File No. 033-59261, 811-5626
Filed under Rule 497(c)
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in
Wilmington, Delaware
DEFERRED VARIABLE ANNUITY PROSPECTUS
GRANITE PRIMELITE
This prospectus describes 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 Separate Account B ("Account B" or the "Account").
Eight Divisions of Account B are currently available under the Contract
offered by this prospectus. The investments available through the Divisions of
Account B include mutual fund portfolios (the "Portfolios") of Equi-Select
Series Trust (the "ESS Trust"), Travelers Series Fund Inc. (the "Travelers
Fund") and Smith Barney Series Fund (the "Smith Barney Fund").
This prospectus describes the Contract and provides background information
regarding Account B. The prospectuses for the ESS Trust, Travelers Fund and
Smith Barney Fund (individually, "a Trust," and collectively, "the Trusts"),
which must accompany this prospectus, provide information regarding investment
activities and policies of the Trusts.
You may allocate your premiums among the eight Divisions 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 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.
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.
This prospectus describes your principal rights and limitations and sets
forth the information concerning the Account that investors should know before
investing. A Statement of Additional Information, dated February 14, 1997,
about Account B 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 PROSPECTUSES FOR THE ESS TRUST, THE
TRAVELERS FUND AND THE SMITH BARNEY FUND.
ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company Wilmington, Delaware Mailing Address:
19801 P.O. Box 8794
Wilmington, Delaware
19899-8794
1-800-366-0066
PROSPECTUS DATED: MARCH 3, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
DEFINITION OF TERMS........................................................ 1
SUMMARY OF THE CONTRACT.................................................... 3
FEE TABLE.................................................................. 5
CONDENSED FINANCIAL AND OTHER INFORMATION.................................. 7
Financial Statements..................................................... 7
Performance Related Information.......................................... 8
INTRODUCTION............................................................... 9
Facts About the Company and the Account.................................. 9
Golden American.......................................................... 9
The ESS Trust, The Travelers Fund and The Smith Barney Fund.............. 9
Separate Account B....................................................... 10
Account B Divisions...................................................... 10
Changes Within Account B................................................. 12
FACTS ABOUT THE CONTRACT................................................... 12
The Owner................................................................ 12
The Annuitant............................................................ 12
The Beneficiary.......................................................... 13
Change of Owner or Beneficiary........................................... 13
Availability of the Contract............................................. 13
Types of Contracts....................................................... 13
Your Right to Select or Change Contract Options.......................... 14
Premiums................................................................. 14
Qualified Plans.......................................................... 14
Where to make Payments................................................... 14
Making Additional Premium Payments....................................... 14
Crediting Premium Payments............................................... 15
Your Right to Reallocate................................................. 16
Dollar Cost Averaging.................................................... 16
What Happens If a Division Is Not Available.............................. 17
Your Accumulation Value.................................................. 17
Accumulation Value in Each Division...................................... 17
Measurement of Investment Experience..................................... 18
Cash Surrender Value..................................................... 18
Surrendering to Receive the Cash Surrender Value......................... 19
Partial Withdrawals...................................................... 19
Automatic Rebalancing.................................................... 20
Proceeds Payable to the Beneficiary...................................... 21
Death Benefit Options.................................................... 21
How to Claim Payments to Beneficiary..................................... 22
Reports to Owners........................................................ 22
When We Make Payments.................................................... 22
CHARGES AND FEES........................................................... 22
Charge Deduction Division................................................ 22
Charges Deducted from the Accumulation Value............................. 23
Surrender Charge......................................................... 23
Surrender Charge for Excess Partial Withdrawal........................... 23
Charges Deducted from the Divisions...................................... 25
Trust Expenses........................................................... 25
</TABLE>
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<TABLE>
<S> <C>
CHOOSING YOUR ANNUITIZATION OPTIONS......................................... 25
Annuitization of Your Contract............................................ 25
Annuity Commencement Date Selection....................................... 26
Frequency Selection....................................................... 26
The Annuitization Options................................................. 26
Payment When Named Person Dies............................................ 27
OTHER CONTRACT PROVISIONS................................................... 27
In Case of Errors in Application Information.............................. 27
Sending Notice to Us ..................................................... 27
Assigning the Contract as Collateral...................................... 28
Non-Participating......................................................... 28
Authority to Make Agreements.............................................. 28
Contract Changes--Applicable Tax Law...................................... 28
Your Right to Cancel or Exchange Your Contract............................ 28
Cancelling Your Contract.................................................. 28
Exchanging Your Contract.................................................. 28
Other Contract Changes.................................................... 28
Group or Sponsored Arrangements........................................... 28
Selling the Contract...................................................... 29
REGULATORY INFORMATION...................................................... 29
Voting Rights............................................................. 29
State Regulation.......................................................... 29
Legal Proceedings......................................................... 30
FEDERAL TAX CONSIDERATIONS.................................................. 30
Introduction.............................................................. 30
Tax Status of Golden American............................................. 30
Taxation of Non-Qualified Annuities....................................... 30
IRA Contracts and Other Qualified Retirement Plans........................ 34
Federal Income Tax Withholding............................................ 38
STATEMENT OF ADDITIONAL INFORMATION......................................... 39
Table of Contents......................................................... 39
</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.
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<PAGE>
DEFINITION OF TERMS
ACCOUNT -- Separate Account B.
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, charges deducted and any partial withdrawals.
ANNUAL RATCHET ENHANCED DEATH BENEFIT OPTION -- An enhanced death benefit
option that may be elected only at issue and only if the Owner or Annuitant
(when the Owner is other than an individual) is age 79 or younger. The
enhanced death benefit provided by this option is the highest Accumulation
Value on any Contract Anniversary on or prior to the Owner turning age 80, as
adjusted for additional premiums and 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.
CHARGE DEDUCTION DIVISION -- The Division from which all charges are
deducted if so designated by you. The Charge Deduction Division currently is
the Smith Barney Money Market Division.
CONTINGENT ANNUITANT -- The person designated by the Owner who, upon the
Annuitant's death prior to the Annuity Commencement Date, becomes 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.
1
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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.
ENDORSEMENTS -- An endorsement changes or adds provisions to the Contract.
EXCHANGE CONTRACTS -- Contracts issued by insurance companies not affiliated
with Golden American.
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 Owner may examine
the Contract and return it for a refund.
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.
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 in which reinvestment is not available will be
allocated unless you specify otherwise. The Specially Designated Division
currently is the Smith Barney Money Market Division.
STANDARD DEATH BENEFIT OPTION -- The death benefit option that you will
receive under the Contact unless the enhanced death benefit option is elected.
The death benefit provided by this option is equal to the greatest of (i)
Accumulation Value; (ii) total premium payments less any partial withdrawals;
and (iii) Cash Surrender Value.
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.
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<PAGE>
SUMMARY OF THE CONTRACT
This prospectus has been designed to provide you with information regarding
the Contract and the Account which funds the Contract. Information concerning
the Portfolios underlying the Divisions of Account B is set forth in the
Trusts' prospectuses.
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. You have a choice
of investments. We do not promise that your Accumulation Value will increase.
Depending on the investment experience of the Divisions, 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,
distributions may be made to you to satisfy requirements imposed by Federal
tax law. 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
all or a portion of the Accumulation Value on the annuity commencement date or
the Cash Surrender Value upon surrender of the Contract. See Choosing Your
Annuity Options.
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 $5,000 for a non-qualified plan and $1,500 for a qualified plan. We
may change the minimum initial or additional premium requirements for certain
group or sponsored arrangements. See Other Contract Provisions, 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. You must receive our prior
approval before making a premium payment that causes the Accumulation Value of
all annuities that you maintain with us to exceed $1,000,000.
THE DIVISIONS
Each of the eight Divisions of Account B offered under this prospectus
invests in a mutual fund portfolio with its own distinct investment objectives
and policies. Each Division of Account B invests in a corresponding Portfolio
of the ESS Trust, managed by Equitable Investment Services, Inc. ("EISI"), the
Travelers Fund, managed by Smith Barney Mutual Funds Management Inc. ("SBMFM")
or the Smith Barney Fund, also managed by SBMFM. EISI has retained a Portfolio
Manager to manage the assets of the Portfolios of the ESS Trust. See Facts
About the Company and the Account, Account B Divisions.
3
<PAGE>
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 Facts
About the Contract, Accumulation Value in Each Division.
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 Facts About the Contract, 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 your Contract. You may elect in advance to take
systematic partial withdrawals on a monthly, quarterly, or annual 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, including a surrender charge. Partial withdrawals above a
specified percentage of your Accumulation Value may be subject to a surrender
charge. See Facts About the Contract, Partial Withdrawals.
DOLLAR COST AVERAGING
Under this program, you may choose to have a specified dollar amount
transferred from the Smith Barney Money Market Division to the other Divisions
of Account B on a monthly basis with the objective of shielding your
investment from short-term price fluctuations. See Facts About the Contract,
Dollar Cost Averaging.
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 once 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 Other Contract Provisions, 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 Other Contract Provisions, Other Contract Changes.
DEATH BENEFIT OPTIONS
The Contract provides a death benefit to the beneficiary if the Owner dies
prior to the Annuity Commencement Date. Subject to our rules, there is a
Standard Death Benefit Option and the Annual Ratchet Enhanced Death Benefit
Option. See Facts About the Contract, Death Benefit Options. We may offer a
reduced death benefit under certain group and sponsored arrangements. See
Other Contract Provisions, Group or Sponsored Arrangements.
4
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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 Facts About the Contract, Restrictions on Allocation of Premium
Payments. We then may deduct an annual Contract fee from your Accumulation
Value. See Other Contract Provisions, Charges and Fees. We may reduce certain
charges under group or sponsored arrangements. See Other Contract Provisions,
Group or Sponsored Arrangements. Unless you have elected the Charge Deduction
Division, charges are deducted proportionately from all Account B Divisions in
which you are invested.
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 59 1/2. See Federal Tax
Considerations.
FEE TABLE
TRANSACTION EXPENSES
Contingent Deferred Sales Charge /(1)/ (imposed as a percentage of premium
payments withdrawn upon excess partial withdrawal or surrender): /(2)/
<TABLE>
<CAPTION>
COMPLETE YEARS ELAPSED SURRENDER
SINCE PREMIUM PAYMENT CHARGE
---------------------- ---------
<S> <C>
0............................................................ 7%
1............................................................ 7%
2............................................................ 6%
3............................................................ 5%
4............................................................ 4%
5............................................................ 3%
6............................................................ 1%
7+........................................................... 0%
<CAPTION>
<S> <C>
Excess Allocation Charge.................................................... $0 /(3)/
</TABLE>
ANNUAL CONTRACT FEES:
<TABLE>
<S> <C>
Administrative Charge....................................................... $40
</TABLE>
(Waived if the Accumulation Value equals or exceeds $100,000 at the end of the
Contract Year, or once the sum of premiums paid equals or exceeds $100,000.)
SEPARATE ACCOUNT ANNUAL EXPENSES
(percentage of assets in each Division) /(4)/:
<TABLE>
<CAPTION>
STANDARD ANNUAL RATCHET
DEATH BENEFIT ENHANCED DEATH BENEFIT
------------- ----------------------
<S> <C> <C>
Mortality and Expenses Risk Charge.... 1.10% 1.25%
Asset Based Administrative Charge..... 0.15% 0.15%
---- ----
Total Separate Account Expenses....... 1.25% 1.40%
</TABLE>
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<TABLE>
<CAPTION>
THE ESS TRUST ANNUAL EXPENSES:
(as a percentage of the average daily net
assets of a Portfolio)
MANAGEMENT OTHER TOTAL
FEES (/5/) EXPENSES (/6/) EXPENSES
---------- -------------- --------
<S> <C> <C> <C>
OTC, Research, and Total Return Portfo-
lios:..................................... 0.80% 0.40% 1.20%
</TABLE>
TRAVELERS FUND INC.'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES
---------- -------- ------------
<S> <C> <C> <C>
Smith Barney Income and Growth Portfolio..... 0.65% 0.08% 0.73%
Smith Barney International Equity Portfolio.. 0.90 0.20 1.10
Smith Barney High Income Portfolio........... 0.60 0.24 0.84
Smith Barney Money Market Portfolio(/7/)..... 0.60 0.14 0.74
SMITH BARNEY FUND'S 1996 ANNUAL EXPENSES
(as a percentage of the average daily net as-
sets of a Portfolio)
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES
---------- -------- ------------
<S> <C> <C> <C>
Appreciation Portfolio....................... 0.75% 0.10% 0.85%
</TABLE>
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(1) We also deduct a charge for premium taxes (which can range from 0% to 3.5%
of premium) from your Accumulation Value upon surrender, excess partial
withdrawals or on the Annuity Commencement Date. See Premium Taxes.
(2) For purposes of calculating the surrender charge for the excess partial
withdrawal, (i) we treat premium payments as being withdrawn on a first-in
first-out basis, and (ii) amounts withdrawn which are not considered an
excess partial withdrawal are not treated as a withdrawal of any premium
payments. See Charges Deducted from the Accumulation Value, Surrender
Charge for Excess Partial Withdrawals.
(3) We reserve the right to impose a charge in the future at a maximum of $25
for each allocation change in excess of twelve per Contract Year. See
Excess Allocation Charge.
(4) See Facts About the Contract, Death Benefit Options, for a description of
the Contract's Standard and Enhanced Death Benefit Options.
(5) Prior to October 6, 1995, EISI waived its management fee for the OTC,
Research, and Total Return Portfolios.
(6) Other expenses shown take into account the effect of EISI's agreement to
reimburse the Portfolios for all operating expenses, excluding management
fees, that exceed 0.40% of their average daily net assets. This
reimbursement agreement commenced February 3, 1997. Prior to February 3,
1997, EISI reimbursed the Portfolios for all operating expenses, excluding
management fees, that exceeded 0.75% of their average daily net assets.
This reimbursement is voluntary and can be terminated at any time. In the
absence of such reimbursement agreement, Other Expenses would have been
1.72%, 1.68%, and 1.56%, respectively, for the OTC, Research and Total
Return Portfolios for the year ended December 31, 1995.
(7) Smith Barney Mutual Funds Management Inc., the Fund's investment manager,
waived part of its Management Fees for the year ended October 31, 1996 for
the Smith Barney Money Market Portfolio such that the actual total annual
expenses charged in 1996 was 0.65%. This voluntary fee waiver can be
terminated at any time.
EXAMPLES:
The examples do not take into account any deduction for premium taxes.
Premium taxes currently range from 0% to 3.5% of premium payments. There may
be surrender charges if you choose to annuitize within the first three
Contract Years.
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If at issue you elect the Annual Ratchet Enhanced Death Benefit Option and
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>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
OTC............................................. $97.11 $143.18 $181.81 $300.42
Research........................................ $97.11 $143.18 $181.81 $300.42
Total Return.................................... $97.11 $143.18 $181.81 $300.42
Smith Barney Income and Growth.................. $92.41 $129.04
Smith Barney International Equity............... $96.11 $140.19
Smith Barney High Income........................ $93.51 $132.37
Smith Barney Money Market....................... $92.51 $129.35
Appreciation.................................... $93.61 $132.67
</TABLE>
If at issue you elect the Annual Ratchet Enhanced Death Benefit Option and
you do not surrender your Contract or if you annuitize on the Annuity
Commencement Date, you would pay the following expenses for each $1,000 of
initial premium assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------ ------- -------
<S> <C> <C> <C> <C>
OTC.............................................. $27.11 $83.18 $141.81 $300.42
Research......................................... $27.11 $83.18 $141.81 $300.42
Total Return..................................... $27.11 $83.18 $141.81 $300.42
Smith Barney Income and Growth................... $22.41 $69.04
Smith Barney International Equity................ $26.11 $80.19
Smith Barney High Income......................... $23.51 $72.37
Smith Barney Money Market........................ $22.51 $69.35
Appreciation..................................... $23.61 $72.67
</TABLE>
The purpose of the Fee Table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. For purposes of
computing the annual per Contract administrative charge, the dollar amounts
shown in the examples are based on an Initial Premium of $50,000.
The examples reflect the election at issue of the Annual Ratchet Enhanced
Death Benefit Option. If the Standard Death Benefit Option is elected, the
actual expenses incurred will be less than those represented in the Examples.
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.
CONDENSED FINANCIAL AND OTHER INFORMATION
No condensed financial information is presented because the Divisions
available in connection with the Contracts offered by this prospectus became
available for investment on September 3, 1996 with respect to the OTC
Division, January 20, 1997 with respect to the Research and OTC Divisions, and
as of the date of this prospectus with respect to the Smith Barney Income and
Growth, Smith Barney International Equity, Smith Barney High Income, Smith
Barney Money Market and Appreciation Divisions.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the years ended
December 31, 1995, 1994 and 1993 (as well as the auditors' report thereon),
the unaudited financial statements of Separate Account B for the
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<PAGE>
period ended September 30, 1996, and the audited financial statements of The
Managed Global Account of Separate Account D, the predecessor entity of the
Managed Global Series for accounting purposes, for the years ended December
31, 1995 and 1994 (as well as the auditors' report thereon) appear in the
Statement of Additional Information. The audited financial statements of
Golden American prepared in accordance with generally accepted accounting
principles for the years ended December 31, 1995, 1994 and 1993 (as well as
the auditors' report thereon) are also contained in the Statement of
Additional Information. In addition, the unaudited September 30, 1996
financial statements of Golden American prepared in accordance with generally
accepted accounting principles are contained in the Statement of Additional
Information.
PERFORMANCE RELATED INFORMATION
Performance information for the Divisions of Account B, including the yield
and effective yield of the Smith Barney Money Market 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 Smith Barney Money Market 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 Facts About the Contract, 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 surrender charge, the administrative charge and
the applicable mortality and expense risk charge. See Charges and Fees.
Quotations of total return may simultaneously be shown for other periods that
do not take into account certain contractual charges, such as the surrender
charge.
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
respective Trust in which the Division 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.
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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.
INTRODUCTION
FACTS ABOUT THE COMPANY AND THE ACCOUNT
The following information describes the Contract and Account B. Account B
invests in mutual fund portfolios of the Trusts.
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American" or the "Company")
is a stock life insurance company organized under the laws of the State of
Delaware and is an indirect wholly owned subsidiary of Equitable of Iowa
Companies ("Equitable of Iowa"). Prior to December 30, 1993, Golden American
was a Minnesota corporation. Prior to August 13, 1996, Golden American was 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.
Equitable of Iowa is the holding company for Equitable Life Insurance
Company of Iowa, USG Annuity & Life Company, Locust Street Securities, Inc.,
Equitable Investment Services, Inc . ("EISI"), Equitable of Iowa Securities
Network, Inc., EIC Variable, Inc., Directed Services, Inc. ("DSI"), and Golden
American.
As of September 30, 1996, Equitable of Iowa had over $11.9 billion in
assets.
THE ESS TRUST, THE TRAVELERS FUND AND THE SMITH BARNEY FUND
The ESS Trust is an open-end management investment company. Currently, the
ESS Trust's shares are not available to separate accounts of other insurance
companies other than insurance companies affiliated with Equitable of Iowa
such as Golden American. It is anticipated that in the future the ESS Trust
will become available to separate accounts of unaffiliated companies as well
as to separate accounts funding variable life insurance policies offered by
Golden American.
The Travelers Fund is an open-end management investment company underlying
certain variable annuity and variable life insurance contracts. Prior to
September 3, 1996, it was known as Smith Barney/Travelers Series Fund Inc.
The Smith Barney Fund is a diversified, open-end management investment
company.
Shares of the Travelers Fund and Smith Barney Fund are issued and redeemed
in connection with investments in and payments under certain variable annuity
contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated. The Funds do not foresee any
disadvantage to Owners arising out of the fact that they offer their shares
for products offered by life insurance companies which are not affiliated.
Nevertheless, the Boards of Trustees of the Travelers Fund and Smith Barney
Fund intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any,
should be taken in response thereto. If such a conflict were to occur, one or
more insurance company separate accounts might withdraw its investments in the
Travelers Fund and Smith Barney Fund. An irreconcilable conflict might result
in the withdrawal of a substantial amount of a Portfolio's assets which could
adversely affect such Portfolio's net asset value per share.
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You will find complete information about the ESS Trust, the Travelers Fund
and the Smith Barney Fund, including the risks associated with each Portfolio,
in the accompanying Trusts' prospectuses. You should read them carefully in
conjunction with this prospectus before investing. Additional copies of the
Trusts' prospectuses may be obtained by contacting our Customer Service
Center.
SEPARATE ACCOUNT B
All obligations under the Contract are general obligations of Golden
American. Account B is a separate investment account used to support our
variable annuity Contracts and for other purposes as permitted by applicable
laws and regulations. The assets of Account B 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 which are not
discussed in this prospectus. Account B may also invest in other Portfolios
which are not available to the Contract described in this prospectus.
We own all the assets in Account B. Income and realized and unrealized gains
or losses from assets in the 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 Account B 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. If the assets exceed the required reserves and other liabilities,
we may transfer the excess to our general account.
Account B was established on July 14, 1988 to 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 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 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.
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 ESS Trust, the
Travelers Fund or the Smith Barney Fund. EISI serves as the Manager to each
Portfolio of the ESS Trust and SBMFM serves as the manager to each Portfolio
of both the Travelers Fund and the Appreciation Portfolio of the Smith Barney
Fund. EISI has retained a Portfolio Manager to manage the assets of the
Portfolios of the ESS Trust. EISI (not the ESS Trust) pays the Portfolio
Manager a monthly fee for managing the assets of the Portfolios. See the
Trusts' prospectuses for details. There may be restrictions on the
availability and/or the amount of the allocation to certain Divisions based on
state laws and regulations. The investment objectives of the various
Portfolios in the Trusts are described below. There is no guarantee that any
Portfolio will meet its investment objectives. Meeting objectives depends on
various factors, including, in certain cases, how well the portfolio managers
anticipate changing economic and market conditions. Account B also has other
Divisions investing in other portfolios which are not available to the
Contract described in this prospectus.
Each Trust pays its respective Manager for its services a fee, payable
monthly, based on the annual rates of the average daily net assets of the
Portfolio as shown in the Fee Table. In addition, EISI pays its manager for
its services a fee, payable monthly, based on the annual rates of the average
daily net assets of the Portfolios shown in the table below.
THE ESS TRUST
<TABLE>
<CAPTION>
PORTFOLIOS FEES
---------- ----
<S> <C>
OTC, Research, and Total Return
Portfolios: 0.80% of first $300 million
0.55% of amount in excess of $300 million
</TABLE>
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The following Divisions invest in a designated Portfolio of the ESS Trust.
OTC DIVISION -- OTC PORTFOLIO
OBJECTIVE -- Long-term growth of capital.
INVESTMENTS -- Investment primarily in securities of companies that are
traded principally on the over-the-counter (OTC) market.
PORTFOLIO MANAGER -- Massachusetts Financial Services Company
RESEARCH DIVISION -- RESEARCH PORTFOLIO
OBJECTIVE -- Long term growth of capital and future income.
INVESTMENTS -- Investment primarily in common stocks or securities
convertible into common stocks of companies believed to possess better than
average prospects for long-term growth.
PORTFOLIO MANAGER -- Massachusetts Financial Services Company
TOTAL RETURN DIVISION -- TOTAL RETURN PORTFOLIO
OBJECTIVE -- Above-average income consistent with prudent employment of
capital.
INVESTMENTS -- Investment primarily in equity securities.
PORTFOLIO MANAGER -- Massachusetts Financial Services Company
The following Divisions invest in a designated Portfolio of the Travelers
Fund.
SMITH BARNEY INCOME AND GROWTH DIVISION -- SMITH BARNEY INCOME AND GROWTH
PORTFOLIO
OBJECTIVE -- Current income and long-term growth of income and capital.
INVESTMENTS -- Investment primarily in common stocks offering a current
return from dividends and interest-paying debt obligations and high-quality
short-term debt obligations.
SMITH BARNEY INTERNATIONAL EQUITY DIVISION -- SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
OBJECTIVE -- Total return on its assets from growth of capital and income.
INVESTMENTS -- Diversified portfolio of equity securities of established
non-U.S. issuers.
SMITH BARNEY HIGH INCOME DIVISION -- SMITH BARNEY HIGH INCOME PORTFOLIO
OBJECTIVE -- High current income.
INVESTMENTS -- High-yielding corporate debt obligations and preferred stock.
In addition, the Portfolio may invest up to 20% of its assets in the
securities of foreign issuers that are denominated in currencies other than
U.S. dollars.
SMITH BARNEY MONEY MARKET DIVISION -- SMITH BARNEY MONEY MARKET PORTFOLIO
OBJECTIVE -- Maximum current income and preservation of capital.
INVESTMENTS -- Bank obligations and high quality commercial paper, corporate
obligations and municipal obligations in addition to U.S. government
securities and related repurchase agreements.
The following Division invests in a designated Portfolio of the Smith Barney
Fund.
APPRECIATION DIVISION -- APPRECIATION PORTFOLIO
OBJECTIVE -- Long-term appreciation of capital.
INVESTMENTS -- Primarily in equity and equity-related securities that are
believed to afford attractive opportunities for appreciation.
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CHANGES WITHIN ACCOUNT B
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, 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, 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 Account B under the 1940 Act;
(2) operate Account B as a management company under the 1940 Act if it is
operating as a unit investment trust;
(3) operate Account B 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 Account B; and
(5) combine Account B 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. 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 when 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 determining the death benefit provision. 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 availability of enhanced death benefits 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.
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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.
THE BENEFICIARY
The Beneficiary is the person to whom we pay death benefit proceeds and who
becomes the successor Owner 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 may be named as Beneficiary or contingent Beneficiary.
In the case of more than one Beneficiary, unless otherwise specified, we will
assume any death benefit proceeds are to be paid in equal shares to the
surviving beneficiaries.
You have the right to change beneficiaries during the Annuitant's lifetime
unless you have designated an irrevocable Beneficiary. When an irrevocable
Beneficiary has been designated, you and the irrevocable Beneficiary may have
to act together to exercise certain rights and options under the Contract.
CHANGE OF OWNER OR BENEFICIARY
During the Annuitant's lifetime and while your Contract is in effect, you
may transfer ownership of the Contract (if purchased in connection with a
nonqualified 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 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
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rules, which may 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. IF YOU OWN MORE THAN ONE QUALIFIED PLAN,
YOU SHOULD CONSULT YOUR TAX ADVISOR.
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 $5,000 for a non-qualified
Contract and $1,500 for a qualified Contract.
You must receive our prior approval before making a premium payment that
causes the Accumulation Value of all annuities that you maintain with us to
exceed $1,000,000. 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.
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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.
We will also accept, by agreement with broker-dealers, transmittal of
initial and additional premium payments by wire order from the broker-dealer
to our 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 our Customer Service Center to find out
about state availability and broker-dealer requirements.
Upon our acceptance of premium payments received via wire order and
accompanied by sufficient electronically transmitted data, we will issue the
Contract, allocate the premium payment according to your instructions, and
invest the payment at the value next determined following receipt. See
Restrictions on Allocation of Premium Payments. 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 information sufficient to
enable us to issue the Contract. If we are unable to do so, our Customer
Service Center will inform the broker-dealer, on behalf of the applicant or
enrollee, of the reasons for the delay and return the premium payment
immediately to the broker-dealer for return to the applicant or enrollee,
unless the applicant or enrollee specifically consents to allow us to retain
the premium payment until our Customer Service Center receives the required
information.
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 your applicable death benefit.
When an additional premium payment is made, we increase your applicable
death benefit in accordance with the death benefit option in effect for
your Contract.
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 the procedures
of the broker-dealer which submitted the wire order.
(1) We will issue the Contract. However, until we have received and
accepted 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, we will refund the
Accumulation Value plus any charges we deducted, and the Contract will be
voided.
(2) Based on the information provided, we will issue the Contract. We
will mail the Contract to you, together with an Application Acknowledgement
Statement. You must execute the Application Acknowledgement Statement and
return it to us at our Customer Service Center. Until we receive the
executed Application Acknowledgement Statement, neither you nor the broker
dealer may execute any financial transactions with respect to the Contract
unless such transactions are appropriately requested in writing by you.
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YOUR RIGHT TO REALLOCATE
You may reallocate your Accumulation Value among the Divisions 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. 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 Trusts. We also reserve the right to modify
or terminate your right to reallocate your Accumulation Value at any time in
accordance with applicable law. 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 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 Portfolio; or (b) we are informed by the ESS Trust, the
Travelers Fund or the Smith Barney Fund 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 ESS Trust, the Travelers Fund or the Smith Barney Fund.
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 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.
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 Smith Barney Money
Market Division you may elect the dollar cost averaging program and have a
specified dollar amount transferred from such Division 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.
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 your Accumulation Value in the Smith
Barney Money Market Division when you elect the dollar cost averaging program,
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 in each Division unless you
specify otherwise. If, on any transfer date, your Accumulation Value is equal
to or less than the
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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 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.
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio supporting a
Division of Account B 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 of the distribution 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 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
in which you are invested, and is the amount available for investment at any
time. You select the Divisions to which to allocate your Accumulation Value.
We adjust your Accumulation Value on each Valuation Date to reflect the
Divisions' investment performance, any additional premium payments or partial
withdrawals since the previous Valuation Date, and on each Contract processing
date to reflect any deduction of the annual Contract fee. Your 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, your Accumulation Value is allocated to each Division
as you have specified. 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.
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<PAGE>
(7) We subtract from (6) the amounts allocated to that Division for:
(a) any Contract fees; and
(b) 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, 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 $14.64, $16.43 and $13.76 for the OTC,
Research and Total Return Divisions, respectively. The index for the rest of
the Divisions was set at $10. 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 Portfolio 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 applicable 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 Portfolio are made on a per share
basis.
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. We do not guarantee any minimum Cash Surrender
Value. 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 from (1) any surrender charge and any charge for premium
taxes; and
(3) We deduct from (2) any charges incurred but not yet deducted.
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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 at our Customer Service Center. The Cash Surrender Value
is determined and 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. See When We Make Payments.
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, including
any surrender charge, 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. The maximum amount you may withdraw each Contract Year without
incurring a surrender charge is 15% of your Accumulation Value. See Surrender
Charge for Excess Partial Withdrawals. Partial withdrawals may not be repaid.
A partial withdrawal request for an amount in excess of 90% of the Cash
Surrender Value will be treated as a request to surrender the Contract.
CONVENTIONAL PARTIAL WITHDRAWAL OPTION
After the Free Look Period, you may take conventional partial withdrawals.
The minimum amount you may withdraw under this option is $1,000.
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,
quarterly, or annual basis from your Accumulation Value in the Divisions. 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 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%
Annual.................................................... 15.00%
</TABLE>
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage of your 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
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<PAGE>
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, and 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 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 may 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.
We will send you a notice before your distributions 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 may be made. Thus, if the
Systematic Partial Withdrawal Option is in effect, distributions 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.
At your request, 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. See Federal Tax Considerations for more details.
AUTOMATIC REBALANCING
If you have at least $10,000 of Accumulation Value invested in the
Divisions, you may elect to participate in our automatic rebalancing program.
Automatic rebalancing provides you with an easy way to maintain the
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<PAGE>
particular asset allocation that you and your financial advisor have
determined are most suitable for your individual long-term investment goals.
We do not charge a fee for participating in our automatic rebalancing program.
Under the program you may elect to have all your allocations among the
Divisions rebalanced on a quarterly, semi-annual, or annual calendar basis.
The minimum size of an allocation to a Division must be in full percentage
points. The program may be used in conjunction with the systematic partial
withdrawal option only where such withdrawals are taken pro rata. Automatic
rebalancing is not available if you participate in dollar cost averaging.
Automatic rebalancing will not take place during the free look period.
To participate in automatic rebalancing you must submit to our Customer
Service Center written notice in a form satisfactory to us. We will begin the
program on the last Valuation Date of the applicable calendar period in which
we receive the notice. You may cancel the program at any time. The program
will automatically terminate if you choose to reallocate your Accumulation
Value among the Divisions or if you make an additional premium payment or
partial withdrawal on other than a pro rata basis. Additional premium payments
and partial withdrawals effected on a pro rata basis will not cause the
automatic rebalancing program to terminate.
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
distribution requirements.
DEATH BENEFIT OPTIONS
Subject to our rules, there are two death benefit options that may be
elected by you at issue under the Contract: the Standard Death Benefit Option
and the Annual Ratchet Enhanced Death Benefit Option.
The Annual Ratchet Enhanced Death Benefit Option may only be elected at
issue and only if the Owner or Annuitant (when the Owner is other than an
individual) is age 79 or younger at issue.
If the enhanced death benefit is elected, the death benefit under the
Contract is equal to the greatest of: (i) the Accumulation Value; (ii) total
premium payments less any partial withdrawals; (iii) the Cash Surrender Value;
and (iv) the enhanced death benefit (see below).
We may offer a reduced death benefit under certain group and sponsored
arrangements. See Other Contract Provisions, Group or Sponsored Arrangements.
STANDARD DEATH BENEFIT OPTION
You will automatically receive the Standard Death Benefit Option unless you
elect the enhanced death benefit. The Standard Death Benefit Option for the
Contract is equal to the greatest of: (i) your Accumulation Value; (ii) total
premiums less any partial withdrawals; and (iii) the Cash Surrender Value.
ANNUAL RATCHET ENHANCED DEATH BENEFIT OPTION
(1) We take the enhanced death benefit from the prior Valuation Date. On
the Contract Date, the enhanced death benefit is equal to the Initial
Premium.
(2) We add to (1) any additional premiums paid since the prior Valuation
Date and subtract from (1) any partial withdrawals (including surrender
charges incurred) taken since the prior Valuation Date.
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<PAGE>
(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 enhanced death
benefit equal to the greater of (2) or the Accumulation Value as of
such date.
On all other Valuation Dates, the enhanced death benefit is equal to (2).
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 your 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 Account B invests, 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 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.
CHARGES AND FEES
CHARGE DEDUCTION DIVISION
You may specify at issue if you wish to have all charges against the
Accumulation Value deducted from the Smith Barney Money Market Division. We
call this the Charge Deduction Division Option, and within this
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context refer to the Smith Barney Money Market Division as the Charge
Deduction 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 you select, subject to certain restrictions. See
Restrictions on Allocation of Premium Payments. We then may deduct certain
amounts from your Accumulation Value. We may reduce certain fees and charges,
including any 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 affected Divisions in which you are
invested. The charges we deduct are:
SURRENDER CHARGE
A contingent deferred sales charge ("Surrender Charge") is imposed as a
percentage of each premium payment if the Contract is surrendered or an excess
partial withdrawal is taken during the seven year period from the date we
receive and accept such premium payment. The percentage of premium payments
deducted at the time of surrender or excess partial withdrawal depends upon
the number of complete years that have elapsed since that premium payment was
made. We determine the surrender charge as a percentage of each premium
payment as follows:
<TABLE>
<CAPTION>
COMPLETE YEARS ELAPSED SURRENDER
SINCE PREMIUM PAYMENT CHARGE
---------------------- ---------
<S> <C>
0........................................................... 7%
1........................................................... 7%
2........................................................... 6%
3........................................................... 5%
4........................................................... 4%
5........................................................... 3%
6........................................................... 1%
7+.......................................................... 0%
</TABLE>
Subject to our 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 Contract anniversary for at least 45 days during any continuous
sixty-day period, and your request for the surrender or withdrawal,
together with all required 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 first diagnosed by a qualifying medical professional, on or
after the first Contract 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.
See your Contract for more information. The waiver of surrender charge may
not be available in all states.
SURRENDER CHARGE FOR EXCESS PARTIAL WITHDRAWALS
There is considered to be an excess partial withdrawal in any Contract Year
in which the amount withdrawn exceeds 15% of your Accumulation Value on the
date of the withdrawal minus any amount withdrawn during that Contract Year.
Where you are receiving systematic partial withdrawals, any combination of
conventional
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<PAGE>
partial withdrawals taken and any systematic partial withdrawals expected to
be received in a Contract Year will be considered in determining the amount of
the excess partial withdrawal. Such a withdrawal will be considered a partial
surrender of the Contract and we will impose a surrender charge and any
associated premium tax. Such charges will be deducted from the Accumulation
Value in proportion to the Accumulation Value in each Division from which the
excess partial withdrawal was taken. In instances where the excess partial
withdrawal equals the entire Accumulation Value in each such Division, charges
will be deducted proportionately from all other Divisions in which you are
invested.
For purposes of calculating the surrender charge for the excess partial
withdrawal, (i) we treat premium payments as being withdrawn on a first-in
first-out basis, and (ii) amounts withdrawn which are not considered an excess
partial withdrawal are not treated as a withdrawal of any premium payments.
Although we treat premium payments as being withdrawn before earnings for
purposes of calculating the surrender charge for excess partial withdrawals,
the Federal income tax law treats earnings as withdrawn first. See Federal Tax
Considerations, Taxation of Non-Qualified Annuities.
For example, the following assumes an Initial Premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third
Contract Years, for total premium payments under the Contract of $30,000. It
also assumes a partial withdrawal at the beginning of the fourth Contract Year
of 20% of the Accumulation Value of $35,000.
In this example, $5,250 ($35,000 x .15) is the maximum partial withdrawal
that may be withdrawn during the Contract Year without the imposition of a
surrender charge. The total partial withdrawal would be $7,000 ($35,000 x .2).
Therefore, $1,750 ($7,000-$5,250) is considered an excess partial withdrawal
of a part of the Initial Premium payment of $10,000 and would be subject to a
5% surrender charge of $87.50 ($1,750 x .05). This example does not take into
account the deduction of any premium taxes.
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 Owner 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 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.
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
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<PAGE>
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
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.
CHARGES DEDUCTED FROM THE DIVISIONS
MORTALITY AND EXPENSE RISK CHARGE
The amount of the mortality and expense risk charge depends on the death
benefit option that is in effect. If the Standard Death Benefit Option is in
effect, the charge is equivalent, on an annual basis, to 1.10% of the assets
in each Division. The charge is deducted on each Valuation Date at the rate of
.003030% for each day in the Valuation Period. Approximately .75% is allocated
to the mortality risk and .35% is allocated to the expense risk. If the Annual
Ratchet Death Benefit Option is in effect, the charge is equivalent, on an
annual basis, to 1.25% of the assets in each Division. The charge is deducted
on each Valuation Date at the rate of .003446% for each day in the Valuation
Period. For the Annual Ratchet approximately .90% is allocated to the
mortality 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, to
compensate us for a portion of the administrative expenses under the Contract.
The daily charge is at a rate of 0.000411% (equivalent to an annual rate of
0.15%) 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 Portfolio of the ESS Trust,
the Travelers Fund and the Smith Barney Fund. Please read the respective Trust
prospectus for details.
CHOOSING YOUR ANNUITIZATION OPTIONS
ANNUITIZATION OF YOUR CONTRACT
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 your 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.
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<PAGE>
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, payments of death benefit proceeds must comply with the
distribution requirements of applicable Federal tax law.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the 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 Contract form. Various factors will affect
the level of annuity benefits including the Annuity Option chosen, the
applicable payment rate used and the investment results of the Divisions in
which the Accumulation Value has been invested.
Some annuity options may provide only for fixed payments. 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, on the Annuity Commencement
Date, a Surrender Charge remains, the elected Annuity Option must include a
period certain of at least five years duration. If you do not select a date,
the Annuity Commencement Date will be in the month following the Annuitant's
90th birthday. 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 ANNUITIZATION 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.
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<PAGE>
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 may be 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.
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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 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. See Facts About the Contract, Measurement of
Investment Experience, Index of Experience and Unit Value.
EXCHANGING YOUR CONTRACT
For information regarding exchanges under Section 1035 of the Internal
Revenue Code of 1986, as amended, 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 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.
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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 administrative
charge will reflect differences in costs or services and will not be unfairly
discriminatory.
SELLING THE CONTRACT
DSI is principal underwriter and distributor of the Contract as well as for
other Contracts issued through Account B and other separate accounts of Golden
American. We pay DSI for acting as principal underwriter under a distribution
agreement. The offering of the Contract will be continuous.
Commissions will be paid to broker-dealers who sell the Contract. Broker-
dealers will be paid commissions, up to an amount currently equal to 7.75% of
premium payments, for promotional or distribution expenses associated with the
marketing of the Contract. Golden American may, by agreement with the broker-
dealer, pay commissions as a combination of a certain percentage amount at the
time of sale and a trail commission (which when combined could exceed 7.75% of
premiums). In addition, under certain circumstances, Golden American may pay
certain sellers production bonuses which will take into account, among other
things, the total premium payments which have been made under the Contract
associated with the broker-dealer. Additional payments or allowances may be
made for other services not directly related to the sale of the Contract.
REGULATORY INFORMATION
VOTING RIGHTS
ACCOUNT B
We will vote the shares of a Trust owned by Account B according to your
instructions. However, if the Investment Company Act of 1940 or any related
regulations should change, or if interpretations of it or related regulations
should change, and we decide that we are permitted to vote the shares of a
Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a 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 a 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.
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 Contract offered by this prospectus has been
approved by the Insurance Department of the State of Delaware and by the
Insurance Department of New Hampshire and any other states in which it may be
offered. 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.
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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.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. The federal income tax treatment of the Contract is
unclear in certain circumstances, and a qualified tax adviser should always be
consulted with regard to the application of the tax law to individual
circumstances. This discussion is based on the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Department regulations, and interpretations
existing on the date of this prospectus. These authorities, however, are
subject to change by Congress, the Treasury Department, and judicial
decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the contract. In addition, GOLDEN AMERICAN MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
TAX STATUS OF GOLDEN AMERICAN
Golden American is taxed as a life insurance company under the Code. Since
the operations of Account B are a part of, and are taxed with, the operations
of Golden American, Account B is not separately taxed as a "regulated
investment company" under the Code. Under existing federal income tax laws,
investment income and capital gains of Account B are not taxed to Golden
American to the extent they are applied to increase reserves under a contract.
Since, under the Contracts, investment income and realized capital gains of
Account B attributable to Contract obligations are automatically applied to
increase reserves, Golden American does not anticipate that it will incur any
federal income tax liability in Account B attributable to Contract
obligations, and therefore Golden American does not intend to make provision
for any such taxes. If Golden American is taxed on investment income or
capital gains of Account B, then Golden American may impose a charge against
Account B, as appropriate, in order to make provision for such taxes.
TAXATION OF NON-QUALIFIED ANNUITIES
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in an owner's Accumulation Value is generally not taxable to the
owner until amounts are received from the Contract, either in the form of
annuity payments as contemplated by the Contract, or in some other form of
distribution. However, this rule allowing deferral applies only if (1) the
investments of Account B are "adequately diversified" in accordance with
Treasury Department regulations, (2) Golden American, rather than the owner,
is considered the owner of the assets of Account B 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. The Code and Treasury Department regulations
prescribe the manner in which the investments of a segregated asset ac count,
such as the Divisions of Account B, are to be "adequately diversified." If a
Division of Account B failed to comply with these diversification standards,
contracts based on that segregated asset account would not be treated as an
annuity contract for federal income tax purposes and the
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owner would generally be taxable currently on the income on the contract (as
defined in the tax law) beginning with the period of non-diversification.
Golden American expects that the Divisions of Account B will comply with the
diversification requirements prescribed by the Code and Treasury Department
regulations.
Ownership Treatment. In certain circumstances, variable annuity contract
owners may be considered the owners, for federal income tax purposes, of the
assets of a segregated asset account, such as the Divisions of Account B, 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 Internal Revenue Service (the "IRS") has stated in published
rulings that a variable contract owner will be considered the owner of the
assets of a 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 purchase payments and the Accumulation
Value, and may be able to transfer among investment options more frequently,
than in such rulings. These differences could result in the owner being
treated as the owner of all or a portion of the assets of Account B. 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. However, there is no assurance that such
efforts would be successful.
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,
that treatment might apply on a prospective basis. However, if the regulations
or ruling 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.
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) certain contracts issued in
connection with qualified retirement plans, (3) contracts purchased by
employers upon the termination of certain qualified retirement 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 (as defined in the tax law) 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.
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TAXATION OF PARTIAL WITHDRAWALS AND SURRENDERS
In the case of a partial withdrawal prior to the annuity commencement date,
amounts received generally are includible in income to the extent the owner's
cash value (determined without regard to any surrender charge, within the
meaning of the tax law) before the surrender exceeds his or her "investment in
the contract." In the case of a surrender of the Contract for the cash
surrender value, amounts received are includible in income to the extent they
exceed the "investment in the contract." For these purposes, the investment in
the Contract at any time equals the total of the premium payments made under
the Contract to that time (to the extent such payments were neither deductible
when made nor excludable from income as, for example, in the case of certain
contributions to IRAs and other qualified retirement plans) less any amounts
previously received from the Contract which were not includible in income.
In the case of systematic partial withdrawals, the amount of each withdrawal
will generally be taxed in the same manner as a partial withdrawal made 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.
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 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 for extended medical care or because of the owner's terminal
illness. Distributions made in respect of which surrender charges are waived
are treated as partial withdrawals or surrenders, as the case may be, for
income tax purposes.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary income is
equal to the excess of the payment over the exclusion amount. In the case of
fixed annuity payments, the exclusion amount is the amount determined by
multiplying (1) the fixed annuity payment by (2) the ratio of the "investment
in the contract" (defined above), adjusted for any period certain or refund
feature, allocated to the fixed annuity option to the total expected amount of
fixed annuity payments for the period of the Contract (determined under
Treasury Department regulations). In the case of variable annuity payments,
the exclusion amount for each variable annuity payment is a specified dollar
amount equal to the investment in the Contract allocated to the variable
annuity option when payments begin divided by the number of variable payments
expected to be made (determined by Treasury Department regulations).
Once the total amount of the investment in the Contract is excluded using
these formulas, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the Contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant or beneficiary (depending upon the
circumstances).
If any amount is constructively received, within the meaning of the tax law,
from a contract (which may occur when a death benefit becomes payable), such
amount will be treated as a partial withdrawal or surrender for federal income
tax purposes unless it is applied under an annuity option within 60 days after
the time when such amount was constructively received. In any event, however,
payments must comply with applicable Federal tax law distribution
requirements.
TAXATION OF DEATH BENEFIT PROCEEDS
Prior to the annuity commencement date, amounts may be distributed from a
contract because of the death of an owner or, in certain circumstances, the
death of the annuitant. Such death benefit proceeds are includible in income
as follows: (1) if distributed in a lump sum, they are taxed in the same
manner as a surrender, as
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described above, or (2) if distributed under an annuity option, they are taxed
in the same manner as annuity payments, as described above. After the annuity
commencement date, where a guaranteed period exists under an annuity option
and the annuitant dies before the end of that period, payments made to the
beneficiary for the remainder of that period are includible in income as
follows: (1) if received in a lump sum, they are includible in income to the
extent that they exceed the unrecovered investment in the contract at that
time, or (2) if distributed in accordance with the existing annuity option
selected, they are fully excludable from income until the remaining investment
in the contract is deemed to be recovered, and all annuity payments thereafter
are fully includible in income.
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of contracts issued as IRAs or in connection with
certain other qualified retirement plans (which generally cannot be assigned
or pledged), any assignment or pledge (or agreement to assign or pledge) of
any portion of the value of the contract is treated for federal income tax
purposes as a partial withdrawal of such amount or portion. The investment in
the Contract is increased by the amount includible as income with respect to
such assignment or pledge, though it is not affected by any other aspect of
the assignment or pledge (including its release). If an owner transfers a
contract without adequate consideration to a person other than the owner's
spouse (or to a former spouse incident to divorce), the owner will be taxed on
the difference between the cash surrender value (within the meaning of the tax
law) and the investment in the contract at the time of transfer. In such case,
the transferee's investment in the contract will be increased to reflect the
increase in the transferor's income.
SECTION 1035 EXCHANGES
Code section 1035 provides that no gain or loss is recognized when an
annuity contract is received in exchange for a life, endowment, or annuity
contract, provided that no cash or other property is received in the exchange
transaction. Special rules and procedures apply in order for an exchange to
meet the requirements of section 1035. Also, there are additional tax
considerations involved when the contracts are issued in connection with
qualified retirement plans. Prospective owners of this Contract should consult
a tax advisor before entering into a section 1035 exchange (with respect to
non-qualified annuity contracts) or a trustee-to-trustee transfer or rollover
(with respect to qualified annuity contracts).
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where a contract has not been issued as an IRA or in connection with another
qualified retirement plan, there generally is a 10% penalty tax on the taxable
amount of any payment from the contract unless the payment is: (a) received on
or after the owner reaches age 59 1/2; (b) attributable to the owner's
becoming disabled (as defined in the tax law); (c) made on or after the death
of the owner or, if the owner is not an individual, on or after the death of
the primary annuitant (as defined in the tax law); (d) made as a series of
substantially equal periodic payments (not less frequently than annually) for
the life (or life expectancy) of the owner or the joint lives (or joint life
expectancies) of the owner and a designated beneficiary (as defined in the tax
law), or (e) made under a contract purchased with a single purchase payment
when the annuity starting date (as defined in the tax law) 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 the case of systematic partial withdrawals, it is unclear whether such
withdrawals will qualify for exception (d) above. (For reporting purposes, we
currently treat such withdrawals as if they do not qualify for this
exception). In addition, if withdrawals are of interest amounts only,
exception (d) will not apply.
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity payment, withdrawal or
surrender from a contract that is includible in income is determined by
combining some or all of the annuity contracts owned by an individual not
issued in connection with qualified retirement plans. For example, if a person
purchases two or more deferred
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annuity contracts from the same insurance company (or its affiliates) during
any calendar year, all such contracts will be treated as one contract for
purposes of determining whether any payment not received as an annuity
(including withdrawals and surrenders prior to the annuity commencement date)
is includible in income. In addition, if a person purchases a Contract offered
by this prospectus and also purchases at approximately the same time an
immediate annuity, the IRS may treat the two contracts as one contract. The
effects of such aggregation are not clear, however, it could affect the time
when income is taxable and the amount which might be subject to the 10%
penalty tax described above.
IRA CONTRACTS AND OTHER QUALIFIED RETIREMENT PLANS IN GENERAL
In addition to issuing the Contracts as non-qualified annuities, Golden
American also currently issues the Contracts as IRAs. (As indicated above, in
this prospectus, IRAs are referred to as "qualified plans.") Golden American
may also issue the Contracts in connection with certain other types of
qualified retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the owners under IRAs and other qualified
retirement plans and to the contracts used in connection with such plans.
These tax rules vary according to the type of plan and the terms and
conditions of the plan itself. For example, for both surrenders and annuity
payments under certain contracts issued in connection with qualified
retirement plans, there may be no "investment in the contract" and the total
amount received may be taxable. Also, special rules apply to the time at which
distributions must commence and the form in which the distributions must be
paid. Therefore, no attempt is made to provide more than general information
about the use of contracts with the various types of qualified retirement
plans. A qualified tax advisor should be consulted before purchase of a
Contract in connection with a qualified retirement plan.
When issued in connection with a qualified retirement plan, a Contract will
be amended as necessary to conform to the requirements of the plan. However,
owners, annuitants, and beneficiaries are cautioned that the rights of any
person to any benefits under qualified retirement plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract. In addition, Golden American is not bound by terms
and conditions of qualified retirement plans to the extent such terms and
conditions contradict the Contract, unless Golden American consents.
INDIVIDUAL RETIREMENT ANNUITIES
As indicated above, Golden American currently issues the Contract as an IRA.
If the Contract is used for this purpose, the owner must be the annuitant.
Premium Payments. Both the premium payments that may be paid, and the tax
deduction that the owner may claim for such premium payments, are limited
under an IRA. In general, the premium payments that may be made for an IRA for
any year are limited to the lesser of $2,000 or 100% of the owner's earned
income for the year. Also, in the case of an individual who has a
noncompensated spouse, premium payments may be made into an IRA for the
benefit of the spouse. In such a case, however, the premium payments that may
be made for the spouse's IRA for any year are limited to the lesser of $2,000
or the excess of (1) $2,250 (or, if less, 100% of the individual's earned
income) over (2) the individual's premium payments for his or her own IRA. An
excise tax is imposed on IRA contributions that exceed the law's limits.
The deductible amount of the premium payments made for an IRA for any
taxable year (including a contract for a noncompensated spouse) is limited to
the amount of premium payments that may be paid for the contract for that
year, or a lesser amount where the individual or his or her spouse is an
active participant in certain qualified retirement plans. For a single person
who is an active participant in a qualified retirement plan (including a
qualified pension, profit-sharing, or annuity plan, a simplified employee
pension plan, or a "section 403(b)" annuity plan, as discussed below) and who
has adjusted gross income in excess of $35,000 may not deduct premium
payments, and such a person with adjusted gross income between $25,000 and
$35,000 may deduct only a portion of such payments. Also, married persons who
file a joint return, one of whom is an active
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participant in a qualified retirement plan, and who have adjusted gross income
in excess of $50,000 may not deduct premium payments, and those with adjusted
gross in come between $40,000 and $50,000 may deduct only a portion of such
payments. Married persons filing separately may not deduct premium payments if
either the taxpayer or the taxpayer's spouse is an active participant in a
qualified retirement plan.
In applying these and other rules applicable to an IRA, all individual
retirement accounts and IRAs owned by an individual are treated as one
contract, and all amounts distributed during any taxable year are treated as
one distribution.
Tax Deferral During Accumulation Period. Until distributions are made from
an IRA, increases in the Accumulation Value of the contract are not taxed.
IRAs and individual retirement accounts (that may invest in this contract)
generally may not invest in life insurance contracts, but an annuity contract
that is issued as an IRA (or that is purchased by an individual retirement
account) may provide a death benefit that equals the greater of the premiums
paid and the contract's cash value. The Contract provides a death benefit that
in certain circumstances may exceed the greater of the premium payments and
the Accumulation Value. The IRS has approved the use of the Contract, as to
form, as an IRA.
Taxation of Distributions and Rollovers. If all premium payments made to an
IRA 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 an IRA (within the limits allowed by the tax laws), a
portion of each distribution from the Contract typically is includible 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 surrender is taxed as described
above in connection with such a distribution from a non qualified contract,
treating as the investment in the contract the sum of the nondeductible
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 withdrawal 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 Accumulation Value.
In any event, subject to the direct rollover and mandatory withholding
requirements (discussed below), amounts may be "rolled over" from certain
qualified retirement plans to an IRA (or from one IRA or individual retirement
account to an IRA) without incurring current income tax if certain conditions
are met. Only certain types of distributions to eligible individuals from
qualified retirement plans, individual retirement accounts, and IRAs may be
rolled over.
Penalty Taxes. Subject to certain exceptions, a penalty tax is imposed on
distributions from an IRA equal to 10% of the amount of the distribution
includible in income. (Amounts rolled over from an IRA generally are
excludable from income.) The exceptions provide, however, that this penalty
tax does not apply to distributions made to the owner (1) on or after age 59
1/2, (2) on or after death or because of disability (as defined in the tax
law), or (3) as part of a series of substantially equal periodic payments over
the life (or life expectancy) of the owner or the joint lives (or joint life
expectancies) of the owner and his or her beneficiary (as defined in the tax
law). In addition to the foregoing, failure to comply with a minimum
distribution requirement will result in the imposition of a penalty tax of 50%
of the amount by which a minimum required distribution exceeds the actual
distribution from an IRA. Under this requirement, distributions of minimum
amounts from an IRA as specified in the tax law must generally commence by
April 1 of the calendar year following the calendar year in which the owner
attains age 70 1/2.
OTHER TYPES OF QUALIFIED RETIREMENT PLANS
The following sections describe tax considerations of contracts used in
connection with various types of qualified retirement plans other than IRAs.
Golden American does not currently offer all of the types of qualified
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retirement plans described and may not offer them in the future. Prospective
purchasers of contracts for use in connection with such qualified retirement
plans should therefore contact Golden American's Customer Service Center to
ascertain the availability of the Contract for qualified retirement plans at
any given time.
Simple Incentive Match Plans for Employees of Small Employers
(Simple). Section 408(p) of the Code allows employers to establish Simple
retirement account plans for its employees. The Code permits establishment of
a plan under which employees may make contributions pursuant to salary
reduction agreements, subject to limits as to amount. These plans may be
adopted by employers with no more than 100 employees, if the employer has no
other pension plan. Contributions to the plan by the employer on behalf of the
employees match a percentage of the employees' contributions, subject to
certain prescribed limits. Accounts established for the employees are IRAs
with certain added restrictions on premature distributions and contributions.
Employers intending to use the contract in connection with such plans should
seek competent advice.
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code allows
employers to establish simplified employee pension plans for their employees,
using the employees' IRAs for such purposes, if certain criteria are met.
Under these plans the employer may, within specified limits, make deductible
contributions on behalf of the employees to IRAs. Employers in tending to use
the contract in connection with such plans should seek competent advice.
Corporate and Self-Employed ("H.R. 10" or "Keogh") Pension and Profit-
Sharing Plans. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. 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 such death
benefit could be characterized as an incidental death benefit. There are
limitations on the amount of incidental benefits that may be provided under
pension and profit sharing plans. In addition, the provision of such benefits
may result in currently taxable income to participants. Employers intending to
use the contract in connection with such plans should seek competent advice.
Section 403(b) Annuity Contracts. Section 403(b) of the Code permits public
school employees, employees of certain types of charitable, educational and
scientific organizations exempt from tax under section 501(c)(3) of the Code,
and employees of certain types of State educational organizations specified in
section 170(b)(l)(A)(ii), to have their employers purchase annuity contracts
for them and, subject to certain limitations, to exclude the amount of premium
payments from gross income for federal income tax purposes. Purchasers of the
contracts for use as a "Section 403(b) Annuity Contract" should seek competent
advice as to eligibility, limitations on permissible amounts of premium
payments and other tax consequences associated with such contacts. In
particular, purchasers and their advisors should consider that this 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 such
death benefit could be characterized as an incidental death benefit. If the
death benefit were so characterized, this could result in currently taxable
income to purchasers. In addition, there are limitations on the amount of
incidental death benefits that may be provided under a Section 403(b) Annuity
Contract. Even if the death benefit under the contract were characterized as
an incidental death benefit, it is unlikely to violate those limits unless the
purchaser also purchases a life insurance contract as part of his or her
Section 403(b) Annuity Contract.
Section 403(b) Annuity Contracts contain restrictions on withdrawals of (i)
contributions made pursuant to a salary reduction agreement in years beginning
after December 31, 1988, (ii) earnings on those contributions, and (iii)
earnings after 1988 on amounts attributable to salary reduction contributions
(and earnings on those contributions) held as of the last year beginning
before January 1, 1989. These amounts can be paid only if the employee has
reached age 59 1/2, separated from service, died, become disabled (within the
meaning of the tax law), or in the case of hardship. Amounts permitted to be
distributed in the event of hardship are limited to actual
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contributions; earnings thereon cannot be distributed on account of hardship.
(These limitations on withdrawals do not apply to the extent Golden American
is directed to transfer some or all of the Accumulation Value as a tax-free
direct transfer to the issuer of another Section 403(b) Annuity Contract or
into a section 403(b)(7) custodial account subject to withdrawal restrictions
which are at least as stringent.)
Eligible Deferred Compensation Plans of State and Local Governments and Tax-
Exempt Organizations. Section 457 of the Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current federal income taxes. The employees must
be participants in an eligible deferred compensation plan. To the extent the
contract is used in connection with an eligible plan, the employer as owner of
the contract has the sole right to the proceeds of the contract, until paid or
made available to the participant or other recipient, subject only to the
claims of the employer's general creditors. Generally, a contract purchased by
a state or local government or a tax-exempt organization will not be treated
as an annuity contract for federal income tax purposes. Those who intend to
use the contracts in connection with such plans should seek competent advice.
SIMPLE SAVINGS PLANS
Contracts funding Simple plans are subject to the same general rules as
IRAs, however, there are several unique differences relating to contribution
limits, employers contributions and premature distributions. In addition,
because this is an employer sponsored plan, certain Simple plan requirements
are applicable to the employer and not the individual taxpayer.
Plan Requirements. Only employers with no more than 100 eligible employees
may adopt a Simple plan. Eligible employees are those who have had at least
$5,000 of compensation in the preceding year. The employer may not be a plan
sponsor of any other qualified plan.
Employer Contributions. The employer may elect to make non-elective 2%
contributions for each employee or may elect a matching contribution from 1 to
3% varying each year, subject to certain restrictions. All employer
contributions are immediately fully vested to the employee when made.
Employee Contributions. Employee contributions of up to $6,000 of
compensation may be made by eligible employees. All employee contributions
must be made by a salary reduction arrangement with their employer. Employee
contributions may be for any percent of compensation.
Distributions. Distributions from a Simple retirement account by an employee
are subject to the same rules as IRAs and the following additional rule. Any
amount received from a Simple retirement account during the two year period an
employee first participated in any qualified salary reduction arrangement is
subject to a penalty equal to 25% of the amount of the distribution in
addition to being fully taxable.
DIRECT ROLLOVERS AND FEDERAL INCOME TAX WITHHOLDING FOR "ELIGIBLE ROLLOVER
DISTRIBUTIONS"
In the case of an annuity contract used in connection with a pension, profit
sharing, or annuity plan qualified under sections 401(a) or 403(a) of the
Code, or that is a Section 403(b) Annuity Contract, any "eligible rollover
distribution" from the contract will be subject to direct rollover and
mandatory withholding requirements. An eligible rollover distribution
generally is the taxable portion of any distribution from a qualified pension
plan under section 401(a) of the Code, qualified annuity plan under Section
403(a) of the Code, or Section 403(b) Annuity or custodial account, excluding
certain amounts (such as minimum distributions required under section
401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made for the life (or life expectancy)
of the employee, or for the joint lives (or joint life expectancies) of the
employee and the employee's designated beneficiary (within the meaning of the
tax law), or for a specified period of 10 years or more).
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Under these new requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the taxpayer cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding
will not apply to that portion of the eligible rollover distribution which,
instead of receiving, the taxpayer elects to have directly transferred to
certain eligible retirement plans (such as to this contract when issued as an
IRA).
If this contract is issued in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
Section 403(b) Annuity Contract, then, prior to receiving an eligible rollover
distribution, the owner will receive a notice (from the plan administrator or
Golden American) explaining generally the direct rollover and mandatory
withholding requirements and how to avoid the 20% withholding by electing a
direct transfer.
FEDERAL INCOME TAX WITHHOLDING
Golden American will withhold and remit to the federal government a part of
the taxable portion of each distribution made under the Contract unless the
distributee notifies Golden American at or before the time of the distribution
that he or she elects not to have any amounts withheld. In certain
circumstances, Golden American may be required to withhold tax, as explained
above. The withholding rates applicable to the taxable portion of periodic
annuity payments (other than eligible rollover distributions) 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%.
Regardless of whether you elect to have federal income tax withheld, you are
still liable for payment of federal income tax on the taxable portion of the
payment. As discussed above, the withholding rate applicable to eligible
rollover distributions is 20%.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION
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............................................ 7
Other Information........................................................ 8
Financial Statements of Separate Account B............................... 8
Financial Statements of The Managed Global Account of Separate Account D
........................................................................ 8
Financial Statements of Golden American Life Insurance Company........... 8
Appendix--Description of Bond Ratings.................................... A-1
</TABLE>
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PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE
STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE
PROSPECTUS. ADDRESS THE FORM TO OUR CUSTOMER SERVICE CENTER, THE ADDRESS IS
SHOWN ON THE COVER.
- ------------------------------------------------------------------------------
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B
PLEASE PRINT OR TYPE
-------------------------------
NAME
-------------------------------
SOCIAL SECURITY NUMBER
-------------------------------
STREET ADDRESS
-------------------------------
CITY, STATE, ZIP
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in
Wilmington, Delaware
