation, partnership, joint venture,
trust or other enterprise for expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him with respect to any threatened, pending or completed
action, suit or proceedings against him by reason of the fact that he is
or was such a director, officer or employee to the extent and in the
manner permitted by law.
Golden American may also, to the extent permitted by law, indemnify any
other person who is or was serving Golden American in any capacity. The
Board of Directors shall have the power and authority to determine who
may be indemnified under this paragraph and to what extent (not to exceed
the extent provided in the above paragraph) any such person may be
indemnified.
Golden American may purchase and maintain insurance on behalf of any such
person or persons to be indemnified under the provision in the above
paragraphs, against any such liability to the extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant, as provided above or otherwise,
the Registrant has been advised that in the opinion of the SEC such
indemnification by the Depositor is against public policy, as expressed
in the Securities Act of 1933, and therefore may be unenforceable. In
the event that a claim of such indemnification (except insofar as it
provides for the payment by the Depositor of expenses incurred or paid by
a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted against the Depositor by such
director, officer or controlling person and the SEC is still of the same
opinion, the Depositor or Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by the Depositor is against public policy as expressed by
the Securities Act of 1933 and will be governed by the final adjudication
of such issue.
C-6
<PAGE>
ITEM 29: PRINCIPAL UNDERWRITER
(a) At present, Directed Services, Inc., the Registrant's Distributor,
also serves as principal underwriter for all contracts issued by Golden
American. DSI is the principal underwriter of Separate Account A, Alger
Separate Account A and Separate Account D of Golden American.
(b) The following information is furnished with respect to the officers
and directors of Directed Services, Inc., the Registrant's Distributor:
Principal Position(s)
Name Business Address with Underwriter
---- ---------------- ----------------
Terry L. Kendall Directed Services, Inc. Chairman and
280 Park Avenue Chief Executive Officer
New York, NY 10017
Robert B. Langel Directed Services, Inc. President
280 Park Avenue
New York, NY 10017
Richard A. Marin Bankers Trust Company Director
Retirement Services
280 Park Avenue
New York, NY 10017
John Herron, Jr. Bankers Trust Company Director
BT Ventures
280 Park Avenue
New York, NY 10017
Bernard R. Beckerlegge Directed Services, Inc. General Counsel and
280 Park Avenue Secretary
New York, NY 10017
Barnett Chernow Directed Services, Inc. Executive Vice President
280 Park Avenue
New York, NY 10017
Mitchell R. Katcher Directed Services, Inc. Executive Vice President
280 Park Avenue
New York, NY 10017
Stephen J. Preston Directed Services, Inc. Senior Vice President
280 Park Avenue
New York, NY 10017
1994 Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ------------- ------------ ----------- ------------
DSI $15,879,582 $0 $0 $0
C-7
<PAGE>
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS
Accounts and records are maintained by BT Variable, Inc., 280 Park
Avenue, 14 West, New York, New York 10017 and Golden American Life
Insurance Company, 1001 Jefferson Street, Suite 400, Wilmington, DE 19801.
ITEM 31: MANAGEMENT SERVICES
None.
ITEM 32: UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as it is necessary to ensure
that the audited financial statements in the registration statement are
never more than 16 months old so long as payments under the variable
annuity contracts may be accepted;
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication affixed
to or included in the prospectus that the applicant can remove to send
for a Statement of Additional Information; and,
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
REPRESENTATION
Registrant makes the following representation -- The account meets
definition of a "separate account" under federal securities laws.
C-8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant has caused this Post-Effective Amendment No. 23 to
the Registration Statement to be signed on its behalf in the City of New York
and State of New York, on the 28th day of April, 1995.
SEPARATE ACCOUNT B
----------------------
(Registrant)
By: GOLDEN AMERICAN LIFE
INSURANCE COMPANY
----------------------
(Depositor)
By: ----------------------
Terry L. Kendall*
Chairman, President and
Cheif Executive Officer
/s/ BERNARD R. BECKERLEGGE
Attest: --------------------------
Bernard R. Beckerlegge
General Counsel
and Secretary of Depositor
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
- --------- ----- ----
- ----------------------- Chairman, President and April 28, 1995
Terry L. Kendall* Cheif Executive Officer
of Depositor
- ----------------------- Principal Financial Officer April 28, 1995
Barnett Chernow*
- ----------------------- Comptroller April 28, 1995
Stephen J. Preston*
- ---------------------- Director of Depositor April 28, 1995
John Herron, Jr.*
- ---------------------- Director of Depositor April 28, 1995
Richard A. Marin*
/s/ BERNARD R. BECKERLEGGE
By: -------------------------- Attorney-in-Fact April 28, 1995
Bernard R. Beckerlegge
* Executed by Bernard R. Beckerlegge on behalf of those indicated
pursuant to Power of Attorney.
C-9
<PAGE>
EXHIBIT INDEX
Exhibit Item Page No.
- ------- ---- --------
(9)(i) Consent of Bernard R. Beckerlegge......................
10(i) Consent of Sutherland, Asbill & Brennan................
10(ii) Consent of Ernst & Young...............................
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
1001 Jefferson Street, Suite 400, Wilmington, DE 19801
Customer Service Center Tel: 800-366-0066
Fax: 302-576-3430
April 28, 1995
Members of the Board of Directors
Golden American Life Insurance Company
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
Directors:
I hereby consent to the reference of my name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 23 to
the Registration Statement on Form N-4 (File No. 33-23351) filed by Golden
American Life Insurance Company and Separate Account B with the Securities
and Exchange Commission under the Securities Act of 1933.
Sincerely,
/s/ Bernard R. Beckerlegge
Bernard R. Beckerlegge
General Counsel and Secretary
<PAGE>
Sutherland, Asbill & Brennan
April 28, 1995
Board of Directors
Golden American Life Insurance Company
280 Park Avenue, 14 West
New York, NY 10017
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 23 to the registration statement on Form N-4
for the Separate Account B (File No. 33-23351). In giving this consent, we
do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Stephen E. Roth
--------------------------
Stephen E. Roth
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports (a) dated February 14, 1995, with respect to the
financial statements of Separate Account B, (b) dated February 14, 1995, with
respect to the financial statements of The Managed Global Account of Separate
Account D, (c) dated February 14, 1995, with respect to the financial
statements of Golden American Life Insurance Company prepared in accordance with
statutory accounting practices and (d) dated February 14, 1995, with respect
to the financial statements of Golden American Life Insurance Company prepared
in accordance with generally accepted accounting principles included in the
Statements of Additional Information or in the prospectuses and to the
reference to our firm under the captions "Experts" and "Financial Statements"
in the Prospectuses included in the Post-Effective Amendment No. 23 to the
Registration Statement (Form N-4 No. 33-23351) of Separate Account B.
/s/ Ernst & Young LLP
New York, New York
April 26, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
SEPARATE ACCOUNT B
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 897,571,825
<INVESTMENTS-AT-VALUE> 855,349,341
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 855,349,341
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 530,918
<TOTAL-LIABILITIES> 530,918
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
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<DIVIDEND-INCOME> 23,725,771
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<APPREC-INCREASE-CURRENT> (63,962,262)
<NET-CHANGE-FROM-OPS> (36,633,609)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NET-CHANGE-IN-ASSETS> 147,309,901
<ACCUMULATED-NII-PRIOR> 32,323,661
<ACCUMULATED-GAINS-PRIOR> 4,103,009
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> (8,214,174)
<AVERAGE-NET-ASSETS> 0
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