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PROSPECTUS SUPPLEMENT
DATED JANUARY 2, 1996 TO EACH OF THE FOLLOWING:
Prospectus dated July 14, 1995,
as previously supplemented, for
FLEXIBLE PREMIUM LIFE INSURANCE POLICIES issued
by Golden American Life Insurance Company
Prospectuses dated May 1, 1991,
May 1, 1990, or September 29, 1989,
each as previously supplemented, for
FLEXIBLE PREMIUM LIFE INSURANCE POLICIES issued
by Golden American Life Insurance Company
(Collectively, the "Prospectuses")
--------
THIS SUPPLEMENT SHOULD BE RETAINED WITH YOUR PROSPECTUS.
Two Divisions have been added to invest in the Small Cap Series and the
Strategic Equity Series (together, the "Series") of The GCG Trust (the
"Trust"). The Series are newly created portfolios managed by Fred Alger
Management, Inc. and Zweig Advisors Inc., respectively. The Trust Annual
Expenses attributable to each Series are 1.00% of net assets. This expense
is the same as that charged in connection with the Multiple Allocation, Fully
Managed, Capital Appreciation, Rising dividends, All-Growth, Real Estate,
Natural Resources, and Value Equity Series.
In addition, information in the Prospectuses relating to the various series of
the Trust in which the Divisions invest is amended by the additions set forth
below.
SMALL CAP DIVISION
SMALL CAP SERIES
OBJECTIVE
Long term capital appreciation.
INVESTMENTS
Investment primarily in equity securities of companies that, at the time of
purchase, have a total market capitalization -- present market value per
share multiplied by the total number of shares outstanding -- of less than
$1 billion.
PORTFOLIO MANAGER
Fred Alger Management, Inc.
STRATEGIC EQUITY DIVISION
STRATEGIC EQUITY SERIES
OBJECTIVE
Long term capital appreciation.
INVESTMENTS
Investment primarily in equity securities based on various equity market
timing techniques. The amount of the Series' assets allocated to equities
shall vary from time to time to seek positive investment performance from
advancing equity markets and to reduce exposures to equities when risk/
reward characteristics are believed to be less attractive.
PORTFOLIO MANAGER
Zweig Advisors Inc.
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY DOMICILED IN
WILMINGTON, DELAWARE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE PROSPECTUS
GOLDENSELECT GENESIS I AND GOLDENSELECT GENESIS FLEX
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This prospectus is for individual and group flexible premium variable life
insurance policies offered by Golden American Life Insurance Company ("Golden
American," "We," "Our" or "Us"). Both the individual policy and the group policy
and any certificates issued thereunder (collectively the "Policies" and
separately the "Policy") permit the Policyowner ("You" or "Your") to make
additional premium payments, to take policy loans and partial withdrawals
subject to certain restrictions, and under certain circumstances, to change the
death benefit option and to change the Face Amount.
Premiums are allocated among the divisions of Separate Account A ("Account A")
and, if available, the Fixed Interest Division (the "Fixed Account", and
together with Account A the "Accounts"). The investments available through the
divisions of Account A include mutual fund portfolios (the "Series") of The GCG
Trust (the "Trust"). Each premium is allocated according to Your instructions,
subject to any restrictions for the initial premium during the Free Look Period.
After the Free Look Period, You may change the allocation of Your Investment
Value.
The Policy can be purchased on a single life basis or a joint and last survivor
("survivorship") basis. The Policy provides life insurance coverage on the
Insured(s). While the Policy is in force, the death benefit may vary to reflect
the Policy's investment results but will never be less than the Face Amount. The
death benefit is payable upon the death of the Insured if purchased on a single
life basis and the last surviving Insured if purchased on a survivorship basis.
We guarantee that the coverage will remain in force during the lifetime of the
Insured(s) (but in no event beyond the Maturity Date) for a period called the
Guarantee Period. During the Guarantee Period We may terminate the Policy only
if there is Debt and the Cash Surrender Value is negative. After the Guarantee
Period the Policy will remain in force as long as the Cash Surrender Value is
sufficient to cover the charges due.
The Genesis Flex Policy is designed to comply with the Life Insurance Premium
Payment Test under Federal tax law. As a result, any loans received under a
Genesis Flex Policy should not be taxable to You. The Genesis I Policy will not
comply with the Life Insurance Premium Payment Test and thus will be a "modified
endowment contract" under Federal tax law. Loans, partial withdrawals and
surrenders under a Genesis I Policy may be taxable in whole or in part and may
also be subject to a 10% penalty tax.
For more information on both types of policies, see Federal Income Tax
Considerations, Modified Endowment Contracts.
You may turn in the Policy for its Cash Surrender Value at any time while the
Policy is in force. The Cash Surrender Value will vary with the investment
results of the divisions of Account A in which you are invested and interest
credited with respect to allocations to the Fixed Account. With respect to
premiums allocated to Account A, We do not guarantee any minimum Cash Surrender
Value.
Within certain limits, You may return the Policy for a refund. It may not be
advantageous to replace existing insurance with the Policy.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
POLICIES AND UNDERLYING SERIES SHARES WHICH FUND THE POLICIES ARE NOT INSURED BY
THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY
BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE GCG TRUST. THE FIXED
ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES. YOU MAY CONTACT OUR CUSTOMER SERVICE
CENTER TO FIND OUT ABOUT STATE AVAILABILITY.
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ISSUED BY: DISTRIBUTED BY: ADMINISTERED AT:
Golden American Life Directed Services, Inc. Customer Service Center
Insurance Company New York, New York 10017 Mailing Address: P.O. Box 8794
Wilmington, DE 19899-8794
1-800-366-0066
</TABLE>
PROSPECTUS DATE: JANUARY 2, 1996
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TABLE OF CONTENTS
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IMPORTANT TERMS...................................... 3
SUMMARY OF THE POLICY................................ 5
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED
ACCOUNT
Golden American.................................... 9
Account A.......................................... 9
Account A Divisions................................ 9
Changes Within Account A........................... 12
The Fixed Account.................................. 12
FACTS ABOUT THE POLICY
Who May be Covered by a Policy..................... 13
Death Benefit Options.............................. 13
Premium Payments................................... 13
Making Additional Premium Payments................. 14
Allocation of Premium Payments..................... 15
Your Right to Reallocate........................... 15
Transfers from the Fixed Account................... 15
Dollar Cost Averaging.............................. 15
What Happens if a Division is not Available........ 16
Your Investment Value.............................. 16
Investment Value in Each Division of Account A..... 16
Tabular Value...................................... 17
Measurement of Investment Experience............... 17
CHARGES AND DEDUCTIONS
Deductions for Deferred Loading.................... 17
Deductions for Insurance Based Charges............. 18
Deductions for Transaction and Other Charges....... 19
Deductions from Divisions of Account A............. 20
Trust Expenses..................................... 20
YOUR POLICY'S BENEFITS
Your Policy's Cash Surrender Value................. 20
Policy Loans....................................... 20
Taking Partial Withdrawals......................... 21
Your Right to Cancel or Exchange Your Policy....... 23
INSURANCE BENEFITS
Death Benefit Proceeds............................. 23
Variable Insurance Amount.......................... 24
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Net Single Premium Factor.......................... 24
Changes in Face Amount............................. 25
Guarantee Period................................... 25
Changing the Death Benefit Option.................. 25
When Your Guarantee Period Ends Before the Maturity
Date.............................................. 26
Policy Guarantees.................................. 26
CHOOSING AN INCOME PLAN
Payment When Named Person Dies..................... 27
OTHER IMPORTANT INFORMATION
Other General Policy Provisions.................... 27
Your Voting Privileges............................. 29
Sales and Other Agreements......................... 30
Servicing Agent.................................... 30
Group or Sponsored Arrangements.................... 30
State Regulation................................... 31
Registration Statement............................. 31
Legal Considerations for Employers................. 31
Legal Proceedings.................................. 31
Legal Matters...................................... 31
Experts............................................ 31
Reinsurance........................................ 31
Additional Information............................. 31
MANAGEMENT........................................... 32
FEDERAL INCOME TAX CONSIDERATIONS
Golden American -- Tax Status...................... 32
Deferred Acquisition Costs......................... 33
Death Benefits..................................... 33
Survivorship Policies and Policies Issued to
Individuals with Substandard
Mortality Risks................................... 33
Surrender.......................................... 33
Partial Withdrawals................................ 33
Loans.............................................. 34
Change of Ownership or Assignment.................. 34
Modified Endowment Contracts....................... 34
Code Section 1035 Exchanges........................ 35
Diversification Standards.......................... 35
Ownership Treatment................................ 36
ILLUSTRATIONS........................................ 36
FINANCIAL STATEMENTS................................. 41
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
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IMPORTANT TERMS
ACCOUNT A
Refers to Separate Account A, a separate investment account.
ATTAINED AGE
For each Insured, the Issue Age plus the number of full years elapsed since the
Policy Date.
CASH SURRENDER VALUE
The Investment Value, less any unrecovered deferred charges, plus any accrued
general account loan interest credit, less any policy charges incurred but not
yet deducted.
CUSTOMER SERVICE CENTER
The facility where We provide service to Policyowners. The address is shown on
the cover.
DEBT
Any loan plus accrued interest.
FACE AMOUNT
The portion of the death benefit that will not vary with investment performance.
FREE LOOK PERIOD
The period of time within which a Policyowner may examine a Policy and return it
for a refund.
GUARANTEE PERIOD
The time during which We guarantee that the coverage under the Policy will
remain in force regardless of investment experience unless there is Debt and the
Cash Surrender Value is negative. Additional payments may increase Your
Guarantee Period while partial withdrawals may reduce it. A change in the death
benefit option may also result in an increase or decrease in the Guarantee
Period.
INSURED
A person who has become insured under the Policy.
INVESTMENT DATE
The date the initial premium is received and the date from which We begin
measuring investment experience. It may or may not be the same as the Policy
Date.
INVESTMENT RESULTS
The investment performance of the divisions of Account A and interest credited
to the Fixed Account.
INVESTMENT VALUE
The sum of the amounts under Your Policy invested in each division of Account A
and in the Fixed Account.
ISSUE AGE
An Insured's age on his or her birthday nearest the Policy Date.
ISSUE DATE
The date the insurance under the Policy become effective. The contestable and
suicide periods are measured from this date. Under group certificates this is
called the Coverage Date.
JOINT INSURED
The person named as such in the application or enrollment form.
LIFE INSURANCE PREMIUM PAYMENT TEST
This test, also referred to as the "seven-pay test" under Federal income tax
law, provides that cumulative premiums paid under a policy at any time during
the policy's first seven years cannot exceed certain guidelines. See Federal
Income Tax Considerations, Modified Endowment Contracts.
MATURITY DATE
The Policy Anniversary nearest the 100th birthday of the Insured under a single
life policy or the younger Insured under a survivorship policy. On this date
coverage under the Policy terminates and the Cash Surrender Value is payable to
the Policyowner.
NET AMOUNT AT RISK
The difference, as of the beginning of the Processing Period, between (i) the
death benefit, and (ii) Cash Surrender Value plus Debt, both adjusted for
interest at an annual rate of 4%.
NET RATE OF RETURN
The investment performance for a division of Account A during a Valuation
Period.
NET SINGLE PREMIUM FACTOR
A factor based on the age, sex and underwriting class of the Insured(s). We use
the Net Single Premium Factor to calculate the Variable Insurance Amount, which
provides an amount sufficient to insure that the Policies qualify as life
insurance under Federal income tax laws.
OPTION I DEATH BENEFIT
The greater of the Face Amount and the Variable Insurance Amount.
OPTION II DEATH BENEFIT
The greater of (i) the Face Amount plus the Option II Death Benefit Adjustment
and (ii) the Variable Insurance Amount.
3
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IMPORTANT TERMS (CONTINUED)
OPTION II DEATH BENEFIT ADJUSTMENT
The greater of (i) the Option II Guaranteed Death Benefit and (ii) the
Investment Value plus Debt.
OPTION II GUARANTEED DEATH BENEFIT
The Option II Guaranteed Death Benefit is subject to a maximum of two times the
sum of each premium paid less any partial withdrawals associated with each
premium. After the Guarantee Period, the Option II Guaranteed Death Benefit is
zero.
POLICY ANNIVERSARY
The anniversary of the Policy Date.
POLICY DATE
The date used to determine Processing Dates, Policy Years and Policy
Anniversaries. It may or may not be the same as the Issue Date. The Policy Date
will usually be the date Our Customer Service Center receives the initial
premium.
POLICYOWNER
The person or entity who owns a Policy and is entitled to exercise all rights
under the Policy.
POLICY YEAR
The period between each Policy Anniversary.
PROCESSING DATES
The dates on which We deduct charges from the Investment Value. These dates
occur quarterly. The first processing date is one quarter after the Policy Date.
PROCESSING PERIOD
The period between consecutive Processing Dates. The first Processing Period
begins on the Policy Date.
SPECIALLY DESIGNATED DIVISION
The Liquid Asset Division. We allocate distributions from a portfolio underlying
a division of Account A in which reinvestment is not available to the Liquid
Asset Division.
TABULAR NET AMOUNT AT RISK
The difference, as of the beginning of the Processing Period, between (i) the
death benefit, and (ii) the Tabular Value, adjusted for interest. The
calculation does not reflect loans.
TABULAR VALUE
The amount We calculate to determine the length of the Guarantee Period, as well
as to limit the mortality cost deduction and Our right to cancel Your Policy
during the Guarantee Period. Under the Option II Death Benefit, the Tabular
Value will be substituted for the Option II Death Benefit Adjustment in
determining the death benefit in the calculation designed to limit the mortality
cost.
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. A business day
is any day that the New York Stock Exchange (NYSE) is open for trading, or any
day on which the SEC requires that mutual funds, unit investment trusts or other
investment portfolios be valued.
VARIABLE INSURANCE AMOUNT
The Investment Value plus any Debt multiplied by the Net Single Premium Factor.
4
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SUMMARY OF THE POLICY
THIS SUMMARY IS INTENDED TO PROVIDE ONLY A BRIEF OVERVIEW OF THE MORE
SIGNIFICANT ASPECTS OF THE POLICY. FURTHER DETAIL IS PROVIDED IN THIS PROSPECTUS
AND IN THE POLICY. THE POLICY, TOGETHER WITH ITS ATTACHED APPLICATION OR
ENROLLMENT FORM AND ANY ENDORSEMENTS AND OPTIONAL BENEFIT RIDERS, CONSTITUTES
THE ENTIRE AGREEMENT BETWEEN YOU AND US AND SHOULD BE RETAINED.
PURPOSES OF THE POLICIES
These are flexible premium variable life insurance policies offering a choice of
investments and an opportunity for the Investment Value, Cash Surrender Value
and death benefit to grow based on Investment Results.
We do not promise that the value of your Policy will increase. Depending on the
Policy's Investment Results, the Investment Value, Cash Surrender Value and
death benefit may increase or decrease on any day. You bear the investment risk.
We do guarantee to keep the Policy in force during the Guarantee Period so long
as there is no Debt. If there is Debt, the Policy will remain in force provided
that the Cash Surrender Value is zero or positive. The Policy will lapse after
the Guarantee Period if the Cash Surrender Value falls below zero. See Insurance
Benefits, When Your Guarantee Period Ends Before the Maturity Date.
Life insurance is not a short-term investment. The Policyowner should evaluate
the need for insurance and the Policy's long-term investment potential before
purchasing a Policy.
AVAILABILITY
We can issue a single life policy for an Insured age 75 or under, or a
survivorship policy, if both Insureds are age 75 or under. Under survivorship
policies, at least one Insured must be age 20 or older. We will take under
consideration applications for Insured(s) up to age 80.
The minimum Genesis I premium is $25,000 ($15,000 if under a 1035 exchange, see
Federal Income Tax Considerations, Code Section 1035 Exchanges). The minimum
planned annual premium under Genesis Flex will be no more than $5,000.
PLANNED PREMIUMS (GENESIS FLEX ONLY)
Premium payments can be made on a planned basis during the first 10 Policy Years
following issue of the Policy or an increase in Face Amount, subject to the
above minimum planned annual premium requirements. Subject to Our rules, planned
premiums may be available for periods other than 10 years and may be payable on
a basis other than annual.
UNPLANNED PREMIUMS
Additional premium payments may be made on an unplanned basis provided the
Insured is age 80 or under. Under survivorship policies, both Insureds must be
alive and also age 80 or under. The minimum unplanned premium is $5,000 under a
Genesis I Policy and $500 under a Genesis Flex Policy. We may also require
evidence of insurability for unplanned premiums. See Facts About The Policy,
Premium Payments and Making Additional Premium Payments.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, We may reduce the minimum premium
requirements. See Other Important Information, Group or Sponsored Arrangements.
We may also reduce the charges in a Policy where the initial or total premium
payments exceed Our published rules. However, any reductions in Policy charges
will reflect difference in costs or services and will not discriminate unfairly
against any person.
LIFE INSURANCE PREMIUM PAYMENT TEST (GENESIS FLEX)
Genesis Flex is designed to comply with the Life Insurance Premium Payment Test.
As such, certain distributions under a policy, such as loans, receive favorable
tax treatment afforded life insurance policies under Federal tax law.
MODIFIED ENDOWMENT CONTRACTS (GENESIS I)
Genesis I is generally a "modified endowment contract". As such, the amount of
certain distributions made during the Insured's lifetime, such as policy loans,
partial withdrawals or surrenders, will be includible in Your gross income to
the extent of any income in the Policy. A 10% penalty tax may also be imposed on
income if distributed before You attain age 59 1/2.
For more information on "modified endowment contracts," and the Life Insurance
Premium Payment Test, see Federal Income Tax Considerations, Modified Endowment
Contracts.
THE DEATH BENEFIT OPTIONS
All Policies are purchased with the Option I Death Benefit in effect. After the
first Policy anniversary, while the Insured(s) is living and the Policy is in
effect, You may be able to change the Death Benefit Option under the Policy.
Thereafter, subject to Our rules, You may change, no more frequently than once
every three Policy Years, between the two death benefit options (see below).
Currently the Option II Death Benefit is only available for Genesis I.
5
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SUMMARY OF THE POLICY (CONTINUED)
OPTION I DEATH BENEFIT
The Option I Death Benefit provides a death benefit that is the greater of (i)
the Face Amount and (ii) the Variable Insurance Amount.
OPTION II DEATH BENEFIT
The Option II Death Benefit provides a death benefit that is greater of (i) the
Face Amount plus the Option II Death Benefit Adjustment and (ii) the Variable
Insurance Amount.
CHANGES IN DEATH BENEFIT OPTION
We must receive written notice of any change in death benefit option in a form
satisfactory to Us. Any change in death benefit option will take effect on the
Processing Date on or next following the date We approve the change. We limit
the number of death benefit option changes You can make. See Insurance Benefits,
Changing the Death Benefit Option.
For more information on death benefit options, See Facts About the Policy, Death
Benefit Options.
CHANGING THE FACE AMOUNT
After the first Policy Anniversary, You may request an increase or decrease in
Face Amount. Any increase in Face Amount will be subject to evidence of
insurability satisfactory to Us. See Insurance Benefits, Changes in Face Amount.
PERIOD OF COVERAGE
Your Policy will remain in force during the Guarantee Period, regardless of
investment experience. However, if there is Debt and the Cash Surrender Value is
negative, We can terminate the Policy. After the Guarantee Period, Your Policy
will remain in force as long as there is sufficient Cash Surrender Value to
cover the charges due. See Insurance Benefits, Guarantee Period. Under the
Genesis I Policy, We may limit the Guarantee Period to a specified number of
years under group or sponsored arrangements. See Other Important Information,
Group or Sponsored Arrangements.
HOW THE DEATH BENEFIT VARIES
The death benefit may increase or decrease on any day depending on Your Policy's
Investment Results but will never be less than the Face Amount. See Insurance
Benefits, Death Benefit Proceeds.
THE DIVISIONS
There are eleven divisions in Account A offered under this prospectus. You may
invest Your Investment Value in up to eleven of these divisions at any time,
subject to any restrictions. You may also change Your Investment Value
allocation. The divisions of Account A invest in shares of the Series of the
Trust, at their net asset value. Each Series has a different investment
objective. See Facts About Golden American Account A Divisions.
THE FIXED ACCOUNT
In addition to the divisions of Account A described above, you may also allocate
Your Investment Value to the Fixed Account. Premium payments may be allocated to
the Fixed Account to the extent elected by you at the time of the initial
premium payment or as subsequently elected. We will periodically determine and
credit a rate of interest (the "Guaranteed Interest Rate") for at least a one
year period from the date of the allocation to the Fixed Account. This rate will
be no less than 4% annually and will expire on the last day of the calendar
month one year after the allocation to the Fixed Account was made (the "Expiry
Date"). The Fixed Account may not be available in Your state. See Facts About
Golden American, Account A and The Fixed Account.
HOW THE INVESTMENT VALUE VARIES
Your Policy's Investment Value varies each day based on its Investment Results.
You bear the risk of poor investment performance and You receive the benefits
from favorable investment performance. See Facts About the Policy, Your
Investment Value.
CASH SURRENDER VALUE
You may surrender the policy and receive its cash surrender value at any time.
See Your Policy's Benefits, Your Policy's Cash Surrender Value.
PREMIUM PAYMENT ALLOCATION
We allocate Your initial premium to the Liquid Asset Division prior to the end
of the Free Look Period. After the Free Look Period, We allocate Your Investment
Value to the divisions of Account A you specify. However, if we receive written
instructions with your initial premium to allocate all or a portion of such
premium to the Fixed Account, we will do so even prior to the end of the Free
Look Period. See Facts About the Policy, Allocation of Premium Payments.
CHARGES DEDUCTED FROM YOUR
INVESTMENT VALUE
We periodically deduct charges from Your Investment Value. We deduct any
deferred or incurred charges upon surrender. See Charges and Deductions. We also
accelerate recovery of any deferred loading for excess partial withdrawals. See
Your Policy's Benefits, Taking Partial Withdrawals. We may reduce certain
charges under group or sponsored arrangements. See Other Important Information,
Group or Sponsored
6
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SUMMARY OF THE POLICY (CONTINUED)
Arrangements. We may also reduce certain charges for Policies purchased in
combination with certain annuity products that We offer. The charges We deduct
are:
DEFERRED LOADING
RECOVERY OF DEFERRED LOADING. We deduct a sales load equal to 6.0% of each
premium. This sales load is deducted in equal installments over a six-year
period (a deduction of 1.0% of premium per year).
INSURANCE BASED CHARGES
TAXES
PREMIUM TAXES. Your premium incurs a charge for premium or other state and
local taxes when it is received. For Genesis I Policies We deduct a premium tax
charge equal to 2.40% of premium. This premium tax charge is designed to
approximate the average premium tax that We expect to pay. Currently, the
premium tax charge is deferred and will be deducted in equal annual installments
over a six year period (a deduction of 0.40% per year). For Genesis Flex
Policies, the amounts We deduct depend on the Insured's state of residence.
These charges are expressed as a percentage of premium and can range from 2.0%
to 4.0%. See Deductions for Insurance Based Charges, Taxes, PREMIUM TAXES.
CORPORATE TAX CHARGE. We reserve the right to deduct a corporate tax charge
equal to 1.38% of each premium payment. When assessed, the charge will be
deducted in equal installments over a six year period from the date we receive
and accept each premium payment.
ISSUE CHARGES
PER POLICY CHARGE. We charge $200 for Policies written on a single life basis
and $300 for Policies written on a survivorship basis. This charge is currently
waived for the Genesis I Policy.
DEFERRED FACE AMOUNT CHARGE. We charge an amount per $1,000 of initial Face
Amount and any increases in Face Amount deducted in equal installments over a
six year period following receipt of the initial premium or increase in face
amount. This charge will vary based on the age and sex of the Insured (the
younger Insured for survivorship policies) and the Policy chosen and will never
exceed a maximum of $12 per $1,000 of Face Amount. A portion of this charge will
be considered to be an additional sales load.
MORTALITY CHARGES
MORTALITY COST. We deduct an amount per $1,000 of Net Amount at Risk. The
amount is based on each Insured's sex, Attained Age and underwriting class.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE. We deduct an amount per $1,000 of
Tabular Net Amount at Risk. The amount is based on the Attained Age of the
Insured (the younger Insured for survivorship policies). The charge will never
exceed $0.15 per $1,000 of Face Amount per quarter.
TRANSACTION AND OTHER CHARGES
ANNUAL ADMINISTRATIVE CHARGE
Currently We impose an annual administrative charge of $40. We guarantee the
charge will never exceed $80 per Policy Year. If total premiums paid equal
$100,000 or more, or if the Investment Value is at least $100,000 at the time
the charge is due, the charge will be zero.
LOAN INTEREST CHARGE
On each Policy Anniversary, We calculate the loan interest charge and deduct
it from the Investment Value. This charge is 5.0% annually (accrued daily) of
the outstanding loans.
EXCESS ALLOCATION CHARGE
We currently allow unlimited allocation changes without charge but reserve the
right to charge $25 for each allocation change in excess of twelve in a Policy
Year. We also reserve the right to limit allocation changes.
PARTIAL WITHDRAWAL CHARGE
If You take more than four partial withdrawals per Policy Year, We currently
do not intend but reserve the right to impose a charge of the lesser of $25
and 2.0% of the amount withdrawn for each additional partial withdrawal.
DEDUCTIONS FROM DIVISIONS OF ACCOUNT A
ASSET BASED CHARGES
MORTALITY AND EXPENSE RISK CHARGE
We deduct from each division of Account A, a daily asset based charge equivalent
to an annual rate of 0.90%.
ASSET BASED ADMINISTRATIVE CHARGE
We deduct from each division of Account A, a daily asset based charge equivalent
to an annual rate of 0.10%.
TRUST EXPENSES
There are fees and expenses deducted from each Series. See Facts About Golden
American, Account A Divisions. The investment performance of the Series
7
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SUMMARY OF THE POLICY (CONTINUED)
and expenses and deductions of certain charges from the Trust will affect Your
Investment Value. Please read the Trust prospectus for details.
LOANS
After the Free Look Period, You may borrow up to 90% of the sum of the Cash
Surrender Value plus Debt. Any existing Debt will be deducted from a new loan.
The interest rate We charge is 5.0% annually. We credit interest on the amount
held in Our general account as collateral for policy loans. Portions of the
collateral amount may earn interest at different rates, but in no event will any
portion earn less than 4.0% annually. We may offer a preferred loan feature. See
Your Policy's Benefits, Policy Loans. Loans under "modified endowment contracts"
may be subject to a 10% penalty tax. See Federal Income Tax Considerations,
Modified Endowment Contracts, PENALTY TAX.
Depending upon the Investment Results and the amounts borrowed, loans may cause
a Policy to lapse. If the Policy lapses with a loan outstanding, certain amounts
may be included in Your taxable income.
PARTIAL WITHDRAWALS
After the Free Look Period, You may take partial withdrawals from the Investment
Value. Partial withdrawals may be taken four times per Policy Year without
charge. Partial withdrawals are subject to certain restrictions and partial
withdrawals above a maximum amount may be subject to an accelerated recovery of
the deferred loading. Under Policies purchased in connection with a 1035
Exchange, partial withdrawals may not be permitted during the first seven Policy
Years. See Your Policy's Benefits, Taking Partial Withdrawals.
DOLLAR COST AVERAGING
Under this program, You may choose to have a specified dollar amount transferred
from the Fixed Account, the Limited Maturity Bond Division or the Liquid Asset
Division to the other divisions of Account A on a monthly basis. The objective
of dollar cost averaging is to shield Your investment from short term price
fluctuations. See Facts About the Policy, Dollar Cost Averaging.
HOW BENEFITS ARE TAXED
Under current tax law, life insurance policies receive certain tax benefits.
Generally, the death benefit is fully excludable from the beneficiary's gross
income for Federal income tax purposes according to Section 101(a)(1) of the
Internal Revenue Code. You will not be taxed on any increase in Cash Surrender
Value while the Policy remains in force unless You take a partial withdrawal or
a loan as discussed below.
If You surrender Your Policy for its Cash Surrender Value or take a partial
withdrawal, You may recognize ordinary income that would be subject to tax. You
may also recognize ordinary income that would be subject to tax upon a loan
received under the Policy and, depending upon the circumstances, You may be
subject to an additional 10% tax upon surrender of the Policy, a partial
withdrawal, or taking a policy loan. See Federal Income Tax Considerations.
CANCELLATION AND EXCHANGE RIGHT
If You return Your Policy during the Free Look Period, We will refund any
premiums paid without interest. Generally under a Genesis I Policy, this period
ends 10 days from the date You receive the Policy. For purposes of administering
Our allocation rules, We deem this period to end 15 days after a Policy is
mailed from Our Customer Service Center. Some states may require that We provide
a longer Free Look Period.
Under a Genesis Flex Policy, the Free Look Period generally ends on the latest
of (i) 10 days after You receive Your Policy, (ii) 45 days from the date You
complete part I of the application or enrollment form, or (iii) 10 days from the
mailing of the notice of cancellation right. See Your Policy's Benefits, Your
Right to Cancel or Exchange Your Policy.
You also have an option during the first 24 months to convert Your Policy so
that Your benefits do not vary based on the Net Rate of Return. You may also
convert Your Policy if there is a change of the investment adviser of any
portfolio or if there is a material change in the investment objectives of or
restrictions in any portfolio in which the divisions invest. In each case this
conversion is accomplished by transferring Your entire Investment Value to Our
general account. See Your Policy's Benefits, Your Right to Cancel or Exchange
Your Policy.
REPLACEMENT OF EXISTING COVERAGE
Before purchasing a Policy, the Policyowner should ask his or her registered
representative if changing, or adding to, current insurance coverage would be
advantageous. Generally, it is not advisable to purchase another policy as a
replacement for existing coverage. This is especially true if the primary
decision for replacement is based on a comparison of policy illustrations.
ILLUSTRATIONS
Illustrations in this prospectus or used in connection with the purchase of the
Policy are based on hypothetical investment rates of return. These rates are not
guaranteed. They are illustrative only and should not be deemed a representation
of past or future performance. Actual rates of return may be more or less than
those reflected in the illustrations and, therefore, actual values will be
different than those illustrated.
8
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT.
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American") is a stock life
insurance company organized under the laws of the State of Delaware. Prior to
December 30, 1993, Golden American was a Minnesota corporation. Golden American
is a wholly owned indirect subsidiary of Bankers Trust Company. We are
authorized to do business in the District of Columbia and all states except New
York. We offer variable annuities and variable life insurance. Administrative
services for the Policies are provided at our Customer Service Center, the
address is shown on the cover. As of December 31, 1994 Golden American had
stockholder's equity of approximately $89.5 million and total assets of
approximately $1.04 billion, including approximately $950.3 million of separate
account assets.
Bankers Trust Company is a New York banking corporation with executive offices
at 280 Park Avenue, New York, NY 10017. As of December 31, 1994, Bankers Trust
New York Corporation, parent of Bankers Trust Company, was the seventh largest
bank holding company in the United States with total assets of approximately $98
billion. Bankers Trust Company conducts a variety of general banking and trust
activities and is leading wholesale supplier of financial services to the
domestic and international markets.
In a transaction that closed on September 30, 1992, a wholly owned subsidiary of
Bankers Trust Company acquired all of the issued and outstanding capital stock
of Golden American and Directed Services, Inc. ("DSI"), an affiliate of Golden
American, and related assets. The transaction involved settlement of pre-
existing claims of Bankers Trust Company against the former parent company of
Golden American and DSI. Under applicable banking law, stock so acquired is
subject to various divestiture requirements. While Bankers Trust Company has no
immediate intent to divest its ownership of the stock of Golden American and
DSI, such a divestiture may occur in the future. In addition, judicial or
administrative decisions or interpretations, as well as changes in either U.S.
Federal or state banking statutes or regulations, could prevent Bankers Trust
Company from continuing to own the stock of Golden American or DSI.
ACCOUNT A
All obligations under a Policy are general obligations of Golden American.
Account A is a separate investment account used to support Our variable life
policies and for other purposes permitted by applicable laws and regulations. We
may offer other variable life insurance policies investing in Account A which
are not described in this prospectus. The assets of Account A are kept separate
from Our general account and any other separate accounts We may have.
We own all the assets in Account A. Income and realized and unrealized gains and
losses from assets in Account A are credited to or charged against Account A
without regard to other income, gains or losses on Our other investment
accounts. As required, the assets in Account A are at least equal to the
reserves and other liabilities of Account A. These assets may not be charged
with liabilities from any other business We conduct. However, if the assets
exceed the required reserves and other liabilities, We may transfer the excess
to Our general account.
Account A was established pursuant to Minnesota law on July 14, 1988 and
following the redomestication of Golden American, operates under Delaware law.
Account A may invest in mutual funds, unit investment trusts and other
investment portfolios which We determine to be suitable for the Policies'
purposes. Account A is treated as a unit investment trust under Federal
securities laws. It is registered as an investment company with the Securities
and Exchange Commission (SEC) under the Investment Company Act of 1940 (the
"1940 Act"). It is also governed by the laws of Delaware and 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 A.
ACCOUNT A DIVISIONS
Currently, each division of Account A invests in a Series of The GCG Trust. DSI
serves as the Manager to each Series of the Trust. The Trust and DSI have
retained several portfolio managers to manage the assets of the Series. The
investment objectives of the various Series are described below. There may be
restrictions on the amounts that can be allocated to certain divisions based on
state laws and regulations. There is no guarantee that any Series will meet its
investment objective. Success in meeting the investment objective of a Series
depends on various factors, particularly how well the portfolio manager
anticipates changing economic and market conditions.
9
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT. (CONTINUED)
DSI provides the overall business management and administrative services
necessary for the Series' operation and provides or procures the services and
information necessary to the proper conduct of the business of the Series. DSI
is responsible for providing or procuring, at DSI's expense, the services
reasonably necessary for the ordinary operation of the Series. DSI does not bear
the expense of brokerage fees and other transactional expenses for securities or
other assets (which are generally considered part of the cost for assets), taxes
(if any) paid by a Series, interest on borrowing, fees and expenses of the
independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses. See the Trust prospectus for details.
The Trust pays DSI for its services a monthly fee based on the following
percentages of the average daily nets assets of the Series. DSI (and not the
Trust) pays each portfolio manager a monthly fee for managing the assets of the
Series.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEES (based on combined assets of the indicated groups of
SERIES Series)
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, 1.00% of first $750 million;
Capital Appreciation, Rising Dividends, 0.95% of next $1.250 billion;
All-Growth, Real Estate, 0.90% of next $1.5 billion; and
Natural Resources, Strategic Equity, Small Cap, and Value 0.85% of amount in excess of $3.5 billion
Equity Series:
Emerging Markets Series: 1.50% of average daily net assets
Limited Maturity Bond and 0.60% of first $200 million;
Liquid Asset Series: 0.55% of next $300 million; and
0.50% of amount in excess of $500 million
</TABLE>
- --------------------------------------------------------------------------------
The following divisions invest in shares of the corresponding Series.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE
The highest total return, consisting of capital appreciation and current
income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS
Investment in equity and debt securities and the use of certain sophisticated
investment strategies and techniques.
PORTFOLIO MANAGER
Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE
High total investment return over the long term, consistent with the
preservation of capital and prudent investment risk.
INVESTMENTS
Invests primarily in common stocks. The Series also may invest in fixed income
securities and money market instruments to preserve its principal value during
uncertain or declining market conditions. The Series' strategy is based on the
premise that, from time to time, certain asset classes are more attractive
long term investments than others.
PORTFOLIO MANAGER
T. Rowe Price Associates, Inc.
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE
Long-term capital growth.
INVESTMENTS
Invests in common stocks and preferred stock that will be allocated among
various categories of stocks referred to as "components" which consist of the
following: (i) The Growth Component -- Securities that the portfolio manager
believes have the following characteristics: stability and quality of earnings
and positive earnings momentum; dominant competitive positions; and
demonstrate above-average growth rates as compared to published S&P 500
earnings projections; and (ii) The Value Component -- Securities that the
portfolio manager regards as fundamentally undervalued, i.e., securities
selling at a discount to asset value and securities with a relatively low
price/earnings ratio. The securities eligible for this component may include
real estate stocks, such as securities of publicly-owned companies that, in
the portfolio manager's
10
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT. (CONTINUED)
judgement, offer an optimum combination of current dividend yield, expected
dividend growth, and discount to current real estate value.
PORTFOLIO MANAGER
Chancellor Trust Company
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment in equity securities of high quality companies that meet the
following four criteria: consistent dividend increases; substantial dividend
increases; reinvested profits; and an under-leveraged balance sheet.
PORTFOLIO MANAGER
Kayne, Anderson Investment Management, Inc.
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE
Capital appreciation.
INVESTMENTS
Investment in securities selected for their long term growth prospects.
PORTFOLIO MANAGER
Warburg, Pincus Counsellors, Inc.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE
Capital appreciation, with current income as a secondary objective.
INVESTMENTS
Investment in publicly traded equity securities of companies in the real
estate industry listed on national exchanges or on the National Association of
Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER
E.I.I. Realty Securities, Inc.
NATURAL RESOURCES DIVISION
NATURAL RESOURCES SERIES
OBJECTIVE
Long-term capital appreciation.
INVESTMENTS
Investment in equity and debt securities of companies engaged in the
exploration, development, production, and distribution of natural resources.
PORTFOLIO MANAGER
Van Eck Associates Corporation
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE
Capital appreciation, with dividend income as a secondary objective.
INVESTMENTS
Investment primarily in equity securities of U.S. and foreign issuers which
when purchased meet quantitative standards that indicate above average
financial soundness and high intrinsic value relative to price.
PORTFOLIO MANAGER
Eagle Asset Management, Inc.
STRATEGIC EQUITY DIVISION
STRATEGIC EQUITY SERIES
OBJECTIVE
Long term capital appreciation.
INVESTMENTS
Investment primarily in equity securities based on various market timing
techniques. The amount of the Series' assets allocated to equities shall vary
from time to time to seek positive investment performance from advancing
equity markets and to reduce exposure to equities when risk/reward
characteristics are believed to be less attractive.
PORTFOLIO MANAGER
Zweig Advisors Inc.
SMALL CAP DIVISION
SMALL CAP SERIES
OBJECTIVE
Long term capital appreciation.
INVESTMENTS
Investment primarily in equity securities of companies that, at the time of
purchase, have a total market capitalization -- present market value per share
multiplied by the total number of shares outstanding -- of less than $1
billion.
PORTFOLIO MANAGER
Fred Alger Management, Inc.
EMERGING MARKETS DIVISION
EMERGING MARKETS SERIES
OBJECTIVE
Long term growth of capital.
INVESTMENTS
Investment primarily in equity securities of companies that are considered to
be in emerging market countries in the Pacific Basin and Latin America. Income
is not an objective, and any production of current income is considered
incidental to the objective of growth of capital.
PORTFOLIO MANAGER
Bankers Trust Company
11
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT. (CONTINUED)
LIMITED MATURITY BOND DIVISION
LIMITED MATURITY BOND SERIES
OBJECTIVE
Highest current income consistent with low risk to principal and liquidity.
Also seeks to enhance its total return through capital appreciation when
market factors indicate that capital appreciation may be available without
significant risk to principal.
INVESTMENTS
Investment primarily in a diversified portfolio of limited maturity debt
securities. No individual security will at the time of purchase have a
remaining maturity longer than five and one-half years and the dollar-weighted
average maturity of the Series will not exceed five years.
PORTFOLIO MANAGER
Bankers Trust Company
LIQUID ASSET DIVISION
LIQUID ASSET SERIES
OBJECTIVE
High level of current income consistent with the preservation of capital and
liquidity.
INVESTMENTS
Obligations of the U.S. Government and its agencies and instrumentalities;
bank obligations; commercial paper and short-term corporate debt securities.
TERM
All issues maturing in less than one year.
PORTFOLIO MANAGER
Bankers Trust Company
The Trust is an open-end management investment company, commonly known as a
mutual fund. The Trust's shares may also be available to certain variable
annuity contractowners for investment under such contracts offered by Golden
American. This is called "mixed funding."
The Trust may also sell its shares to separate accounts of other insurance
companies, both affiliated and not affiliated with Golden American. This is
called "shared funding." Although We do not anticipate any inherent difficulties
arising from either mixed or shared funding it is theoretically possible that,
due to differences in tax treatment or other considerations, the interest of
owners of various contracts participating in the Trust might at sometime be in
conflict. After the Trust receives the requisite order from the SEC, shares of
the Trust may also be sold to certain qualified pension and retirement plans.
The Board of Trustees of the Trust, the Trust's Manager and We and any other
insurance companies participating in the Trust are required to monitor events to
identify any material conflicts that arise from the use of the Trust for mixed
and/or shared funding or between various policyowners and pension and retirement
plans. For more information about the risks of mixed and shared funding please
refer to the Trust prospectus.
You will find further information about the Trust, including the investment
risks associated with each Series and a complete description of the Trust's
costs and expenses, in the accompanying Trust prospectus. You should read it in
conjunction with this prospectus. Additional copies of the Trust prospectus may
be obtained by contacting Our Customer Service Center.
CHANGES WITHIN ACCOUNT A
We may from time to time make additional divisions available to You. These
divisions will invest in investment portfolios We find suitable for the
Policies. We also have the right to eliminate investment divisions from Account
A, 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 Policies. 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. We would get any required
approval from the insurance department of Our state of domicile before making
such a substitution. Where applicable, this approval process is on file with the
insurance department of the jurisdiction in which the Policy is delivered. We
would also get any required approval from the SEC and any other required
approvals before making such a substitution.
We reserve the right to transfer assets of Account A, which We determine to be
associated with the class of Policies to which Your Policy belongs, to another
account. We will notify You as soon as practicable of any proposed changes.
When permitted by law, We reserve the right to:
(1) deregister Account A under the 1940 Act;
(2) operate Account A as a management company
under the 1940 Act;
(3) restrict or eliminate any voting rights as to
Account A; and
(4) combine Account A with other accounts.
THE FIXED ACCOUNT
The Fixed Account is part of the Golden American general account. Interests in
the Fixed Account have not been registered under the Securities Act of 1933
("1933 Act"), and neither the Fixed Account nor the general account has been
registered under the 1940 Act. Thus, neither the Fixed Account nor the general
account, nor any interest therein, is subject to regulation under the provisions
of the 1933 Act or the 1940
12
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT. (CONTINUED)
Act. Accordingly, the Securities and Exchange Commission has not passed on the
disclosure in this prospectus relating to the Fixed Account. Disclosures
contained herein with respect to the Fixed Account and the general account,
however, may be subject to certain generally applicable provisions of the
Federal securities laws relating to the accuracy and completeness of
information. The Fixed Account may not be available in all states.
The general account contains all of the assets of Golden American other than
those in certain separate accounts we establish (including Account A). Golden
American has sole discretion to invest the assets of the general account,
subject to applicable law. Allocation of any amounts to the Fixed Account does
not entitle you to share directly in the performance of those assets. Assets
supporting amounts allocated to the Fixed Account are available to fund the
claims of all classes of our customers, owners, and other creditors.
FACTS ABOUT THE POLICY
WHO MAY BE COVERED BY A POLICY
We can issue a single life policy for Insureds age 75 or under, or a
survivorship policy if both Insureds are age 75 or under. Under survivorship, at
least one Insured must be age 20 or older. We will take under consideration
applications for Insured(s) up to age 80. We use the Insured's age on the
Insured's birthday nearest the Policy Date. The Insureds must also meet Our
underwriting requirements for acceptance of both initial and unplanned premium
payments. Each Insured will be assigned to an underwriting class according to
the method of underwriting We use, the smoking status of the Insured(s) and the
classification of the mortality risk of the Insured(s). The classification can
be standard, preferred or special.
We use two methods of underwriting:
(1) non-medical underwriting, based mainly on Your
answers in the application or enrollment form; and
(2) medical underwriting, based on additional
medical information which may include a physical examination.
The underwriting classes combined with the age, sex, and smoking status of the
Insured(s) determine the mortality rates We will use in calculating mortality
cost deductions, Net Single Premium Factors and Guarantee Periods.
APPLYING FOR A POLICY
To purchase a Policy You must complete an application or enrollment form and
pay an initial premium.
DEATH BENEFIT OPTIONS
All Policies are purchased with the Option I Death Benefit. After the first
Policy Anniversary, You may change the death benefit option under Your Policy
and thereafter, You may change back and forth between the two, subject to our
rules at the time You request the change but no more frequently than once every
three Policy Years. See Insurance Benefits, Changing the Death Benefit Option. A
table of illustrative premiums for a specified face amount is shown below. This
table shows actual premiums that will be paid for $250,000 of coverage at each
issue age for males and females. We may accept lower premium payments in the
case of Genesis I.
The Option I Death Benefit provides a death benefit that is the greater of (i)
the Face Amount and (ii) the Variable Insurance Amount. The Option II Death
Benefit provides a death benefit that is the greater of (i) the Face Amount plus
the Option II Death Benefit Adjustment, and (ii) the Variable Insurance Amount.
See Insurance Benefits, Death Benefit Proceeds.
PREMIUM PAYMENTS
You purchase an initial death benefit, which is the Face Amount under the Option
I Death Benefit with an initial premium payment. The minimum initial Genesis I
premium is $25,000 ($15,000 if under a 1035 exchange, see Federal Income Tax
Considerations, Code Section 1035 Exchanges). The minimum planned annual premium
under Genesis Flex will never be more than $5,000.
We may refuse a premium payment if such payment would cause the Net Amount at
Risk under the Policy to exceed $2,500,000.
For certain group or sponsored arrangements, We may reduce the minimum premium
requirements. We may offer planned premium payment periods of durations other
than 10 years. Such durations would cause the illustrative premiums for a
specified face amount as shown below to change. We may also reduce the charges
in a Policy where the initial or total premium payments exceed amounts We
specify in our published rules. However, any reductions will reflect differences
in costs or services and will not discriminate unfairly against any person.
GENESIS I
TABLE OF ILLUSTRATIVE PREMIUMS WITH
A FACE AMOUNT OF $250,000
SINGLE LIFE, NON-SMOKER
<TABLE>
<CAPTION>
PREMIUM
ISSUE ------------------------
AGE MALE FEMALE
- ----------- ----------- -----------
<S> <C> <C>
50 $ 95,484 $ 84,669
60 128,696 114,574
70 165,233 151,151
</TABLE>
13
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
SURVIVORSHIP, NON-SMOKERS
<TABLE>
<CAPTION>
ISSUE AGE
- --------------------------
MALE FEMALE PREMIUM
- ----------- ------------- -----------
<S> <C> <C>
55 45 $ 63,990
60 55 86,763
70 65 120,989
</TABLE>
GENESIS FLEX
TABLE OF ILLUSTRATIVE PLANNED PREMIUMS
WITH A FACE AMOUNT OF $250,000
SINGLE LIFE, NON-SMOKER
<TABLE>
<CAPTION>
PREMIUM
ISSUE --------------------
AGE MALE FEMALE
- ----------- --------- ---------
<S> <C> <C>
50 $ 11,623 $ 10,255
60 16,354 14,212
70 23,632 20,170
</TABLE>
SURVIVORSHIP, NON-SMOKERS
<TABLE>
<CAPTION>
ISSUE AGE
- --------------------------
MALE FEMALE PREMIUM
- ----------- ------------- -----------
<S> <C> <C>
55 45 $ 7,594
60 55 10,319
70 65 14,615
</TABLE>
LIFE INSURANCE PREMIUM PAYMENT TEST (GENESIS FLEX)
Genesis Flex is designed to comply with the Life Insurance Premium Payment
Test. As such, certain distributions under a policy, such as loans, should
receive favorable tax treatment afforded life insurance policies under Federal
tax law.
MODIFIED ENDOWMENT CONTRACTS (GENESIS I)
Genesis I is generally a "modified endowment contract." As such, the amount of
certain distributions made during the Insured's lifetime, such as policy
loans, partial withdrawals or surrenders, will be includible in Your gross
income to the extent of any income in the Policy ("income-first basis"), and a
10% penalty tax may be imposed on such income distributed before You attain
age 59 1/2.
For more information on "modified endowment contracts," and the Life Insurance
Premium Payment Test, see Federal Income Tax Considerations, Modified
Endowment Contracts.
MAKING ADDITIONAL PREMIUM PAYMENTS
PLANNED PREMIUMS (GENESIS FLEX ONLY)
Premium payments can be made on a planned basis during the first ten Policy
Years following issue of the Policy or increase in Face Amount subject to Our
minimum premium requirements. Subject to Our rules, We may offer planned
premium payment periods of other than 10 years. We will send reminder notices
for planned premiums that are not paid as part of an automatic withdrawal
program. Any change in the amount, period and frequency of planned premiums
will be subject to Our rules at the time of the request. Any premium received
more than 30 days after a planned premium payment date will be treated as an
unplanned premium. In addition, any premium received above the planned premium
will also be treated as an unplanned premium.
UNPLANNED PREMIUMS
Unplanned premiums can be made while coverage is in effect provided the
Insured is age 80 or under. Under survivorship policies, both Insureds must be
alive and also age 80 or under. Subject to Our rules, the minimum unplanned
premium is $5,000 under a Genesis I Policy and $500 under a Genesis Flex
Policy. Evidence of insurability based on Our underwriting rules may be
required if the unplanned premium would cause the death benefit to increase.
Unless otherwise specified, if there is any Debt, any unplanned premium will
be used as a loan repayment with any excess applied as an additional premium
payment.
GENERAL
On the date We receive and accept Your additional premium payment:
(1) The Variable Insurance Amount will increase.
See Insurance Benefits, Variable Insurance Amount.
(2) The Investment Value will increase. See Facts
About the Policy, Investment Value in Each Division.
(3) The Tabular Value will increase. See Facts
About the Policy, Tabular Value.
On the Processing Date on or next following the date We receive and accept the
additional premium payment, the guaranteed benefits will increase as follows:
(1) If the Guarantee Period prior to such premium
payment ends before the Maturity Date, the Tabular Value as of the
Processing Date will be used to calculate a new Guarantee Period subject
to any maximum Guarantee Period shown in the Policy Schedule. Any part in
excess of the amount required to increase the Guarantee Period to the
Maturity Date will be applied as indicated in (2).
(2) If the Guarantee Period ends on the Maturity
Date, the Tabular Value or the excess from (1) will be applied as a net
single premium for life to increase the Face Amount.
(3) The Guarantee Period ends on the earlier of the
date determined above and any maximum shown in the Policy schedule.
14
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
ALLOCATION OF PREMIUM PAYMENTS
Prior to the end of the Free Look Period, Your initial premium is allocated to
the Liquid Asset Division. At the end of the Free Look Period, Your Investment
Value will be allocated to the divisions according to Your instructions.
However, if we receive written instructions with your initial premium to
allocate all or a portion of such premium to the Fixed Account, we will do so
even prior to the end of the Free Look Period.
ADDITIONAL PREMIUM ALLOCATION
Any additional premiums are allocated to the Liquid Asset Division until
accepted according to Our rules. Unless You specify otherwise, additional
premium payments will be allocated among the divisions of Account A and the
Fixed Account in proportion to the Investment Value in each division of
Account A and the Fixed Account on the date the premium is considered to be
accepted. If there is no Investment Value attributable to Account A, the
additional premium payments will be allocated to the Fixed Account.
YOUR RIGHT TO REALLOCATE
You may reallocate Your Investment Value among the divisions of Account A and
the Fixed Account at the end of the free look period. We currently do not assess
a charge for allocation changes. We reserve the right, however, to assess a $25
charge for each allocation change after the twelfth allocation change in a
Policy year. We require that each reallocation of your Investment Value equal at
least $250 or, if less, your entire Investment Value within a division or the
Fixed Account. We reserve the right to limit, upon notice, the maximum number of
reallocations you may make within a contract year. In addition, we reserve the
right to defer the reallocation privilege at any time we are unable to purchase
or redeem shares of The GCG Trust. We also reserve the right to modify or
terminate your right to reallocate your Investment Value at any time in
accordance with applicable law. When a reallocation is made, we redeem shares of
the Series underlying the divisions you are transferring from at their net asset
value. Reallocations from the Fixed Account are subject to the restrictions
below. See Transfers from the Fixed Account. 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 Investment
Value among the divisions and the Fixed Account or refuse any reallocation
request if we believe that: (a) excessive trading by you or a specific
reallocation request may have a detrimental effect on unit values or the share
prices of the underlying Series; or (b) we are informed by The GCG Trust that
the purchase or redemption of shares is to be restricted because of excessive
trading or a specific reallocation or group of reallocations is deemed to have a
detrimental effect on share prices of The GCG Trust.
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.
TRANSFERS FROM THE FIXED ACCOUNT
Any allocation of premium or transfer of Investment Value to the Fixed Account
is considered a separate Fixed Account allocation. Transfers from an allocation
of the Fixed Account are currently permitted once a year on or within 30 days of
the Expiry Date of the Guaranteed Interest Rate. The maximum amount which may be
transferred out of such an allocation each year is currently the greater of: (a)
33% of the amount of such allocation, or (b) $2,000. If we receive your transfer
request up to 30 days before the Expiry Date, the transfer will be made on the
Expiry Date. If we receive your request on or within 30 days after the Expiry
Date, the transfer will be made at the end of the valuation period in which a
satisfactory transfer request is received at our Service Center. The minimum
transfer amount is $250 or the entire remaining amount of the allocation on the
transfer date, whichever is less. Unless You specify otherwise, We will transfer
amounts from allocations within the Fixed Account from the fixed allocations
closest to their respective Rate Expiry Date. These rules are subject to change
in the future.
We reserve the right to establish an interest rate for transfers to the Fixed
Account that may differ from the rate that we establish for allocations of
planned and unplanned premiums to the Fixed Account. We also reserve the right
to reduce the amount otherwise available for transfer from the Fixed Account by
any amounts that have been previously withdrawn from the Fixed Account.
DOLLAR COST AVERAGING
If You have at least $10,000 of Investment Value in the Fixed Account, the
Limited Maturity Bond Division or the Liquid Asset Division, You may choose to
have a specified dollar amount transferred to other divisions in Account A on a
monthly basis. The main objective
15
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
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 of Account A 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.
A lower average value per unit thus may be achieved over the long term. This
plan of investing allows investors to take advantage of market fluctuations but
does not assure a profit or protect against a loss in declining markets. See
Facts About the Policy, Measurement of Investment Experience, INDEX OF
INVESTMENT EXPERIENCE AND UNIT VALUE.
Dollar cost averaging may be elected at the time the application or enrollment
form is completed or at a later date. The minimum amount that may be transferred
each month is $250. The maximum amount which may be transferred is equal to the
Investment Value in the Fixed Account, the Limited Maturity Bond Division or the
Liquid Asset Division divided by 12. Under this program, transfers will commence
on the later of 20 days after the Issue Date and the end of the Free Look
Period.
The transfer date will be the same calendar day each month as the Policy Date.
The dollar amount will be allocated to the divisions in which You are invested
in proportion to Your Investment Value in each division unless you specify
otherwise. If, on any transfer date, the Investment Value in the specified
division or Fixed Account is equal to or less than the amount You have elected
to have transferred, the entire amount will be transferred and the program will
end. You may change the transfer amount once each Policy Year, or cancel this
program by sending satisfactory notice to Our Customer Service Center at least
seven days before the next transfer date. Any transfers 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 A 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 cannot be reinvested in the portfolio due to the
unavailability of securities for acquisition. When an investment portfolio
matures, We will notify You 30 days in advance of that date. To elect an
allocation to other than the Specially Designated Division, You must provide
satisfactory notice to Us at least seven days prior to the date the portfolio
matures. Such allocations are not counted as an allocation change of the
Investment Value for purposes of the number of free allocation changes
permitted. When a distribution from a portfolio 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 Investment 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 INVESTMENT VALUE
Your Investment Value is the amount available for investment at any time. Prior
to the Investment Date, the Investment Value is zero. On the Investment Date,
the Investment Value is equal to the premium paid less any charges deducted on
such date. We adjust Your Investment Value daily to reflect its Investment
Results. See Facts About the Policy, Measurement of Investment Experience.
You may choose up to eleven divisions and the Fixed Account to allocate Your
Investment Value among in any way You choose, subject to any restrictions. See
Facts About the Policy, Allocation of Premium Payments.
INVESTMENT VALUE IN EACH DIVISION OF ACCOUNT A
On each Valuation Date, the amount of Investment Value in each division of
Account A will be calculated as follows:
(1) We take the amount of Investment 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) together.
(4) We add to (3) any additional premium payments
allocated to the division during the current Valuation Period.
(5) We add or subtract reallocations to or from the
division during the current Valuation Period.
(6) We subtract from (5) any partial withdrawal and
any associated charges allocated to the division during the current
Valuation Period.
(7) We add to (6) any loan repayments or loan
interest payments received and subtract any loans which are allocated to the
division during the current Valuation Period.
(8) If the Policy Anniversary occurs during the
current Valuation Period, We add to (7) the amount allocated to the division for
any general account loan interest credit.
(9) If a Processing Date occurs during the current
Valuation Period, We subtract from (8) the
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<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
amounts allocated to the applicable division for deferred loading, insurance
based charges and transaction and other charges. If the Processing Date is
also the Policy Anniversary, any loan interest charge will be deducted from
the Investment Value. See Charges and Deductions. Amounts in (8) and (9)
will be allocated to each division in the proportion that (7) bears to the
Investment Value.
(10)If the charges in (9) exceed the amount in (8), We
will first calculate the Cash Surrender Value to determine the amount of any
overdue charges and then set the amount of Investment Value in each division
and the Fixed Account to zero.
TABULAR VALUE
Prior to the Investment Date, the Tabular Value is zero. The Tabular Value on
the Investment Date equals the Investment Value on that date. Thereafter, the
Tabular Value is calculated in the same manner as the Cash Surrender Value
except that: (i) the mortality cost will be based on rates no greater than the
guaranteed maximum cost of insurance rates; (ii) currently other charges are not
reflected in Our computations; and (iii) the net rate of return will be based on
the interest rate used in Our computations, which is currently 4% per year. The
Tabular Value calculations do not reflect loans, repayments, or loan interest
payments. The Variable Insurance Amount used in computing the Tabular Value is
calculated in the same manner as described under Insurance Benefits, except that
Tabular Value replaces the Investment Value plus Debt.
MEASUREMENT OF INVESTMENT EXPERIENCE
INDEX OF INVESTMENT EXPERIENCE AND
UNIT VALUE
The investment experience of Account A is determined on each Valuation Date.
We use an index to measure changes in experience during a Valuation Period. We
set the index at $10 when the first investments in a division are made. The
index for a current Valuation Period equals the index for the last Valuation
Period multiplied by the experience factor for the current period.
We may express the value of amounts allocated to Account A divisions in units.
The index of investment experience is equal to the value of one unit. 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.
HOW WE DETERMINE THE EXPERIENCE FACTOR
For divisions of Account A, the experience factor reflects the investment
experience of the portfolio in which the 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 a division invests as of the end of the current Valuation Period.
(2) We add to (1) the amount of any dividend or
capital gains distribution declared during the current Valuation Period
for such portfolio and reinvested in the portfolio. We subtract from that
amount a charge for Our taxes, if any.
(3) We divide (2) by the net asset value of the
portfolio at the end of the preceding Valuation Period.
(4) We subtract the daily mortality and expense
risk charge. See Charges and Deductions, Deductions from Divisions of
Account A, MORTALITY AND EXPENSE RISK CHARGE.
(5) We subtract the daily asset based
administrative charge. See Charges and Deductions, Deductions from Divisions of
Account A, ASSET BASED ADMINISTRATIVE CHARGE.
Calculations for divisions investing in mutual fund portfolios are made on a
per share basis.
NET RATE OF RETURN FOR ACCOUNT A
The net rate of return for an Account A division during a Valuation Period is
the experience factor for that Valuation Period minus one. See Measurement of
Investment Experience, INDEX OF INVESTMENT EXPERIENCE AND UNIT VALUE.
CHARGES AND DEDUCTIONS
The charges described below are deducted from Your Investment Value. With
respect to any Investment Value attributable to the Fixed Account, charges will
be deducted from each fixed allocation on a pro rata basis, unless specified
otherwise by Us.
DEDUCTIONS FOR DEFERRED LOADING
RECOVERY OF DEFERRED LOADING
Although the sales load is chargeable to each premium payment when it is
received, the amount of the deferred loading is deducted in equal installments
on each Policy Anniversary over a six year period following receipt and
acceptance of each premium payment. It applies both to the initial and any
additional premiums. The deferred loading applicable to each premium payment
is 6.0% (a deduction
17
<PAGE>
CHARGES AND DEDUCTIONS (CONTINUED)
of 1.0% of premium per year). We may lower or waive this load with respect to
later premium payments made in connection with Genesis Flex.
If You surrender the Policy, We will deduct the total amount of any
unrecovered deferred loading from the amount We pay You. We also immediately
recover a portion of the deferred loading applicable to an excess partial
withdrawal. Collection of a portion of the deferred loading due to an excess
partial withdrawal may shorten the period of recovery or the last installment
amount may be reduced. See Your Policy's Benefits, Taking Partial Withdrawals.
As a result of the deferred loading structure, a positive net rate of return
will give a higher Cash Surrender Value and a negative net rate of return will
give a lower Cash Surrender Value than would be the case had the deferred
loading been deducted from Your premium.
We anticipate that Our deferred sales load and the sales load portion of the
deferred face amount charge (below) may be insufficient to cover distribution
expenses. Any shortfall will be made up from Our general account which may
include amounts derived from the mortality and expense risk charge.
DEDUCTIONS FOR INSURANCE BASED CHARGES
PREMIUM TAXES
Your premium incurs a charge for premium or other state and local taxes.
For Genesis I Policies We deduct a premium tax charge equal to 2.40% of
premium. This premium tax charge is designed to approximate the average
premium tax that We expect to pay to state and local governments. The charge
will not necessarily equal the premium tax paid by Us with respect to a
particular Policy. Currently, the premium tax charge is deferred and will be
deducted in equal annual installments over a six year period (a deduction of
0.40% per year). If You surrender Your Genesis I Policy, We will deduct the
total amount of any unrecovered deferred premium tax charge from the amount We
pay You. We reserve the right to change the amount of the premium tax charge
for future premium payments to conform to changes in the average premium tax
that We expect to pay.
For Genesis Flex Policies, the amounts We deduct depend on the Insured's state
of residence. These charges are expressed as a percentage of premium which can
range from 2.0% to 4.0%. We reserve the right to change this percentage for
future premium payments to conform with changes in the law or if the
Insured(s) changes state of residence. The charge is deducted from the
Investment Value on the first quarterly Processing Date following receipt and
acceptance of each premium payment. We deduct any charges for premium taxes
incurred but not yet deducted from the amount We pay You if the Policy is
surrendered. We return any premium taxes as part of the refund if the Policy
is cancelled during the Free Look Period.
CORPORATE TAX CHARGE
We currently do not but reserve the right to assess a corporate tax charge on
premiums. The charge will be deducted from the Investment Value in equal
installments on each Policy Anniversary over a six year period following
receipt and acceptance of each premium payment.
If You surrender the Policy, We will deduct the total amount of any corporate
tax charge not yet deducted from the amount We pay You. We believe this charge
is reasonable in relation to Our increased tax burden resulting from the
requirement that We capitalize and amortize policy acquisition expenses over a
ten year period. We reserve the right to change the amount We charge for
future premium payments to conform with changes in the amount payable by Us
under applicable Federal income tax law as of the date(s) of such premium
payment(s). See Federal Income Tax Considerations, Deferred Acquisition Costs.
ISSUE CHARGES
PER POLICY CHARGE
We charge $200 for Policies written on a single life basis and $300 for
Policies written on a survivorship basis. This charge is incurred on the Issue
Date and deducted from the Investment Value on the first Policy Anniversary.
This charge is to reimburse Us for a portion of the cost of underwriting and
issuing a Policy. We do not expect to make a profit from this charge. This
charge is currently waived for the Genesis I Policy.
DEFERRED FACE AMOUNT CHARGE
There is a charge assessed that is expressed per $1,000 of initial Face Amount
and of any increases in Face Amount. It will vary based on the age and sex of
the Insured (the younger Insured for survivorship policies) and on whether a
Genesis I or Genesis Flex Policy is chosen. It will never exceed a maximum of
$12 per $1,000 of Face Amount. This charge is incurred on the Issue Date or
effective date of any increase in Face Amount and deducted from the Investment
Value in equal installments on each Policy Anniversary over a six year period
following the effective date of such increase in Face
18
<PAGE>
CHARGES AND DEDUCTIONS (CONTINUED)
Amount. We deduct the total amount of any deferred face amount charge not yet
deducted when determining the Cash Surrender Value payable if You surrender
Your Policy.
A portion of the deferred face amount charge will reimburse us for the cost of
underwriting and issuing a Policy, not covered by the per policy charge
(above). The remainder of the deferred face amount charge will be considered
to be an additional sales load. This charge together with the deferred sales
load above, will not exceed the maximum sales load allowed under the Federal
securities laws.
MORTALITY CHARGES
MORTALITY COST
The mortality cost is deducted from the Investment Value on each quarterly
Processing Date and is calculated as follows:
(1) We determine the death benefit as of the
beginning of the Processing Period and adjust it with interest at the rate shown
in the Policy to the middle of the Processing Period.
(2) We subtract from (1) the Cash Surrender Value
plus any Debt as of the beginning of the Processing Period, adjusted with
interest to the end of the Processing Period. (This is the Net Amount at
Risk).
(3) We determine the current cost of insurance rate
per $1,000 based on each Insured's sex, Issue Age, years since the Policy
Date and underwriting class.
(4) We multiply the Net Amount at Risk in (2) by
(3) and then divide this result by 1,000.
During the Guarantee Period, in no event will the mortality cost be greater
than the amount determined by substituting the Tabular Value for the Cash
Surrender Value plus Debt in (2) above and the guaranteed maximum cost of
insurance rate per $1,000 for the current cost of insurance rate per $1,000 in
(3) above. In addition, the Tabular Value will be substituted for the Option
II Death Benefit Adjustment in calculating the death benefit in (1) above. See
Insurance Benefits, Policy Guarantees.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE
We deduct an amount per $1,000 of Tabular Net Amount at Risk. The amount is
based on the Attained Age of the Insured (the younger Insured for survivorship
policies). The charge is deducted from the Investment Value on each quarterly
Processing Date during the guarantee Period. The quarterly charge will never
exceed $0.15 per $1,000 of Face Amount per quarter.
The guaranteed death benefit risks are related to potentially unfavorable
investment results. One risk is that the Policy's Cash Surrender Value cannot
cover the charges due during the Guarantee Period. Another risk is that We may
have to limit the deduction for mortality cost. See MORTALITY COST, above.
DEDUCTIONS FOR TRANSACTION AND
OTHER CHARGES
ANNUAL ADMINISTRATIVE CHARGE
The annual administrative charge covers a portion of Our ongoing
administrative expenses. The charge is incurred at the beginning of each
Policy Year and deducted from the Investment Value at the end of each Policy
Year on the Policy Anniversary. We deduct any annual administrative charge
incurred but not yet deducted from the amount We pay You if the Policy is
surrendered. If the Investment Value at the end of a policy 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 Policy
Year. This charge will never exceed $80 per Policy Year. This charge is not
designed to produce a profit for Golden American or any affiliate and the
annual amount plus the asset based administrative charge (below) will not
exceed Our expected cost of the services to be provided over the life of the
Policy.
LOAN INTEREST CHARGE
On each Policy Anniversary, We calculate the loan interest charge and deduct
it from the Investment Value. This charge is 5.0% annually (accrued daily) of
the outstanding loans. Between Policy Anniversaries, Your Cash Surrender Value
will reflect the accrued charge.
EXCESS ALLOCATION CHARGE
We allow unlimited allocation changes without charge but reserve the right to
charge $25 for each allocation change in excess of twelve in a Policy Year.
The charge is deducted in proportion to the amount being transferred from each
division of Account A or the applicable allocation within the Fixed Account.
PARTIAL WITHDRAWAL CHARGE
If You take more than four partial withdrawals during a Policy Year, We may
impose a charge of the lesser of $25 and 2.0% of the amount withdrawn for each
additional partial withdrawal. The charge will be deducted in proportion to
the Investment Value in each division or the applicable allocation within the
Fixed Account from which the partial withdrawal was taken. See Your Policy's
Benefits, Taking Partial Withdrawals. This charge is cost based and is
designed to cover Our administrative costs in processing each additional
withdrawal.
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<PAGE>
CHARGES AND DEDUCTIONS (CONTINUED)
DEDUCTIONS FROM DIVISIONS OF ACCOUNT A
ASSET BASED CHARGES
MORTALITY AND EXPENSE RISK CHARGE
We will deduct a daily charge from the assets in each division of Account A to
compensate Us for mortality and expense risks We assume under the Policy. The
total daily charge is equal to 0.002477% (equivalent to an annual rate of
0.90%) of the assets in each division. Approximately 0.625% is allocated to
the mortality risk and 0.275% is allocated to the expense risk. We will
realize a gain from this charge to the extent it is not needed to provide for
benefits and expenses under the Policies. We will use any gain for any lawful
purpose including any shortfalls on distribution expenses.
The mortality risk assumed is the risk that Insureds as a group will live for
a shorter time than Our actuarial tables predict. As a result, We would be
paying more in death benefits than We planned. The expense risk assumed is the
risk that it will cost Us more to issue and administer the Policies than We
expect.
ASSET BASED ADMINISTRATIVE CHARGE
We charge each division of Account A with a daily asset based charge to cover
a portion of the policy administration. The daily charge is at a rate of
0.000276% (equivalent to an annual rate of 0.10%) of the assets in each
division. This charge plus the annual administrative charge (above) will not
exceed Our expected cost of the services to be provided over the life of the
Policy.
TRUST EXPENSES
There are fees and expenses deducted from each Series. See Facts About Golden
American, Account A and the Fixed Account, Account A Divisions. The investment
performance of the Series and expenses and deductions of certain charges from
the Trust will affect Your Investment Value. Please read the Trust prospectus
for details.
YOUR POLICY'S BENEFITS
YOUR POLICY'S CASH SURRENDER VALUE
Your Policy's Cash Surrender Value fluctuates daily with the Investment Results.
With respect to premiums allocated to Account A, We do not guarantee any minimum
Cash Surrender Value. On any date, the Cash Surrender Value is equal to the
Investment Value less any deferred charges not yet deducted, plus any accrued
general account loan interest credit and less any charges incurred and not yet
deducted.
SURRENDERING TO RECEIVE THE
CASH SURRENDER VALUE
You can surrender Your Policy at any time while the Policy is in force. You
will receive the Policy's Cash Surrender Value. The surrender will be
effective on the date Your written request and the Policy are sent to Us. We
will determine the Cash Surrender Value when We receive the written request
and the Policy at Our Customer Service Center. You may elect to have this
amount paid in a single payment or applied under one or more Income Plans. See
Choosing An Income Plan.
For information on the tax treatment on surrender of a Policy, including
Policies that are "modified endowment contracts," see Federal Income Tax
Considerations.
POLICY LOANS
After the Free Look Period, You may use Your Policy as collateral to borrow
funds from Us, by sending in a written request in a form satisfactory to Us. The
minimum loan We will make is $500. The maximum amount You can borrow at any time
is the difference between the loan value (90% of the Policy's Cash Surrender
Value plus the Debt) and the Debt (the outstanding loan plus accrued interest).
Unless specified otherwise, the amount of the loan will be taken from the
Investment Value in proportion to the amount of Investment Value in each
division in which You are invested.
We calculate Your new loan to equal any Debt plus the current amount You borrow.
Certain states may not permit Us to impose a minimum on the amounts You can
borrow or repay. The minimum and maximum amounts will be shown in Your Policy.
You may repay all or part of the loan any time while the Policy is in force.
Each repayment must be at least $500 or the amount of the Debt, if less. Unless
otherwise specified, loan repayments will be allocated in proportion to the
amount of Investment Value in each division.
For Genesis I Policies, there may be a 10% penalty tax on loans. For information
on the tax treatment of loans from policies that are "modified endowment
contracts," see Federal Income Tax Considerations, Modified Endowment Contracts,
PENALTY TAX.
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<PAGE>
YOUR POLICY'S BENEFITS (CONTINUED)
INTEREST
While a policy loan is outstanding, We will charge interest at 5.0% annually.
See Charges and Deductions, Transaction and Other Charges, LOAN INTEREST
CHARGE. Interest accrues each day and payments are due at the end of each
Policy Year. If You do not pay the interest when due, We add it to Your loan.
Generally, interest paid on a policy loan is not tax-deductible. See Federal
Income Tax Considerations, Loans. The sum of outstanding loans plus accrued
interest is called Debt.
If on any Valuation Date there is Debt outstanding and the Cash Surrender
Value is negative, We will terminate the Policy 31 days after We send You an
overloan notice. We will notify You and anyone who holds the Policy as
collateral at their last known address. To avoid termination, You must pay Us
at least the minimum repayment amount, listed in the notice before the 31 day
period ends.
LOAN INTEREST CREDIT
When You take a loan, We transfer an amount equal to the amount You borrowed
out of Your divisions and hold it as collateral in Our general account. We
will credit interest to portions of the collateral amount at a rate of 4% per
annum (and, on a current basis, 5% for "Preferred Loans"). Any loan interest
credit will be added to the Investment Value on each Policy Anniversary.
Between Policy Anniversaries, Your Cash Surrender Value will reflect the
accrued credit.
With respect to Genesis I Policies, loans where the amount of the collateral
is equal to the Investment Value less the total of all premium payments under
the Policy and the initial loan being carried over on a 1035 Exchange are
considered "Preferred Loans". With respect to Genesis Flex Policies, all new
loans taken after the later of attained age 60 or the tenth Policy Anniversary
are considered "Preferred Loans".
EFFECT ON DEATH BENEFIT AND
CASH SURRENDER VALUE
Whether or not You repay a policy loan, taking a loan will have a permanent
effect on Your Cash Surrender Value and may have a permanent effect on Your
death benefit. This is because the collateral for Your loan does not
participate in the Investment Results while the loan is outstanding. If the
amount credited to the collateral is more than Investment Results, the Cash
Surrender Value will be higher, as may be the death benefit. Conversely, if
the amount credited is less, the Cash Surrender Value will be lower as may be
the death benefit.
TAKING PARTIAL WITHDRAWALS
After the Free Look Period, You may take partial withdrawals from the Investment
Value. Under Policies purchased in connection with a 1035 Exchange, partial
withdrawals may not be permitted during the first seven Policy Years.
Unless You specify otherwise, the amount of the withdrawal will be taken in
proportion to the Investment Value in each division in which You are invested.
Partial withdrawals may not be repaid and in no event may a partial withdrawal
be greater than 90% of the Investment Value less any applicable unrecovered
deferred loading.
You may take a partial withdrawal four times per Policy Year without charge.
Your request for a partial withdrawal must be in a written form satisfactory to
Us. The effective date of a partial withdrawal will be the date We receive Your
written request at Our Customer Service Center. If You take more than four
partial withdrawals in a Policy Year, We may impose a charge of the lesser of
$25 and 2.0% of the amount withdrawn for each additional partial withdrawal.
The minimum partial withdrawal amount is $1,000 and the maximum amount of all
partial withdrawals that may be withdrawn during a Policy Year without
accelerating recovery of the deferred loading is 15% of the Investment Value.
See ACCELERATED RECOVERY OF DEFERRED CHARGES, below. The maximum amount You may
withdraw is further limited by the minimum Face Amount and Guarantee Period
requirements of the Policy. See EFFECT OF A PARTIAL WITHDRAWAL ON GUARANTEED
BENEFITS, below.
ACCELERATED RECOVERY OF DEFERRED CHARGES
An excess partial withdrawal is the amount by which the sum of all partial
withdrawals taken during a Policy Year plus the current partial withdrawal
exceed 15% of the Investment Value on the date of the withdrawal. An excess
partial withdrawal will be considered a partial surrender of the Policy and We
will recover a pro rata portion of the unrecovered deferred charges. Such
amount will be deducted in proportion to the Investment Value in each division
or the Fixed Account from which the excess partial withdrawal was taken.
Collection of a portion of the deferred loading for an excess partial
withdrawal may shorten the period during which the deferred loading is
recovered, or the last installment amount may be reduced. For example, the
following Genesis I example assumes a $100,000 initial premium (with deferred
loading of $6,000 recovered at the rate of $1,000 per Policy
21
<PAGE>
YOUR POLICY'S BENEFITS (CONTINUED)
Year for six years and premium taxes of $2,400 recovered at the rate of $400
per Policy Year for six years), an Investment Value of $120,000 and
unrecovered deferred charges in the amount of $4,200 at the beginning of the
fourth Policy Year.
If a partial withdrawal of $30,000 were taken, $18,000 of this amount could be
taken without accelerating recovery of the deferred loading ($120,000 X .15).
The amount of deferred loading to be deducted immediately due to the excess
withdrawal amount would be determined by first calculating the percentage of
the Investment Value by which the withdrawal is in excess of the maximum
(($30,000 - $18,000) DIVIDED BY $120,000). Then this percentage is applied to
the current amount of the unrecovered deferred loading ($4,200 X.10 = $420) to
determine the amount of unrecovered deferred loading to be deducted from the
Investment Value as of the date of the withdrawal.
If the Policy were surrendered following the partial withdrawal, the
unrecovered deferred loading deducted from the Investment Value would be
$3,780 ($4,200 - $420). If instead, the Policy were surrendered at the
beginning of the sixth Policy Year assuming no additional payments or further
partial withdrawals, the unrecovered deferred loading deducted upon surrender
would be $980 ($1,400 - $420).
PARTIAL WITHDRAWALS IN GENERAL
We will send You a notice of how Your Policy benefits are affected by a
partial withdrawal. 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. FOR INFORMATION ON THE TAX TREATMENT OF PARTIAL WITHDRAWALS,
INCLUDING THE TREATMENT FOR POLICIES THAT ARE MODIFIED ENDOWMENT CONTRACTS,
SEE FEDERAL INCOME TAX CONSIDER-
ATIONS.
EFFECT OF A PARTIAL WITHDRAWAL ON THE INVESTMENT VALUE AND DEATH BENEFIT
As of the effective date of a partial withdrawal:
(1) The Investment Value of the Policy is reduced
by the partial withdrawal and any associated charges.
(2) Unless You specify otherwise, the reduction in
Investment Value will be taken in proportion to the Investment Value in
each division in which You are invested as of the effective date of the
partial withdrawal. If there is insufficient Investment Value in the
divisions, the remaining reduction will be deducted from Your allocations
to the Fixed Account.
(3) Any amounts paid in accordance with the
SUICIDE provision of the Policy will be reduced by the amount of any partial
withdrawals and any associated charges.
(4) The Variable Insurance Amount will reflect the
partial withdrawal and any associated charges.
As of the Processing Date on or next following the effective date of a
partial withdrawal the guaranteed benefits may decrease. See EFFECT OF A
PARTIAL WITHDRAWAL ON GUARANTEED BENEFITS, below. If the death benefit
becomes payable before the Processing Date on or next following the
effective date of a partial withdrawal, We will deduct the amount of the
partial withdrawal from the death benefit proceeds payable, if the death
benefit is determined to be the Face Amount.
EFFECT OF A PARTIAL WITHDRAWAL ON
GUARANTEED BENEFITS
A partial withdrawal may affect the guaranteed benefits under the Policy. The
change, if any, in the Face Amount and Guarantee Period as of the Processing
Date on or next following the effective date of a partial withdrawal will be
calculated as follows:
(1) Prior to effecting the partial withdrawal, We
calculate the death benefit as of the date of the partial withdrawal.
(2) We subtract from (1) the amount of the partial
withdrawal and any associated charges.
(3) If the amount determined in (2) is less than the
Face Amount, We reduce the Face Amount to the amount determined in (2).
Decreases in the Face Amount could result in the Policy becoming a
"modified endowment contract." See Federal Income Tax Considerations,
Modified Endowment Contracts.
(4) The Tabular Value as of such Processing Date
and the Face Amount will be used to calculate a new Guarantee Period. The
Guarantee Period ends on the earlier of the date so determined and any
maximum shown in the Policy. In no event will We allow a partial
withdrawal that will reduce the Guarantee Period below the minimum shown
in the Policy or reduce the Face Amount below the amount We would then
allow.
22
<PAGE>
YOUR POLICY'S BENEFITS (CONTINUED)
YOUR RIGHT TO CANCEL OR EXCHANGE YOUR POLICY
CANCELLING YOUR POLICY
You may cancel Your Policy within the Free Look Period and We will refund any
premiums paid without interest. Generally under a Genesis I Policy, this
period ends 10 days from the date You receive the Policy. For purposes of
administering Our allocation rules, We deem this period as ending 15 days
after a Policy is mailed from Our Customer Service Center. Some states may
require a longer Free Look Period.
Under a Genesis Flex Policy, the Free Look Period generally ends on the latest
of (i) 10 days after You receive Your Policy, (ii) 45 days from the date You
complete part I of the application or enrollment form, or (iii) 10 days from
the mailing of the notice of cancellation right.
If You cancel the Policy, We will require that You wait six months before
applying to Us again.
EXCHANGING YOUR POLICY
During the first 24 months after the Issue Date, You may convert the Policy so
that Your benefits do not vary based on the Net Rate of Return. In effect, We
make this option available to You by permitting You to reallocate all of the
Policy's Investment Value to Our general account. At the time of such
election, there will be no effect on the Policy's Face Amount, Net Amount at
Risk, underwriting class(es), or Issue Age(s). We will not ask for evidence of
insurability.
This right of conversion will also be offered at any time there is a change in
the investment adviser of any portfolio or if there is a material change in
the investment objectives or restrictions of any portfolio in which the
divisions invest. We will notify You if there is any such change. You will be
able to convert Your Policy within 60 days after Our notice or the effective
date of the change, whichever is later.
INSURANCE BENEFITS
DEATH BENEFIT PROCEEDS
We will pay the death benefit proceeds to the beneficiary when We receive due
proof of the death (such as an official death certificate) of the Insured under
a single life policy, or both Insureds under a survivorship policy, and all
other requirements.
Death benefit proceeds are determined on the date of death of the Insured(s) as
follows:
(1) We determine the death benefit.
(2) We subtract from (1) any Debt.
(3) If the Insured(s) dies during a grace period We
subtract from (2) the sum of any overdue charges and any charges incurred to
the date of death. See When Your Guarantee Period Ends Before the Maturity
Date, GRACE PERIOD.
OPTION I DEATH BENEFIT
If the Option I Death Benefit is in effect on the date of death, the death
benefit is the greater of:
(1) the Face Amount as of the prior Processing
Date; and
(2) the Variable Insurance Amount as of the date of
death.
If at the time the death benefit proceeds become payable, an additional
premium payment has been accepted and/or a partial withdrawal has been made
since the last Processing Date, the death benefit used to determine proceeds
payable will be calculated as the greater of:
(1) the Face Amount calculated as of the prior
Processing Date plus any additional premium payments, less any partial
withdrawals; and
(2) the Variable Insurance Amount as of the date of
death.
OPTION II DEATH BENEFIT
If the Option II Death Benefit is in effect on the date of death, the death
benefit is the greater of:
(1) the Face Amount as of the prior Processing
Date plus the Option II Death Benefit Adjustment as of the date of death
(see below); and
(2) the Variable Insurance Amount as of the date of
death.
OPTION II DEATH BENEFIT ADJUSTMENT
The Option II Death Benefit Adjustment is calculated as the greater of (i) the
Option II Guaranteed Death Benefit and (ii) the Investment Value plus Debt.
OPTION II GUARANTEED DEATH BENEFIT
On the Issue Date the Option II Guaranteed Death Benefit is equal to the
premiums paid. On subsequent Valuation Dates during the Guarantee Period, the
Option II Guaranteed Death Benefit is calculated as follows:
(1) We take the Option II Guaranteed Death
Benefit from the prior Valuation Date;
(2) We calculate interest at the Option II
Guaranteed Death Benefit Interest Rate (as defined below);
(3) We add (1) and (2);
23
<PAGE>
INSURANCE BENEFITS (CONTINUED)
(4) We add to (3) any premiums paid during the
current Valuation Period; and
(5) We subtract from (4) any partial withdrawals
taken during the current Valuation Period.
However, in no event will the Option II Guaranteed Death Benefit be greater than
two times the sum of each premium paid less any partial withdrawals associated
with each premium paid. After the Guarantee Period, the Option II Guaranteed
Death Benefit is zero.
The Option II Guaranteed Death Benefit Interest Rate is equal to 7%; however,
(i) for the Liquid Asset Division it is equal to the net rate of return during
the current Valuation Period, if less than an annualized rate of 7%; (ii) for
the Fixed Account it is equal to the rate of interest credited to such amounts
during the current Valuation Period, if less than an annualized rate of 7%; and
(iii) for amounts transferred to the general account as collateral for any
policy loans it is equal to the rate of interest credited to such amounts during
the current Valuation Period, if less than an annualized rate of 7%.
PAYMENT OF DEATH BENEFITS PROCEEDS
The beneficiary should contact Our Customer Service Center for instructions.
We usually pay the proceeds within seven days after We receive due proof of
the death of the applicable Insured(s) and all other requirements. We may
delay payment of all or part of the death benefit proceeds under certain
circumstances. See Other Important Information, Other General Policy
Provisions, PAYMENTS WE MAY DEFER. Interest will be paid on death benefit
proceeds at an annual rate of at least 3.5% from the date of death of the
applicable Insured(s) to the date of payment. Interest will never be less than
required by applicable law.
VARIABLE INSURANCE AMOUNT
The Variable Insurance Amount will vary daily based on the Investment Results,
premium payments made and partial withdrawals taken and will be determined as
follows:
(1) We determine the Investment Value;
(2) We add any Debt;
(3) We multiply by the Net Single Premium Factor.
It will never be less than the amount required by applicable law to keep the
Policy qualified as life insurance.
NET SINGLE PREMIUM FACTOR
The Net Single Premium Factor is based on the Attained Age, sex and underwriting
class of the Insured(s). It decreases as an Insured's age increases. As a
result, the Variable Insurance Amount will decrease in relationship to the
Policy's Investment Value as the Insured's age increases. Also, Net Single
Premium Factors may be higher for a woman than for a man of the same age. A
table of Minimum Net Single Premium Factors is included in the Policy.
TABLES OF ILLUSTRATIVE MINIMUM NET SINGLE
PREMIUM FACTORS
SINGLE LIFE, MALE, AGE 35,
NON-SMOKER
<TABLE>
<CAPTION>
POLICY NSP
YEAR FACTOR
- ----------- ---------
<S> <C>
1 4.28987
5 3.74881
10 3.17597
15 2.70250
20 2.31286
25 1.99777
30 1.74514
35 1.54717
40 1.39370
45 1.28082
50 1.19623
55 1.13703
60 1.08538
65 1.02207
</TABLE>
SURVIVORSHIP, MALE AND FEMALE, AGE 35,
NON-SMOKERS
<TABLE>
<CAPTION>
POLICY NSP
YEAR FACTOR
- ----------- ---------
<S> <C>
1 6.43408
5 5.50113
10 4.52680
15 3.73086
20 3.08264
25 2.55812
30 2.13693
35 1.80584
40 1.55097
45 1.36578
50 1.23618
55 1.15170
60 1.08806
65 1.02207
</TABLE>
24
<PAGE>
INSURANCE BENEFITS (CONTINUED)
CHANGES IN FACE AMOUNT
After the first Policy Anniversary, You may request a change in the Face Amount
under Your Policy. The request for any change must be in written form
satisfactory to Us.
INCREASING THE FACE AMOUNT
To increase the Face Amount, a supplemental application or enrollment form
must be submitted. Any increase will be subject to evidence of insurability
satisfactory to Us. Such increase must at least equal the minimum increase We
then allow. The increase will take effect on the Processing Date on or next
following the date We approve such increase.
DECREASING THE FACE AMOUNT
Any decrease in Face Amount will take effect on the Processing Date on or next
following the date We approve the written request for the decrease. Such
decrease must at least equal the minimum decrease We then allow. If there have
been any prior increases in Face Amount, the decrease will first be applied
against the prior increases in the reverse order of their effective dates.
Decreases in Face Amount will be subject to Our rules at the time of request.
Decreases in the Face Amount could result in the Policy becoming a "modified
endowment contract." See Federal Income Tax Considerations, Modified Endowment
Contracts.
WHEN A CHANGE IN FACE AMOUNT IS MADE
The Tabular Value will be used to calculate a new Guarantee Period. Any part
of the Tabular Value in excess of the amount required to increase the
Guarantee Period to life will be applied as a net single premium for life to
increase the Face Amount.
GUARANTEE PERIOD
The death benefit under your Policy is subject to a guaranteed minimum amount
for a guaranteed minimum period of time regardless of Investment Results. The
guaranteed minimum amount is your Policy's Face Amount and the Policy's
Guarantee Period is the minimum period of time We guarantee that your Policy
will remain in force regardless of its Investment Results. However, if there is
Debt, and your Cash Surrender Value is negative, We will terminate your Policy
before the end of the Guarantee Period unless sufficient payment is made. See
Your Policy's Benefits, Policy Loans.
Your Guarantee Period at issue depends upon your initial premium payment and
Face Amount. Thereafter, the Guarantee Period may change if (1) you take a
partial withdrawal, (2) you pay a planned or unplanned premium, or (3) you
change the Face Amount of your Policy. For Genesis Flex, each planned premium
extends the Guarantee Period, and if all planned premiums are paid as planned
and the Insured(s) are in a standard or better underwriting class, the Guarantee
Period will last until the Maturity Date of your Policy. For Genesis I, if you
elect the minimum face amount we allow for a given single premium and the
Insured(s) are in a standard or better underwriting class, the Guarantee Period
will last until the Maturity Date of your Policy; however, if you elect a face
amount greater than such minimum, your Guarantee Period will end before the
Maturity Date.
The Guarantee Period will be calculated using (1) rates no greater than the
guaranteed maximum cost of insurance rates shown in the Policy and (2) a 4.0%
interest assumption. For a given premium payment and Face Amount, the Guarantee
Period will differ depending on the age, sex and underwriting class of the
Insured(s). For example under a single life policy, for the same premium and
Face Amount, an older Insured will have a shorter Guarantee Period than a
younger Insured of the same sex and in the same underwriting class.
CHANGING THE DEATH BENEFIT OPTION (GENESIS I ONLY)
After the first Policy Anniversary, while the Insured(s) is living and the
Policy is in effect, You may change the death benefit option. However, changes
may be made no more frequently than once every three Policy Years. We must
receive written notice of any change in a form satisfactory to Us. Any change in
death benefit option will take effect on the Processing Date on or next
following the date We approve the change. When the change is from the Option II
Death Benefit to the Option I Death Benefit, We will increase the Face Amount in
force by the amount of the Option II Death Benefit Adjustment, as of the date of
the change. If the change is from the Option I Death Benefit to the Option II
Death Benefit, We will decrease the Face Amount in force by the amount of the
Option II Death Benefit Adjustment, as of the date of the change. These
increases and decreases in Face Amount are made so that the death benefit
remains the same on the date of the change. Changes in death benefit options are
subject to Our rules at the time of the change.
LIFETIME GUARANTEE OPTION
Subject to Our rules, you may be available for a lifetime guarantee option if
the Guarantee Period under Your Policy ends before the Maturity Date, You may
request a change to Your Policy such that
25
<PAGE>
INSURANCE BENEFITS (CONTINUED)
the Guarantee Period will end on the Maturity Date. The request must be in a
written form satisfactory to Us. On the date We receive Your request, if the
Option II Death Benefit is in effect under Your Policy, We will first change
the death benefit option to the Option I Death Benefit and then change the
Face Amount such that the Guarantee Period will end on the Maturity Date. If
the Option I Death Benefit is already in effect under Your Policy, We will
change the current Face Amount such that the Guarantee Period will end on the
Maturity Date. See Insurance Benefits, Guarantee Period.
GENERAL
When a change in Face Amount is made, the Tabular Value will be used to
calculate a new Guarantee Period. Any part of the Tabular Value in excess of
the amount required to increase the Guarantee Period to the Maturity Date,
will be applied as a net single premium to the Maturity Date to increase the
Face Amount. See Facts About the Policy, Tabular Value.
WHEN YOUR GUARANTEE PERIOD ENDS BEFORE THE MATURITY DATE
After the end of the Guarantee Period and a grace period, We may cancel Your
Policy if the Cash Surrender Value on a Processing Date will not cover the
charges due. See Charges and Deductions.
GRACE PERIOD
We will notify You before cancelling Your Policy. You will have 61 days (the
"grace period") from the date We mail the notice to You, to pay Us the charges
due on the Processing Date when Your Cash Surrender Value becomes
insufficient. (In certain states the amount of the required payment may differ
and the amount will be shown on the notice We mail to You). We will not cancel
Your Policy until the end of this grace period. Any excess of the payment
above the overdue charges will be treated as an additional premium payment.
See Making Additional Premium Payments.
REINSTATING YOUR POLICY
If We cancel Your Policy, You may reinstate it while the Insured (both of the
Insureds for survivorship policies) is still living provided that:
(1) You request the reinstatement within three
years after the end of the grace period;
(2) We receive satisfactory evidence of insurability;
and
(3) You pay Us at least the reinstatement cost,
which is the minimum payment for which We would then issue the Policy
based on the Attained Age and underwriting class of the Insured(s) as of
the effective date of the reinstatement.
Your reinstated Policy will be effective on the Processing Date on or next
following the date We approve Your reinstatement application.
POLICY GUARANTEES
Although Your Policy values depend on the Investment Results and the amount of
Cash Surrender Value in Account A is not guaranteed, the Policy does provide the
following guarantees.
GUARANTEE PERIOD
We guarantee that the Policy will stay in force during the Guarantee Period.
We will not cancel the Policy during the Guarantee Period unless there is Debt
and the Cash Surrender Value is negative. See Your Policy's Benefits, Policy
Loans. We will hold a reserve in Our general account to support this
guarantee.
MORTALITY COST
Each Policy guarantees maximum mortality rates of 100% of the 1980 CSO
Mortality Tables adopted by the National Association of Insurance
Commissioners. Policies issued in one of the special classes will have
guaranteed maximum mortality rates based on multiples of the 1980 CSO
Mortality Tables that are appropriate for the risks involved. We may use
current tables that are less but never greater than these rates.
We limit the mortality cost if investment results are unfavorable. See Charges
and Deductions, Mortality Charges. In effect, during the Guarantee Period You
will not be charged for mortality costs that are greater than those for a
comparable fixed policy based on 4.0% interest and the same guaranteed
mortality rates.
CHOOSING AN INCOME PLAN
We offer several income plans to provide for payment of the death benefit
proceeds to the beneficiary. You may choose one or more income plans at any time
while the Policy is in force. If no plan has been chosen when the death benefit
is payable, the beneficiary has one year to apply the death benefit proceeds to
one or more of the plans. You may also choose one or more income plans on
surrender of the Policy.
26
<PAGE>
CHOOSING AN INCOME PLAN (CONTINUED)
Plans 1, 2 and 3 are supported by Our general account assets and do not vary to
reflect investment experience of the Account. Plan 4 may be supported by a
separate account in which case it will vary with investment experience.
Our approval is needed for any plan where:
(1) the person named to receive payment is other
than the owner or beneficiary; or
(2) the person named is not a natural person, such
as a corporation; or
(3) any income payment would be less than $500.
The income plans are:
PLAN 1: INCOME FOR A FIXED PERIOD
Payments are made in equal installments for a fixed number of years.
PLAN 2: INCOME FOR LIFE
Payments are made to the person named in equal monthly installments and
guaranteed for at least a period certain. The period certain can be 10 or 20
years. Other periods certain are available on request. A refund certain may be
chosen instead. Under this arrangement, income is guaranteed until payments
equal the amount applied.
PLAN 3: JOINT LIFE INCOME
Payments are made in monthly installments as long as at least one of two named
persons is living. Payments end completely when both named persons die.
PLAN 4: ANNUITY PLAN
An amount can be used to purchase any single premium annuity We offer. We will
issue a written agreement putting the plan into effect.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, We will pay any amounts still due
as provided by the plan agreement. The amounts still due are determined as
follows:
(1) For plans 1, 2, or any remaining guaranteed
payments, payments will be continued. Under plans 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 annual discount interest
rate is 3.0% for plan 1 and 3.50% for plan 2. We will, however, base the
discount interest rate on the interest rate used to calculate the payments
for plans 1 and 2 if such payments were not based on the tables in the
Policy.
(2) For plan 3, no amounts are payable after both
named persons have died.
(3) For plan 4, the annuity agreement will state the
amount due, if any.
OTHER IMPORTANT INFORMATION
OTHER GENERAL POLICY PROVISIONS
OWNERSHIP
The Policyowner is usually the Insured, unless another owner has been named in
the application or enrollment form. The Policyowner has all rights and options
described in the Policy.
If You, the Policyowner, are not the Insured, You may want to name a
contingent owner. If You die before the Insured, the contingent owner will own
the Policy and have all Your rights. If You do not name a contingent owner,
Your estate will own the Policy at Your death.
CHANGING THE OWNER
During Your lifetime, You have the right to transfer ownership of the Policy.
The new owner will have all rights and options described in the Policy. The
Change will be effective as of the day the notice is signed, but will not
affect any payment made or action taken by Us before receipt of the change at
Our Customer Service Center. See Federal Income Tax Considerations, Change of
Ownership or Assignment.
NAMING BENEFICIARIES
On the death of the Insured (single life), or the last surviving Insured
(survivorship), We will pay the beneficiary the death benefit proceeds. If the
beneficiary has died, We pay the contingent beneficiary. If no contingent
beneficiary is living, We pay the estate of the Insured under a single life
policy, or the last surviving Insured under a survivorship policy.
You may name more than one person as beneficiaries or contingent
beneficiaries. We will pay them in equal shares unless You give other
instructions.
You have the right to change beneficiaries unless the beneficiary designation
has been made irrevocable. If the designation is irrevocable, the beneficiary
must consent when You exercise certain rights and options under the Policy.
Any change in beneficiary will be effective as of the day the notice is
signed,
27
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
but will not affect any payment made or action taken by Us before receipt of
the change at Our Customer Service Center.
INCONTESTABILITY
We rely on statements made in the application or enrollment form. Legally,
they are considered representations, not warranties. We can contest the
validity of a Policy if any material misstatements are made in the initial
application or enrollment form. We can also contest the validity of any change
in face amount requested by You if any material misstatements are made in any
application required for that change. We can also contest any amount of death
benefit which would not be payable except for the fact that an additional
premium which requires evidence of insurability was paid if any material
misstatements are made in any application required with the additional
premium.
We will not contest the validity of a Policy after it has been in effect
during the Insured's lifetime (or during the lifetime of at least one of the
Insureds for survivorship policies) for two years from the date of issue. We
can also contest any change in face amount requested by the Policyowner after
the change has been in effect during the Insured's lifetime (or during the
lifetime of at least one of the Insureds for survivorship policies) for two
years from the date of the payment. Nor will We contest any amount of death
benefit attributable to an additional payment after such death benefit has
been in effect during the Insured's lifetime (or during the lifetime of at
least one of the Insureds for survivorship policies) for two years from the
date of the payment.
For survivorship policies, after the second Policy Anniversary We will send
You by certified mail, a request for notification of the death of either
Insured. If the death of either Insured has occurred and You fail to reply to
such request and provide proof of death of either Insured, if applicable, We
may contest the validity of coverage under the Policy.
If their Policy is reinstated, this provision will be measured from the
effective date of the reinstated Policy.
POLICY VALUES REPORTS
After the end of each calendar quarter You will receive a statement of the
allocation of Your Investment Value, death benefit, Cash Surrender Value, any
Debt and Your current Face Amount and Guarantee Period. All figures will be as
of the last day of the prior calendar quarter. It will also include any other
information that may be currently required by the state insurance department
of the jurisdiction in which the Policy is delivered.
You will also receive annual reports containing a financial statement for
Account A and any shareholder reports of the Trust, as well as any other
reports, notices or documents required by law to be furnished to You.
POLICY CHANGES -- APPLICABLE TAX LAW
For You to receive the tax treatment accorded to life insurance under Federal
law, Your Policy must qualify initially and continue to qualify as life
insurance under the Internal Revenue Code or successor law. Therefore, to
assure this qualification, We have reserved the right to defer acceptance of
or to return any additional payments that would cause the Policy to fail to
qualify as life insurance under applicable tax law. Further, We reserve the
right to make changes in the Policy or its optional benefit riders or to make
distributions from the Policy to the extent We find it necessary to continue
to qualify Your Policy as life insurance. Any such changes will apply
uniformly to all Policies that are affected and You will be given advance
written notice of such changes. See Federal Income Tax Considerations.
IN CASE OF ERRORS ON THE APPLICATION
If an Insured's age or sex has been misstated on the application or enrollment
form, the death benefit shall be that which would be purchased by the
mortality cost determined for the current Processing Period based on the
correct age and sex. In addition, the benefit provided by any optional benefit
rider shall be the amount purchased by the rider deduction for the current
Processing Period based on the correct age and sex.
SENDING NOTICE TO US
Any written notices or requests should be sent to Our Customer Service Center.
The address is shown on the Cover Page. Please include Your name, policy
number and if You are not an Insured, the name(s) of the Insured(s).
SUICIDE
For single life policies, if an Insured commits suicide within two years from
the Policy's Issue Date or an increase in the Policy's face amount, We will
pay only a limited death benefit. The benefit will be equal to the premium
payments made or, in the case of an increase in face amount, the death benefit
that would otherwise have been payable had no increase in face amount been
made. If an Insured commits suicide within two years of any date We receive
and accept an additional payment, any amount of death
28
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
benefit which would not be payable except for the fact that the additional
payment was made will be limited to the amount of the additional payment.
For survivorship policies, if either Insured commits suicide within two years
from the Policy's Issue Date, upon notification We will issue coverage to the
last surviving Insured on a single life basis as of the Issue Date. If there
is no surviving Insured, the death benefit will be limited to the amount of
the premium payments made.
If the last surviving Insured commits suicide within two years of the
effective date of any increase in face amount requested by the Policyowners,
we will terminate the coverage attributable to such increase in face amount
and pay only a limited benefit. The limited benefit will be the amount of
mortality cost deductions made for such increase.
If the last surviving Insured commits suicide within two years of any date We
receive and accept an additional premium which requires evidence of
insurability, any amount of death benefit which would not be payable except
for the fact that the additional premium was made will be limited to the
amount of the additional premium.
The death benefit We will pay will be reduced by any Debt and by any partial
withdrawals taken.
PAYMENTS WE MAY DEFER
We will pay death benefit proceeds, Cash Surrender Values and loans within
seven days after Our Customer Service Center receives all the information
needed to process the payment.
We may, however, delay payment if We contest the Policy. We may also delay
payment of amounts derived from the divisions of Account A if it is not
practical for Us to value or dispose of shares of Account A because:
(1)the New York Stock Exchange is closed for
other than a regular holiday or weekend; or
(2)trading is restricted; or
(3)an emergency exists according to SEC rules; or
(4)the check used to pay the premium has not
cleared through the banking system. This may take up to 15 days.
We may also delay payment if an SEC order or pronouncement allows Us to in
order to protect Our Policyowners.
We may defer payment of any Cash Surrender Value or loan amount (except a loan
to pay a premium to Us) from the Fixed Account for up to six months after We
receive Your request.
ESTABLISHING SURVIVORSHIP -- SURVIVORSHIP POLICIES ONLY
If We are unable to determine which of the Insureds was the last survivor on
the basis of the proofs of death provided to Us, We shall consider the Insured
(not the Joint Insured) to be the last surviving Insured.
CLAIMS OF CREDITORS
The proceeds of the Policy will be free from creditors' claims to the extent
allowed by law.
ASSIGNING THE POLICY AS COLLATERAL
You may assign the Policy 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 Federal
Income Tax Considerations, Change of Ownership or Assignment.
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 Policies do 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:
(1) change any of the Policy's terms; or
(2) make any agreements binding on Us.
CHANGES IN EXPENSE CHARGES AND
INSURANCE BASED CHARGES
Changes in expense charges or insurance based charges will be by class and
based upon changes in future expectations for such elements as mortality,
persistency, expenses and taxes. Any change in policy cost factors will be
determined in accordance with procedures and standards on file, if required,
with the insurance supervisory official of the jurisdiction in which the
Policy is delivered.
YOUR VOTING PRIVILEGES
You have the right to instruct Us as to how to vote at annual meetings of the
Trust on the ratification of the selection of independent auditors and such
other matters as the 1940 Act requires.
29
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
We will vote the shares of the Trust owned by Account A according to Your
instructions. However, if the Investment Company Act of 1940 or any related
regulations should change, or if interpretations of it or related regulations
should change and We decide that We are permitted to vote the shares of the
Trust in Our own right, We may decide to do so.
We determine the number of shares that You have in a division of Account A by
dividing a Policy's Investment Value in that division by the net asset value of
one share of the Series in which a division invests. You may cast one vote per
share. Fractional votes will be counted. We will determine the number of shares
You can instruct Us to vote 90 days or less before the Trust's meeting. We will
ask You for voting instructions by mail at least 14 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 Policies in that division. We
will also vote shares We hold in Account A which are not attributable to
Policyowners in the same proportion.
Under certain circumstances, We may be required by state regulatory authorities
to disregard voting instructions. This may happen if following the instructions
would mean voting to change the sub-classification or investment objectives of
the portfolios, or to approve or disapprove an investment advisory contract.
We may also disregard instructions to vote for changes initiated by an owner in
the investment policy or the portfolio manager if We disapprove the proposed
changed. We would disapprove a proposed change only if it was:
(1) contrary to state law:
(2) prohibited by state regulatory authorities; or
(3) decided by Us that the change would result in
overly speculative or unsound investments. If We disregard voting
instructions, We will include a summary of Our actions in the semiannual
report.
SALES AND OTHER AGREEMENTS
DSI is principal underwriter and distributor of the Policies, as well as for
other policies issued through Account A and other separate accounts of Golden
American. DSI is a wholly owned subsidiary of BT Variable, Inc. ("BTV"), which
is an indirect subsidiary of Bankers Trust Company. DSI is registered with the
SEC as a broker-dealer and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). We pay DSI for acting as principal underwriter under a
distribution agreement. The amount We paid under this agreement for all of the
policies issued through the Account came to $24,612 for 1991, $15,709 for 1992,
$53,587 for 1993 and $286,476 for 1994.
DSI will enter into sales agreements with other broker-dealers to sell the
Policies. These agreements provide for payment of commissions of up to 7% of
premiums for the Genesis I Policy. Currently, for the Genesis Flex Policy, the
first year commission will be greater but in no event more than 37 1/2% of
premiums with 4.5% commission on renewal premiums. The agreements also provide
that applications for Policies may be solicited by registered representatives of
the broker-dealers appointed by Golden American to sell its variable life
insurance and variable annuities. These broker-dealers are registered with the
SEC and are members of the NASD. The registered representatives are authorized
under applicable state regulations to sell variable life insurance and variable
annuities. The offering of the Policies will be continuous.
SERVICING AGENT
We previously had an Administrative Services Agreement with BTV. Under that
agreement, BTV provided administrative services for all of Our variable life
policies. Those services included underwriting and issue, Policyowner service
and the administration of the variable account. The amount paid to BTV for
providing those services for all the policies issued through the Account came to
$10,361 for 1991, $5,116 for 1992, and $5,399 for 1993. Since 1993 We have
consolidated Our variable insurance business and act as administrator for Our
variable life products.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the deferred loading,
the per policy charge, the annual administrative charge and the minimum initial
premium and the minimum additional premium requirements. We also may offer
planned premium payment periods of other than ten years and limit the Guarantee
Period to a specified number of years. Group arrangements include those in which
a trustee or an employer, for example, purchases policies covering each
individual in a group on a group basis. Sponsored arrangements include those in
which an employer allows Us to sell policies to its employees on an individual
basis.
Our costs for sales, administration and mortality generally vary with the size
and stability of the group,
30
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
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 policies or that have been in existence less than six months will not
qualify for reduced charges.
We will make any reductions according to Our rules in effect when an application
or enrollment form for a policy or additional premium is approved. We may change
these rules from time to time. However, any reductions will reflect differences
in costs or services and will not discriminate unfairly against any person.
STATE REGULATION
We are regulated and supervised by the Insurance Department of the State of
Delaware, which periodically examines Our financial condition and operations. We
are also subject to the insurance laws and regulations of all jurisdictions
where We do business. The variable life insurance policies offered by this
prospectus have been filed with the Insurance Department of the State of
Delaware and in other jurisdictions.
We are required to submit annual statements of Our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which We do business to determine solvency and compliance with local
insurance laws and regulations.
REGISTRATION STATEMENT
We have filed a registration statement under the Securities Act of 1933 with the
SEC relating to the offering described in this prospectus. This prospectus does
not include all the information in the registration statement. We have omitted
certain portions according to SEC rules. You may obtain the omitted information
from the SEC's main office in Washington, D.C. by paying the SEC's prescribed
fees.
LEGAL CONSIDERATIONS FOR EMPLOYERS
In 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V. NORRIS that
optional annuity benefits provided under an employer's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women. In that case, the Court applied its decision only to benefits
derived from contributions made on or after August 1, 1983. However, a more
recent decision of the United States Court of Appeals for the Second Circuit,
SPIRT V. TIAA-CREF, suggests that in other circumstances the prohibition of
sex-distinct benefits may apply to contributions made before that date.
The Policies offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Policies pay different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing the Policy.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining premiums and policy benefits for Policies issued on the
lives of their residents. Therefore, Policies offered by this prospectus to
insure residents of these states will have premiums and benefits which are based
on actuarial tables that do not differentiate on the basis of sex.
LEGAL PROCEEDINGS
Golden American, as an insurance company is ordinarily involved in litigation.
We do not believe that any current litigation is material and We do not expect
to incur significant losses from such actions.
LEGAL MATTERS
The legal validity of the Policies described in this prospectus has been passed
on by Bernard R. Beckerlegge, General Counsel and Secretary of Golden American.
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to Federal securities laws.
EXPERTS
The financial statements of Golden American Life Insurance Company and Separate
Account A appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the registration statement and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Stephen J.
Preston, F.S.A., MAAA, as stated in his opinion filed as an exhibit to the
registration statement.
REINSURANCE
Golden American reinsures all or a portion of the mortality risks under the
Policies with one or more appropriately licensed insurance companies.
ADDITIONAL INFORMATION
Additional information may be obtained from Our Customer Service Center, the
address and telephone number of which are on the cover of this prospectus.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME (AGE) POSITIONS(S) WITH THE COMPANY
- ---------------------------- -----------------------------
<S> <C>
Terry L. Kendall (49) Chairman, President and Chief
Executive Officer
John Herron, Jr. (44) Director
Richard A. Marin (42) Director
Barnett Chernow (45) Executive Vice President
Mitchell R. Katcher (42) Executive Vice President
David L. Jacobson (46) Senior Vice President
Stephen J. Preston (38) Senior Vice President, Chief
Actuary and Treasurer
Myles R. Tashman (53) Executive Vice President
Mary B. Wilkinson (39) Senior Vice President
Edward C. Wilson (43) Executive Vice President
</TABLE>
The directors and principal officers of Golden American, together with their
principal occupations during the past five years, are as follows:
MR. KENDALL joined Bankers Trust Company in September 1993 as Managing Director.
He is Chairman of the Board, President and Chief Executive Officer of the Golden
American. From 1982 through June 1993, he was President and Chief Executive
Officer of United Pacific Life Insurance Company.
MR. MARIN joined Bankers Trust Company in 1978 and is a Managing Director. He
has been a director of Golden American since 1992.
MR. HERRON joined Banker Trust Company in 1978 and is a Managing Director. He
has been a director of Golden American since 1993.
MR. CHERNOW joined Golden American in October 1993 as Executive Vice President.
From 1977 through 1993 he held various positions with Reliance Insurance
Companies and was Senior Vice President and Chief Financial Officer of United
Pacific Life Insurance Company from 1984 through 1993.
MR. KATCHER joined Golden American in July 1993 as Executive Vice President.
From 1991 through 1993 he was a Consulting Actuary for Tillinghast. Prior to
1991 he was Senior Vice President and Chief Actuary with Monarch Financial
Services, Inc.
MR. JACOBSON joined Golden American in November 1993 as Senior Vice President
and Assistant Secretary. From April 1974 through November 1993 he held various
positions with United Pacific Life Insurance Company and was Vice President upon
leaving.
MR. PRESTON joined Golden American in December 1993 as Senior Vice President,
Chief Actuary and Controller. From September 1993 through November 1993 he was
Senior Vice President and Actuary for Mutual of America Insurance Company. From
July 1987 through August 1993 he held various positions with United Pacific Life
Insurance Company and was Vice President and Actuary upon leaving.
MR. TASHMAN joined Golden American in August 1994 as Senior Vice President and
was named Executive Vice President effective January 1, 1996. From 1986 through
1993 he was Senior Vice President and General Counsel of United Pacific Life
Insurance Company.
MS. WILKINSON joined Golden American in November 1993 as Senior Vice President.
From August 1993 through October 1993 she was an Assistant Vice President with
CIGNA Insurance Companies. From January 1987 through July 1993 she held various
positions with United Pacific Life Insurance Company and was Vice President and
Controller upon leaving.
MR. WILSON joined Golden American in December, 1995 as Executive Vice President.
From August, 1994 to December, 1995 he was Senior Managing Director at Van Eck
Global Investors. From July, 1990 to August, 1994 he was Vice President and
National Sales Manager at Keyport Life Insurance Company.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of Federal income taxes on the benefits of a policy and to
the owner or beneficiary depends on Golden American's tax status and upon the
tax status of the individual concerned. The discussion contained herein is
general in nature and focuses primarily on the Federal income tax. It is not
intended to be an exhaustive discussion of all tax questions that might arise
under the policies and should not be taken as tax advice. No attempt is made to
interpret estate and inheritance taxes, or any state, municipal or other tax
laws. Moreover, no representation is made as to the likelihood of continuation
of current interpretations by the Internal Revenue Service. We reserve the right
to make changes in the Policies to assure that they will continue to qualify as
life insurance. For complete information on tax considerations, a qualified tax
advisor should be consulted.
Golden American makes no guarantee regarding the tax consequences of any policy.
However, subject to the discussion below, Golden American does believe that the
policy qualifies as life insurance for Federal income tax purposes.
GOLDEN AMERICAN -- TAX STATUS
We are taxed as a life insurance company under Subchapter L of the Internal
Revenue Code of 1986, as amended (the "Code"). Account A is not a separate
entity from Golden American and its operations form a part of Golden American.
However, the assets in the
32
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
Account are segregated from all of Golden American's other assets and may not be
charged with liabilities which arise from any other business Golden American
conducts.
Investment income and realized capital gains on the assets of the Account are
reinvested and taken into consideration in determining Investment Values. Under
existing Federal income tax law, the investment income of the Account, including
realized net capital gains, is not taxed to Golden American.
Under the current provisions of the Code, Golden American does not expect to
incur Federal income taxes on earnings in the Account to the extent the earnings
are credited under the Policies. Accordingly, no charge is expected to be made
to the Account for Federal income taxes. Periodically, We will review the
appropriateness of a charge to the Account for Our Federal income taxes. A
charge may be made for any Federal income taxes incurred by Golden American that
are attributable to the Account. We reserve the right to make a deduction for
taxes should they be imposed in the future.
Under current laws, Golden American may incur state and local taxes (in addition
to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, We reserve the right to charge the Account for such taxes, if any,
attributable to the Account.
DEFERRED ACQUISITION COSTS
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are required to capitalize and amortize specified policy acquisition
expenses over a ten year period (a five year amortization is permitted for a
specifically defined small amount of specified policy acquisition expenses).
Prior to this change, insurance companies were permitted to deduct policy
acquisition costs in the year in which they were incurred. This revised
treatment of deferred acquisition costs results in significantly higher
corporate income tax liability for the insurance company in early policy years.
To compensate for this change, Golden American may deduct a charge based on each
premium received to conform with changes in the amount payable by Us under
applicable Federal income tax law as of the date(s) of such premium payments. We
believe this charge will be reasonable in relation to Our increased tax
liability resulting from the capitalization and amortization of policy
acquisition costs.
DEATH BENEFITS
The death benefit paid under a policy (whether or not a "modified endowment
contract," see Modified Endowment Contracts) will receive the same tax treatment
as a death benefit paid under fixed benefit life insurance provided that the
policy meets the statutory definition of a life insurance contract under Code
Section 7702. We believe that the Policy does meet that definition, subject to
the discussion below. Thus, the death benefit proceeds under the Policy should
be excludable from the gross income of the beneficiary under Section 101(a)(1)
of the Code and the owner should not be deemed to be in constructive receipt of
the Cash Surrender Values, including increments thereon.
SURVIVORSHIP POLICIES AND POLICIES ISSUED TO INDIVIDUALS WITH SUBSTANDARD
MORTALITY RISKS
Regulations have been proposed under Code Section 7702 regarding mortality
charges which may be taken into account under life insurance policies.
Currently, these proposed regulations deny certain safe harbors to survivorship
policies and policies issued on the lives of insureds who constitute substandard
mortality risks. When the regulations are finalized, it is anticipated that
these situations will be addressed, but the requirements that ultimately will be
imposed are uncertain. It is possible that when these regulations are finalized,
death benefits or premiums may need to be adjusted and higher cost of insurance
charges may need to be imposed in order for the Policy to continue to qualify as
life insurance for Federal income tax purposes. Thus, it is possible that the
amount of the Policy's Cash Surrender Value and other benefits may be affected.
So that the Policy will continue to qualify as life insurance for Federal income
tax purposes, Golden American reserves with the right to modify the Policy as
necessary to comply with these regulations as finalized.
SURRENDER
Upon full surrender of a policy for its cash surrender value, the owner may
recognize ordinary income for Federal income tax purposes. Ordinary income would
be the amount by which the cash surrender value plus any debt exceeds the
premiums paid but not previously recovered without taxation. If the policy is a
"modified endowment contract," any income received upon surrender may be subject
to an additional 10% tax. See Modified Endowment Contracts, PENALTY TAX.
PARTIAL WITHDRAWALS
Partial withdrawals may be taxable depending on the circumstances. If the policy
is a "modified endowment
33
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
contract," partial withdrawals are fully taxable to the extent of income in the
policy and are possibly subject to an additional 10% tax. See Modified Endowment
Contracts, PENALTY TAX and DISTRIBUTIONS AFFECTED.
If the policy is not a "modified endowment contract," partial withdrawals may
still be taxable, as follows. The amount withdrawn is taxable to the extent it
exceeds the total amount of premiums paid but not previously recovered. Also
Code Section 7702(f)(7) provides that if a reduction in death benefits occurs
during the first 15 years after a policy is issued and there is a cash
distribution associated with that reduction, the owner may be taxed on all or
part of the amount distributed. A reduction in death benefits may result from a
partial withdrawal. You should consult with Your tax advisor in advance of a
proposed decrease in benefits for the effect a partial withdrawal might have
under Code Section 7702(f)(7) and under the rules affecting "modified endowment
contracts." See Modified Endowment Contracts, REDUCTION IN BENEFITS.
We believe that the tax consequences of partial withdrawals under a policy that
was received in a Code Section 1035 exchange for a policy issued before June 21,
1988, so long as no additional premiums are paid, should be the same as those
for a policy which is not a "modified endowment contract," but that the 15 year
period referred to in Code Section 7702(f)(7) must be measured from the date of
the exchange rather than the date of the original policy issuance. See Code
Section 1035 Exchanges.
LOANS
Golden American believes that any loan received under the Policy will be treated
as indebtedness of the owner. If a policy is a "modified endowment contract,"
loans are fully taxable to the extent of income in the policy and are possibly
subject to an additional 10% tax. See Modified Endowment Contracts, PENALTY TAX
and DISTRIBUTIONS AFFECTED. If the Policy is not a "modified endowment
contract," Golden American believes that no part of any loan under a policy will
constitute income to the owner while the policy is in effect. However, with
respect to Preferred Loans it is possible that the Internal Revenue Service
could find the Policyowner as being in receipt of certain amounts of income.
The deductibility by the owner of loan interest under a policy may be limited
under Code Section 264, depending on the circumstances. Any owner intending to
fund premium payments through borrowing should consult a tax advisor with
respect to the tax consequences thereof.
Under the "personal" interest limitation provisions of the Code, interest on
policy loans used for personal purposes, which otherwise meet the requirements
of Code Section 264, are no longer tax deductible. Other rules may apply to
allow all or part of the interest expense as a deduction if the loan proceeds
are used for "trade or business" or "investment" purposes.
If the policy is owned by a business or corporation, the Code may impose
additional restrictions. The Code also limits the interest deduction on
business-owned policy loans and may impose tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
We believe that the tax consequences of loans under a policy that was received
in a Code Section 1035 exchange for a policy issued before June 21, 1988, as
long as no additional premiums are paid, should be the same as those for a
policy which is not a "modified endowment contract," but that the 15 year period
referred to in Code Section 7702(f)(7) must be measured from the date of the
exchange rather than the date of the original policy issuance. See Code Section
1035 Exchanges.
CHANGE OF OWNERSHIP OR ASSIGNMENT
A change of ownership or assignment of coverage may have tax consequences
depending on the circumstances. No such change or assignment will be effective
without the prior consent of Golden American. We recommend that You seek the
advice of a qualified tax consultant prior to making any such changes or
assignment.
MODIFIED ENDOWMENT CONTRACTS
GENERAL
As a result of the Technical and Miscellaneous Revenue Act of 1988 (the "1988
Act") and the Omnibus Budget Reconciliation Act of 1989 (the "1989 Act"),
loans and other distributions under "modified endowment contracts" will in
general be taxed to the extent of accumulated income (generally, the excess of
Investment Value plus any Debt, over premiums paid). Policies are "modified
endowment contracts" if they meet the definition of life insurance, but fail
the "seven-pay" test. This test essentially provides that the cumulative
premiums paid under a policy at any time during the policy's first seven years
cannot exceed the sum of the net level premiums that would have been paid on
or before that time had the policy provided for paid-up future benefits after
the payment of seven level annual premiums. In addition, a "modified endowment
contract" includes any life insurance contract that is received in
34
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
exchange for a "modified endowment contract." Except where the policy was
purchased as a "modified endowment contract," We will monitor premiums paid
during a policy year. Those premiums which would otherwise result in a policy
becoming a "modified endowment contract," that are returned by Golden American
within 60 days after the end of the policy year, will not cause the policy to
fail the "seven-pay" test. These premiums will be returned with investment
experience for that portion attributable to the separate account.
REDUCTION IN BENEFITS
If there is a reduction in death benefits during the first seven policy years,
premiums are redetermined for purposes of the "seven-pay" test as if the
policy had originally been issued at the reduced death benefit level. The new
limitation is applied to the cumulative amount paid for each of the first
seven policy years. Also, see SURVIVORSHIP CONTRACTS.
DISTRIBUTIONS AFFECTED
If a policy fails to meet the "seven-pay" test, it is considered a "modified
endowment contract" only as to distributions in the year in which the failure
takes effect and all subsequent years. However, distributions made in
anticipation of such failure also are considered distributions under a
"modified endowment contract." All distributions made within two years prior
to a failure of the "seven-pay" test are deemed to have been made in
anticipation of such failure.
PENALTY TAX
Any amounts taxable under a "modified endowment contract," including amounts
received as policy loans, will also be subject to a 10% tax, with certain
exceptions. This additional tax will not apply in the case of distributions:
(i) made on or after the taxpayer attains age 59 1/2; (ii) that are
attributable to the taxpayer becoming disabled, or (iii) which are a part of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the taxpayer.
MATERIAL CHANGE RULES
Any determination of whether the policy meets the "seven-pay" test will begin
again any time the policy undergoes a "material change" which includes most
increases in death benefits. However, if an increase is attributable to
premiums paid "necessary to fund" the lowest death benefit payable in the
first seven policy years, or the crediting of interest or dividends with
respect to these premiums, the "increase" does not constitute a material
change. A reduction in death benefits is not considered a material change.
A material change may occur at any time during the life of the policy (within
the first seven years or thereafter) and future taxation, assuming no change
in applicable law, of distributions or loans would depend on whether the
policy satisfied the "seven-pay" test from the time of the material change.
Additional premium payments will be carefully monitored by Golden American to
determine whether such premium payments cause either the start of a new seven
year period or the taxation of distributions and loans. All additional premium
payments must be considered.
If the policy satisfies the "seven-pay" test for seven years, distributions
and loans will generally not be subject to the new tax rules.
SERIAL CONTRACTS
The 1988 Act and the 1989 Act also provide that all "modified endowment
contracts" that are issued within the same calendar year to the same
policyowner by one company or its affiliates are treated as one "modified
endowment contract" for the purposes of determining the taxable portion of any
loans or distributions.
SURVIVORSHIP CONTRACTS
A policy which insures multiple lives and pays a death benefit upon the death
of the survivor is subject to new rules pursuant to the 1989 Act. If there is
a reduction in the death benefit below the lowest level provided during the
first seven years the contract was in force, the "seven-pay" test will be
applied as if the contract had originally been issued with the lower death
benefit. If such treatment causes the contract to retroactively fail the
"seven-pay" test, it will immediately be treated as a "modified endowment
contract" for purposes of all distributions in the year the death benefit is
reduced and later years, subject also to the special rule described above, in
Distributions Affected for distributions deemed to have been made in
anticipation of failure.
CODE SECTION 1035 EXCHANGES
Internal Revenue Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of certain types of policies. Special rules and
procedures apply to Code Section 1035 transactions. Prospective Policyowners
wishing to take advantage of Code Section 1035 should consult their tax
advisors.
DIVERSIFICATION STANDARDS
To comply with the diversification regulations ("Regulations"), issued under
Code Section 817(h), the Account will be required to diversify its investments.
35
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
The Regulations generally require that on the last day of each quarter of a
calendar year (i) no more than 55% of the value of the Account is represented by
any investment; (ii) no more than 70% is represented by any two investments;
(iii) no more than 80% is represented by any three investments; and (iv) no more
than 90% is represented by any four investments. A "look-through" rule provides
that each division of the Account will be tested for compliance with the
percentage limitations by looking through to the assets of the Series of the
Trust in which each such division invests. All securities of the same issuer are
treated as a single investment. As a result of the 1988 Act, each government
agency or instrumentality will be treated as a separate issuer for the purposes
of these limitations.
The general diversification requirements are modified if any of the assets of
the Accounts are direct obligations of the United States Treasury. In this case,
there is no limit on the investment that may be made in United States Treasury
securities and for purposes of determining whether assets other than United
States Treasury securities are adequately diversified, the applicable percentage
limitations are increased based on a formula that takes into account the
percentage of the Account's investment in United States Treasury securities.
We intend to comply with the regulations to assure that the Policy continues to
qualify as life insurance for Federal income tax purposes.
OWNERSHIP TREATMENT
In certain circumstances, variable life insurance policyowners may be considered
the owners, for Federal income tax purposes, of the assets of the separate
account, such as the Account, used to support their policies. In those
circumstances, income and gains from the separate account would be includible in
the policyowners' gross income. The Internal Revenue Service has stated in
published rulings that a variable policyowner will be considered the owner of
separate account assets 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 separate account] without being
treated as owners of the underlying assets." As of the dates of this prospectus,
no such guidance has been issued.
The ownership rights under the policy are similar to, but different in certain
respects from, those described by the Internal Revenue Service in rulings in
which it was determined that policyowners were not owners of separate account
assets. For example, a Policyowner of this Policy has the choice of more
investment options to which to allocate premiums and Investment Values, and may
be able to transfer among investment options more frequently, than in such
rulings. In addition, the Policyowner has the choice of certain investment
options which are somewhat more similar to each other in their investment
objectives than in such rulings. These differences could result in the
Policyowner being considered, under the standard of those rulings, the owner of
the assets of the Account. 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 Policy as necessary to attempt to prevent Policyowners
from being considered the owners of the assets of the Account.
Frequently, if the Internal Revenue Service 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 Internal Revenue Service or the Treasury
Department where to issue regulations or a ruling which treated a Policyowner as
the owner of the assets of the Account, that treatment might apply only on a
prospective basis. However, if the regulations or ruling were not considered to
set forth a new position, a policyholder might be retroactively determined to be
the owner of the assets of the Account.
ILLUSTRATIONS
The following tables demonstrate the way in which Your Policy works. The tables
are based on the following ages, initial death benefits and premiums.
1. Table 1 is for a Genesis I Policy issued on a single
life basis to a male, non-smoker, age 30 with an initial premium of
$100,000, and face amount of $507,639.
2. Table 2 is for Genesis Flex Policy issued on a
single life basis to a male, non-smoker, age 55
36
<PAGE>
ILLUSTRATIONS (CONTINUED)
with an initial premium of $10,000, with planned premiums payable for 10
years, and face amount of $181,432.
3. Table 3 is for a Genesis Flex Policy issued on a
survivorship basis to a male, non-smoker, age 55 and female, non-smoker, age
55 with an initial premium of $10,000, with planned premiums payable for 10
years, and face amount of $258,618.
Each table shows how the Investment Value, Cash Surrender Value and death
benefit would vary over an extended period of time assuming hypothetical gross
rates of return equivalent to a constant annual rate of 0%, 6% or 12%. These
tables will assist in the comparison of death benefits, Investment Values and
Cash Surrender Values of the policy with other variable life insurance plans.
The illustrations assume that no premium has been allocated to the Fixed
Account.
Death benefits, Investment Values and Cash Surrender Values for a policy would
be different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below those averages for the period. They
would also be different depending on the allocation of the Investment Value
among the divisions of the Account, if the actual gross rate of return for all
divisions averaged 0%, 6% or 12%, but varied above or below that average for
individual divisions. They would also differ if any policy loans or partial
withdrawals were made during the period of time illustrated.
The illustrations assume that the cost of insurance charges are based on Our
guaranteed maximum cost of insurance rates and reflect the deduction of all
charges from the Investment Value at their guaranteed maximum levels. They are
based on an average state premium tax of 2.40% and corporate tax charge of
0.00%. They also reflect (i) the guaranteed maximum daily mortality and expense
risk charge assessed against the Account of 0.002477% (equivalent to an annual
rate of 0.90%) of the assets in the Account; (ii) the asset based administrative
charge assessed against the Account of 0.000276% (equivalent to an annual rate
of 0.10%) on the assets in each division attributable to the Policies; and (iii)
the operating expenses incurred by the Trust of 0.97% of the average daily net
assets of the Trust, which is an average of the fees and expenses for each
Series.
Taking account of the assumed charges for expense and mortality risks in the
Account and the investment advisory fees and expenses of the Trust, the gross
rates of return of 0%, 6% and 12% would correspond to actual net investment
returns of - 1.96%, 3.98% and 9.92% respectively.
Although the illustrations assume policy charges at their maximum level, the
level of charges currently being made is lower and this will affect the death
benefits, Investment Values and Cash Surrender Values. The actual investment
advisory fees and expenses may be more or less than the amounts illustrated and
will depend on the allocations made by the Policyowner.
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Account since no such charges are currently made. If
any such charges are imposed in the future the gross annual rate of return would
have to exceed the rates shown by an amount sufficient to cover the tax charges,
in order to produce the death benefits, Investment Values and Cash Surrender
Values illustrated.
The third column of each table shows the amount which would accumulate if an
amount equal to the initial premium were invested and earned interest, after
taxes, at 5.0% per year, compounded annually.
Golden American will furnish upon request a comparable illustration using the
age, sex and underwriting classification of an Insured(s), for any initial death
benefit and premium requested. In addition to an illustration assuming policy
charges at their maximum, We will furnish an illustration assuming current
policy charges and current mortality rates.
37
<PAGE>
ILLUSTRATIONS (CONTINUED)
TABLE 1: SINGLE LIFE GENESIS I POLICY
MALE ISSUE AGE: 30, NON-SMOKER GUARANTEE PERIOD AT ISSUE: LIFE
INITIAL PREMIUM: $100,000 FACE AMOUNT: $507,639
GUARANTEED MAXIMUM MORTALITY COSTS
<TABLE>
<CAPTION>
END OF YEAR
TOTAL PREMIUMS DEATH BENEFIT(2)
PAID PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% AS ANNUAL INVESTMENT RETURN OF
POLICY YEAR PAYMENTS(1) OF END OF YEAR 0% 6% 12%
- ------------ -------------- ------------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1 $ 100,000 $ 105,000 $ 507,639 $ 507,639 $ 516,074
2 110,250 507,639 507,639 538,901
3 115,763 507,639 507,639 563,242
4 121,551 507,639 507,639 589,188
5 127,628 507,639 507,639 616,824
6 134,010 507,639 507,639 646,240
7 140,710 507,639 507,639 681,812
8 147,746 507,639 507,639 719,454
9 155,133 507,639 507,639 759,283
10 162,889 507,639 507,639 801,423
15 207,893 507,639 507,639 1,051,627
20 265,330 507,639 507,639 1,382,720
30 432,194 507,639 507,639 2,399,123
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT VALUE(2) CASH SURRENDER VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- ------------ --------- ----------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 93,511 $ 99,321 $ 105,122 $ 88,172 $ 93,982 $ 99,783
2 89,717 101,293 113,521 85,446 97,022 109,251
3 85,991 103,336 122,717 82,788 100,133 119,514
4 82,324 105,447 132,779 80,189 103,312 130,644
5 78,711 107,624 143,786 77,644 106,556 142,718
6 75,145 109,862 155,818 75,145 109,862 155,818
7 72,692 113,233 170,041 72,692 113,233 170,041
8 70,254 116,703 185,576 70,254 116,703 185,576
9 67,826 120,274 202,540 67,826 120,274 202,540
10 65,404 123,943 221,056 65,404 123,943 221,056
15 53,232 143,768 342,121 53,232 143,768 342,121
20 40,603 166,030 528,106 40,603 166,030 528,106
30 10,709 215,932 1,235,032 10,709 215,932 1,235,032
</TABLE>
(1) All payments are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no policy loan or partial withdrawal has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND THE INVESTMENT EXPERIENCE OF THE SERIES OF THE TRUST. THE DEATH
BENEFIT, INVESTMENT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE BY GOLDEN
AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
38
<PAGE>
ILLUSTRATIONS (CONTINUED)
TABLE 2: SINGLE LIFE GENESIS FLEX POLICY
MALE ISSUE AGE: 55, NON-SMOKER GUARANTEE PERIOD AT ISSUE: 6.75 YEARS(1)
INITIAL PREMIUM: $10,000 FACE AMOUNT: $181,432
GUARANTEED MAXIMUM MORTALITY COSTS
<TABLE>
<CAPTION>
END OF YEAR
TOTAL PREMIUMS DEATH BENEFIT(3)
PAID PLUS ASSUMING HYPOTHETICAL GROSS
INTEREST AT 5% AS ANNUAL INVESTMENT RETURN OF
POLICY YEAR PAYMENTS(2) OF END OF YEAR 0% 6% 12%
- -------------- ----------- ----------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 10,000 $ 10,500 $ 181,432 $181,432 $181,432
2 10,000 21,525 181,432 181,432 181,432
3 10,000 33,101 181,432 181,432 181,432
4 10,000 45,256 181,432 181,432 181,432
5 10,000 58,019 181,432 181,432 181,432
6 10,000 71,420 181,432 181,432 181,432
7 10,000 85,491 181,432 181,432 181,432
8 10,000 100,266 181,432 181,432 181,432
9 10,000 115,779 181,432 181,432 200,214
10 (age 65) 10,000 132,068 181,432 181,432 228,379
15 168,556 181,432 181,432 297,558
20 215,125 181,432 181,432 392,092
30 (age 85) 350,415 181,432(4) 181,432 682,483
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT VALUE(3) CASH SURRENDER VALUE(3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- -------------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 $ 7,560 $ 8,110 $ 8,662 $ 6,192 $ 6,743 $ 7,294
2 15,010 16,582 18,220 13,416 14,987 16,626
3 22,164 25,238 28,574 20,443 23,517 26,853
4 29,037 34,097 39,811 27,290 32,350 38,064
5 35,640 43,173 52,032 33,966 41,499 50,358
6 41,990 52,485 65,368 40,490 50,985 63,868
7 48,381 62,335 80,241 46,881 60,834 78,741
8 54,655 72,584 96,674 53,155 71,084 95,174
9 60,839 83,275 114,726 59,339 81,775 113,226
10 (age 65) 67,048 94,538 134,223 65,548 93,088 132,723
15 50,201 102,828 196,665 50,201 102,828 196,665
20 33,339 111,110 286,571 33,339 111,110 286,571
30 (age 85) 0 119,987 577,118 0 119,987 577,118
</TABLE>
(1) If all planned premiums are paid as illustrated the Guarantee Period after
the last payment will be for life.
(2) All payments are illustrated as if made at the beginning of the Policy Year.
(3) Assumes no policy loan or partial withdrawal has been made.
(4) Guarantee Period applies.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND THE INVESTMENT EXPERIENCE OF THE SERIES OF THE TRUST. THE DEATH
BENEFIT, INVESTMENT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE BY GOLDEN
AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
39
<PAGE>
ILLUSTRATIONS (CONTINUED)
TABLE 3: JOINT AND LAST SURVIVOR GENESIS FLEX POLICY
MALE ISSUE AGE: 55, NON-SMOKER FEMALE ISSUE AGE: 55, NON-SMOKER
INITIAL PREMIUM: $10,000 FACE AMOUNT: $258,618
GUARANTEE PERIOD AT ISSUE: 18.25 YEARS(1)
GUARANTEED MAXIMUM MORTALITY COSTS
<TABLE>
<CAPTION>
TOTAL
PREMIUMS
PAID PLUS END OF YEAR
INTEREST DEATH BENEFIT(3)
AT 5% AS ASSUMING HYPOTHETICAL GROSS
OF END OF ANNUAL INVESTMENT RETURN OF
POLICY YEAR PAYMENTS(2) YEAR 0% 6% 12%
- -------------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 10,000 $ 10,500 $258,618 $258,618 $258,618
2 10,000 21,525 258,618 258,618 258,618
3 10,000 33,101 258,618 258,618 258,618
4 10,000 45,256 258,618 258,618 258,618
5 10,000 58,019 258,618 258,618 258,618
6 10,000 71,420 258,618 258,618 258,618
7 10,000 85,491 258,618 258,618 258,618
8 10,000 100,266 258,618 258,618 258,618
9 10,000 115,779 258,618 258,618 289,826
10 (age 65) 10,000 132,068 258,618 258,618 327,231
15 168,556 258,618 258,618 426,586
20 215,125 258,618 258,618 561,504
30 (age 85) 350,415 258,618 258,618 976,230
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR END OF YEAR
INVESTMENT VALUE(3) CASH SURRENDER VALUE(3)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY YEAR 0% 6% 12% 0% 6% 12%
- -------------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 $ 8,760 $ 9,340 $ 9,919 $ 7,452 $ 8,031 $ 8,611
2 17,522 19,224 20,996 15,976 17,678 19,449
3 25,983 29,372 33,040 24,298 27,687 31,355
4 34,146 39,791 46,145 32,423 38,068 44,422
5 42,014 50,489 60,415 40,352 48,827 58,753
6 49,590 61,473 75,962 48,090 59,973 74,462
7 57,137 73,015 93,177 55,637 71,515 91,677
8 64,492 84,969 112,142 62,992 83,469 110,642
9 71,655 97,351 132,909 70,155 95,851 131,409
10 (age 65) 78,707 110,253 155,603 77,207 108,753 154,103
15 66,022 127,986 241,015 66,022 127,986 241,015
20 52,484 147,264 369,797 52,484 147,264 369,797
30 (age 85) 10,711 176,041 801,964 10,711 176,041 801,964
</TABLE>
(1) If all planned premiums are paid as illustrated the Guarantee Period after
the last payment will be for life.
(2) All payments are illustrated as if made at the beginning of the Policy Year.
(3) Assumes no policy loan or partial withdrawal has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND THE INVESTMENT EXPERIENCE OF THE SERIES OF THE TRUST. THE DEATH
BENEFIT, INVESTMENT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY POLICY
LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE BY GOLDEN
AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUST THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
40
<PAGE>
FINANCIAL STATEMENTS OF ACCOUNT A
The unaudited financial statements of Account A are listed below and included
herein beginning on page 42:
Financial Statements -- Unaudited
Statement of Assets and Liabilities (Unaudited)
March 31, 1995
Combined Statement of Operations (Unaudited) for the Period ended March 31,
1995
Combined Statement of Changes in Net Assets (Unaudited) for the Period ended
March 31, 1995
Note to Unaudited Financial Statements
The audited financial statements of Account A are listed below and included
herein following its unaudited financial statements.
Report of Independent Auditors
Financial Statements -- Audited
Audited Statement of Assets and Liabilities -- December 31, 1994
Audited Combined Statements of Operations for the Years ended December 31,
1994, 1993 and 1992
Audited Combined Statements of Changes in Net Assets for the Years ended
December 31, 1994, 1993 and 1992
Notes to Financial Statements
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
The unaudited financial statements of Golden American Life Insurance Company
prepared in accordance with generally accepted accounting principals ("GAAP")
are listed below and included herein following the financial statements of
Account A:
Financial Statements -- Unaudited
Balance Sheet (Unaudited) March 31, 1995
Condensed Statement of Income (Unaudited) for
the Quarter Ended March 31, 1995
Condensed Statement of Cash Flows (Unaudited)
for the Quarter Ended March 31, 1995
Note to Unaudited Financial Statements
The audited financial statements of Golden American Life Insurance Company
prepared in accordance with statutory accounting practices ("Statutory") are
listed below and included herein following its unaudited financial statements:
Report of Independent Auditors
Financial Statements -- Statutory Basis
Audited Balance Sheets -- December 31, 1994 and 1993
Audited Statements of Operations for the Years ended December 31, 1994 and
1993
Audited Statements of Capital and Surplus for the Years ended December 31,
1994 and 1993
Audited Statements of Cash Flow for the Years ended December 31, 1994 and
1993
Notes to Financial Statements -- Statutory Basis
The audited financial statements of Golden American Life Insurance Company
prepared in accordance with GAAP are listed below and included herein following
the Statutory financial statements:
Report of Independent Auditors
Financial Statements -- GAAP Basis
Audited Balance Sheets -- December 31, 1994 and 1993 and 1992
Audited Statements of Operations for the Years ended December 31, 1994 and
1993 and for the Period September 30, 1992 (date of acquisition) to December
31, 1992
Audited Statements of Changes in Stockholder's Equity for the Period
September 30, 1992 (date of acquisition) to December 31, 1992 and the Years
ended December 31, 1994 and 1993
Audited Statements of Cash Flows for the Years ended December 31, 1994 and
1993 and for the Period September 30, 1992 (date of acquisition) to December
31, 1992
Notes to Financial Statements -- GAAP Basis
The financial statements of Golden American Life Insurance Company, which are
included herein should be distinguished from the Financial Statements of Account
A and should be considered only as bearing on the ability of Golden American to
meet its obligations under the Policies. They should not be considered as
bearing on the investment performance of the assets held in Account A.
41
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF ASSETS & LIABILITIES -- UNAUDITED
MARCH 31, 1995
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 886,731 shares (Cost -- $886,731)..................... $ 886,731
Limited Maturity Bond Series, 62,554 shares (Cost -- $648,689)............. 643,676
Natural Resources Series, 9,225 shares (Cost -- $130,454).................. 128,136
All-Growth Series, 48,493 shares (Cost -- $586,889)........................ 618,287
Real Estate Series, 22,376 shares (Cost -- $264,607)....................... 249,943
Fully Managed Series, 80,985 shares (Cost -- $1,012,895)................... 989,633
Multiple Allocation Series, 122,826 shares (Cost -- $1,442,755)............ 1,449,342
Capital Appreciation Series, 59,111 shares (Cost -- $689,260).............. 718,194
Rising Dividends Series, 40,950 shares (Cost -- $428,381).................. 448,810
Emerging Markets Series, 64,236 shares (Cost -- $715,297).................. 544,082
----------
Total Invested Assets (Cost -- $6,805,958)............................... 6,676,834
LIABILITIES
Payable to Golden American for Charges and Fees.............................. 17,727
----------
Total Net Assets......................................................... $6,659,107
----------
----------
NET ASSETS
For Variable Life Insurance Policies......................................... $6,266,601
Retained in Separate Account A by Golden American............................ 392,506
----------
Total Net Assets......................................................... $6,659,107
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
QUARTER ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
-------------------------------------------------------------------------------------
LIQUID LIMITED NATURAL ALL- REAL FULLY MULTIPLE
ASSET MATURITY RESOURCES GROWTH ESTATE MANAGED ALLOCATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES
--------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................ $ 11,836 $ -- $ -- $ -- $ -- $ -- $ --
Capital gain distribution............ -- -- -- -- -- -- --
--------- ----------- ----------- ----------- --------- ----------- -----------
Total investment income.............. 11,836 -- -- -- -- -- --
EXPENSES
Mortality and expense risk and
administrative charges.............. 2,010 1,354 271 1,218 682 2,365 3,217
--------- ----------- ----------- ----------- --------- ----------- -----------
Net investment income (loss)......... 9,826 (1,354) (271) (1,218) (682) (2,365) (3,217)
--------- ----------- ----------- ----------- --------- ----------- -----------
NET REALIZED GAIN (LOSS) ON
INVESTMENTS......................... -- (543) (881) (8,330) (5,230) (1,369) 589
--------- ----------- ----------- ----------- --------- ----------- -----------
UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS
Beginning of period.................. -- (22,562) (3,772) (15,299) (14,876) (67,196) (48,286)
End of period........................ -- (5,013) (2,318) 31,398 (14,664) (23,262) 6,587
--------- ----------- ----------- ----------- --------- ----------- -----------
Net change in unrealized appreciation
(depreciation) of investments....... -- 17,549 1,454 46,697 212 43,934 54,873
--------- ----------- ----------- ----------- --------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations........... $ 9,826 $ 15,652 $ 302 $ 37,149 $ (5,700) $ 40,200 $ 52,245
--------- ----------- ----------- ----------- --------- ----------- -----------
--------- ----------- ----------- ----------- --------- ----------- -----------
<CAPTION>
CAPITAL
APPRE- RISING EMERGING
CIATION DIVIDENDS MARKETS
SERIES SERIES SERIES COMBINED
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................ $ -- $ -- $ -- $ 11,836
Capital gain distribution............ -- -- -- --
--------- ----------- ----------- -----------
Total investment income.............. -- -- -- 11,836
EXPENSES
Mortality and expense risk and
administrative charges.............. 1,318 903 1,241 14,579
--------- ----------- ----------- -----------
Net investment income (loss)......... (1,318) (903) (1,241) (2,743)
--------- ----------- ----------- -----------
NET REALIZED GAIN (LOSS) ON
INVESTMENTS......................... (467) 752 (17,651) (33,130)
--------- ----------- ----------- -----------
UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS
Beginning of period.................. (10,169) (4,855) (96,182) (283,197)
End of period........................ 28,934 20,429 (171,215) (129,124)
--------- ----------- ----------- -----------
Net change in unrealized appreciation
(depreciation) of investments....... 39,103 25,284 (75,033) 154,073
--------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations........... $ 37,318 $ 25,133 $ (93,925) $ 118,200
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENT OF CHANGES IN NET ASSETS -- UNAUDITED
QUARTER ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
-----------------------------------------------------------------------------------------------
CAPITAL
LIQUID LIMITED NATURAL ALL- REAL FULLY MULTIPLE APPRE-
ASSET MATURITY RESOURCES GROWTH ESTATE MANAGED ALLOCATION CIATION
SERIES BOND SERIES SERIES SERIES SERIES SERIES SERIES SERIES
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)... $ 9,826 $ (1,354) $ (271) $ (1,218) $ (682) $ (2,365) $ (3,217) $ (1,318)
Net realized gain (loss) on
investments................... -- (543) (881) (8,330) (5,230) (1,369) 589 (467)
Net change in unrealized
appreciation (depreciation) of
investments................... -- 17,549 1,454 46,697 212 43,934 54,873 39,103
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
Net increase (decrease) in net
assets resulting from
operations...................... 9,826 15,652 302 37,149 (5,700) 40,200 52,245 37,318
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
POLICY RELATED TRANSACTIONS
Premiums....................... 1,223,769 -- -- 7,191 -- -- 52,837 --
Net transfers among Divisions
and Guaranteed Interest
Division of Golden American... (902,522) 177,867 7,640 17,015 (106,619) (4,000) 102,637 201,099
Surrenders and other
withdrawals................... (171,060) -- -- -- -- -- -- --
Policy related charges and
fees.......................... (8,238) (10,694) (655) (4,539) (737) (14,374) (9,996) (3,672)
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
Net increase (decrease) in net
assets resulting from policy
related transactions............ 141,949 167,173 6,985 19,667 (107,356) (18,374) 145,478 197,427
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
Net increase (decrease) in net
assets.......................... 151,775 182,825 7,287 56,816 (113,056) 21,826 197,723 234,745
Net assets:
Beginning of period............ 732,789 458,919 120,410 560,073 362,482 965,838 1,248,026 481,601
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
End of period.................. $ 884,564 $ 641,744 $ 127,697 $ 616,889 $ 249,426 $ 987,664 $1,445,749 $ 716,346
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
---------- ----------- ----------- --------- --------- ----------- ----------- ---------
<CAPTION>
RISING EMERGING
DIVIDENDS MARKETS
SERIES SERIES COMBINED
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)... $ (903) $ (1,241) $ (2,743)
Net realized gain (loss) on
investments................... 752 (17,651) (33,130)
Net change in unrealized
appreciation (depreciation) of
investments................... 25,284 (75,033) 154,073
----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations...................... 25,133 (93,925) 118,200
----------- ----------- -----------
POLICY RELATED TRANSACTIONS
Premiums....................... 35,972 24,001 1,343,770
Net transfers among Divisions
and Guaranteed Interest
Division of Golden American... 92,932 24,669 (389,282)
Surrenders and other
withdrawals................... -- -- (171,060)
Policy related charges and
fees.......................... (3,513) (4,645) (61,063)
----------- ----------- -----------
Net increase (decrease) in net
assets resulting from policy
related transactions............ 125,391 44,025 722,365
----------- ----------- -----------
Net increase (decrease) in net
assets.......................... 150,524 (49,900) 840,565
Net assets:
Beginning of period............ 296,108 592,296 5,818,542
----------- ----------- -----------
End of period.................. $ 446,632 $ 542,396 $6,659,107
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1995. For further information, refer to the financial statements
and footnotes thereto included in the Separate Account A annual report.
45
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Variable Life Policyowners
SEPARATE ACCOUNT A
We have audited the accompanying statement of assets and liabilities of
Separate Account A (the "Account") as of December 31, 1994, and the related
combined statements of operations and changes in net assets for each of the
three years in the period then ended. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Separate Account A at
December 31, 1994, and the results of its operations and changes in its net
assets for each of the three years in the period then ended, in conformity with
generally accepted accounting principles.
[LOGO]
New York, New York
February 14, 1995
46
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investment in The GCG Trust, at Net Asset Value:
Liquid Asset Series, 734,960 shares (cost -- $734,960)..................... $ 734,960
Limited Maturity Bond Series, 46,097 shares (cost -- $482,610)............. 460,047
Natural Resources Series, 8,706 shares (cost -- $124,609).................. 120,837
All-Growth Series, 47,327 shares (cost -- $576,592)........................ 561,294
Real Estate Series, 32,193 shares (cost -- $378,330)....................... 363,454
Fully Managed Series, 82,760 shares (cost -- $1,035,488)................... 968,292
Multiple Allocation Series, 110,443 shares (cost -- $1,299,601)............ 1,251,316
Capital Appreciation Series, 42,610 shares (cost -- $493,362).............. 483,193
Rising Dividends Series, 29,177 shares (cost -- $303,046).................. 298,191
Emerging Markets Series, 59,040 shares (cost -- $691,307).................. 595,125
----------
Total invested assets (cost -- $6,119,905)............................... 5,836,709
LIABILITIES
Payable to Golden American for Charges and Fees (NOTE 3)..................... 18,167
----------
Total Net Assets......................................................... $5,818,542
----------
----------
NET ASSETS
For Variable Life Insurance Policies......................................... $5,440,010
Retained in Separate Account A by Golden American (NOTE 3)................... 378,532
----------
Total Net Assets......................................................... $5,818,542
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
------------------------------------------------------------------------------------------------
LIMITED MATURITY BOND SERIES
LIQUID ASSET SERIES NATURAL RESOURCES SERIES
---------------------------------- ------------------------------ ----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................ $ 28,730 $ 11,421 $ 16,119 $ 22,542 $ 14,594 $ 3,043 $ 1,064 $ 366 $ 317
Capital gain
distribution............ -- 24 -- -- 1,547 -- 2,004 -- --
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total investment
income.................. 28,730 11,445 16,119 22,542 16,141 3,043 3,068 366 317
EXPENSES (NOTE 3)
Mortality and expense
risk and administrative
charges................. 6,768 3,752 4,531 4,010 1,703 437 771 666 188
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net investment income
(loss).................. 21,962 7,693 11,588 18,532 14,438 2,606 2,297 (300) 129
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
REALIZED GAIN (LOSS) ON
INVESTMENTS
Proceeds from sales...... 3,119,122 2,266,996 2,449,501 2,075,421 444,854 29,550 87,594 329,716 15,187
Cost of securities
sold.................... 3,119,122 2,266,996 2,449,501 2,104,703 436,457 28,958 76,930 319,925 17,047
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net realized gain (loss)
on investments.......... -- -- -- (29,282) 8,397 592 10,664 9,791 (1,860)
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
UNREALIZED APPRECIATION
(DEPRECIATION) OF
INVESTMENTS
Beginning of period...... -- -- -- (15,206) (1,138) 873 9,228 (3,241) (2,609)
End of period............ -- -- -- (22,563) (15,206) (1,138) (3,772) 9,228 (3,241)
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net change in unrealized
appreciation
(depreciation) of
investments............. -- -- -- (7,357) (14,068) (2,011) (13,000) 12,469 (632)
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net increase (decrease)
in net assets resulting
from operations......... $ 21,962 $ 7,693 $ 11,588 $ (18,107) $ 8,767 $ 1,187 $ (39) $ 21,960 $ (2,363)
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
----------------------------------------------------------------------------------------------
ALL-GROWTH SERIES REAL ESTATE SERIES FULLY MANAGED SERIES
---------------------------------- ---------------------------- ----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................... $ 5,331 $ 1,469 $ 3,843 $ 18,320 $ 6,152 $ 1,535 $ 27,796 $ 5,069 $ 4,787
Capital gain distribution..... -- -- -- -- -- -- -- 5,013 --
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
Total investment income....... 5,331 1,469 3,843 18,320 6,152 1,535 27,796 10,082 4,787
EXPENSES (NOTE 3)
Mortality and expense risk and
administrative charges....... 4,248 4,045 5,066 2,772 1,402 201 6,339 2,821 1,935
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
Net investment income
(loss)....................... 1,083 (2,576) (1,223) 15,548 4,750 1,334 21,457 7,261 2,852
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
REALIZED GAIN (LOSS) ON
INVESTMENTS
Proceeds from sales........... 1,673,336 2,146,830 2,064,045 133,140 95,671 363 144,913 289,416 54,329
Cost of securities sold....... 1,721,051 2,113,758 2,056,221 120,085 79,024 328 147,133 261,978 52,017
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
Net realized gain (loss) on
investments.................. (47,715) 33,072 7,824 13,055 16,647 35 (2,220) 27,438 2,312
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS
Beginning of period........... 3,987 30,709 51,424 3,724 4,982 264 7,844 21,355 10,710
End of period................. (15,298) 3,987 30,709 (14,876) 3,724 4,982 (67,196) 7,844 21,355
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
Net change in unrealized
appreciation (depreciation)
of investments............... (19,285) (26,722) (20,715) (18,600) (1,258) 4,718 (75,040) (13,511) 10,645
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net
assets resulting from
operations................... $ (65,917) $ 3,774 $ (14,114) $ 10,003 $ 20,139 $ 6,087 $(55,803) $ 21,188 $ 15,809
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
-------------------------------------------------------------------------------
RISING DIVIDENDS
MULTIPLE ALLOCATION SERIES CAPITAL APPRECIATION SERIES
SERIES
----------------------------- ---------------------------- ------------------
1994 1993 1992 1994 1993 1992(a) 1994 1993(b)
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $ 44,815 $ 10,632 $ 14,291 $ 9,726 $ 4,346 $ 1,027 $ 4,057 $ 40
Capital gain distribution.......... -- 24,167 5,243 -- 874 39 -- --
--------- -------- -------- -------- -------- -------- -------- --------
Total investment income............ 44,815 34,799 19,534 9,726 5,220 1,066 4,057 40
EXPENSES (NOTE 3)
Mortality and expense risk and
administrative charges............ 8,735 3,662 3,636 4,548 2,720 576 1,723 38
--------- -------- -------- -------- -------- -------- -------- --------
Net investment income (loss)....... 36,080 31,137 15,898 5,178 2,500 490 2,334 2
--------- -------- -------- -------- -------- -------- -------- --------
REALIZED GAIN (LOSS) ON INVESTMENTS
Proceeds from sales................ 190,232 76,884 232,396 275,192 563,427 61,988 65,576 38
Cost of securities sold............ 185,806 74,327 225,462 273,760 536,613 58,052 66,092 38
--------- -------- -------- -------- -------- -------- -------- --------
Net realized gain (loss) on
investments....................... 4,426 2,557 6,934 1,432 26,814 3,936 (516) --
--------- -------- -------- -------- -------- -------- -------- --------
UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS
Beginning of period................ 6,072 (913) 21,792 5,672 8,493 -- 371 --
End of period...................... (48,285) 6,072 (913) (10,169) 5,672 8,493 (4,855) 371
--------- -------- -------- -------- -------- -------- -------- --------
Net change in unrealized
appreciation (depreciation) of
investments....................... (54,357) 6,985 (22,705) (15,841) (2,821) 8,493 (5,226) 371
--------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net
assets resulting from
operations........................ $ (13,851) $ 40,679 $ 127 $ (9,231) $ 26,493 $12,919 $ (3,408) $ 373
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
<CAPTION>
EMERGING MARKETS SERIES
COMBINED
------------------------ -------------------------------------
1994 1993(b) 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $ -- $ -- $ 162,381 $ 54,089 $ 44,962
Capital gain distribution.......... 26,652 -- 28,656 31,625 5,282
----------- ----------- ----------- ----------- -----------
Total investment income............ 26,652 -- 191,037 85,714 50,244
EXPENSES (NOTE 3)
Mortality and expense risk and
administrative charges............ 4,869 231 44,783 21,040 16,570
----------- ----------- ----------- ----------- -----------
Net investment income (loss)....... 21,783 (231) 146,254 64,674 33,674
----------- ----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) ON INVESTMENTS
Proceeds from sales................ 626,695 9,349 8,391,221 6,223,181 4,907,359
Cost of securities sold............ 602,653 8,708 8,417,335 6,097,824 4,887,586
----------- ----------- ----------- ----------- -----------
Net realized gain (loss) on
investments....................... 24,042 641 (26,114) 125,357 19,773
----------- ----------- ----------- ----------- -----------
UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS
Beginning of period................ 53,599 -- 75,291 60,247 82,454
End of period...................... (96,182) 53,599 (283,196) 75,291 60,247
----------- ----------- ----------- ----------- -----------
Net change in unrealized
appreciation (depreciation) of
investments....................... (149,781) 53,599 (358,487) 15,044 (22,207)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations........................ $ (103,956) $ 54,009 $ (238,347) $ 205,075 $ 31,240
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
---------------------------------------------------------------------------------------
LIQUID ASSET SERIES LIMITED MATURITY BOND SERIES
------------------------------------------ ------------------------------------------
1994 1993 1992 1994 1993 1992
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)..... $ 21,962 $ 7,693 $ 11,588 $ 18,532 $ 14,438 $ 2,606
Net realized gain (loss) on
investments..................... -- -- -- (29,282) 8,397 592
Net change in unrealized
appreciation (depreciation) of
investments..................... -- -- -- (7,357) (14,068) (2,011)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations........................ 21,962 7,693 11,588 (18,107) 8,767 1,187
------------ ------------ ------------ ------------ ------------ ------------
POLICY RELATED TRANSACTIONS (NOTE
3)
Premiums......................... 1,945,738 20,000 84,865 1,689,359 621,365 140,000
Net transfers among divisions and
Guaranteed Interest Division of
Golden American................. (1,449,693) 224,697 (165,492) (1,581,133) (370,757) (10,566)
Benefits, surrenders, and other
withdrawals..................... (53,214) (350,065) -- (6,190) (13,009) --
Policy related charges and
fees............................ (19,464) (19,619) (8,312) (20,931) (7,221) (3,267)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from policy
related transactions.............. 423,367 (124,987) (88,939) 81,105 230,378 126,167
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets............................ 445,329 (117,294) (77,351) 62,998 239,145 127,354
Net assets:
Beginning of period.............. 287,460 404,754 482,105 395,921 156,776 29,422
------------ ------------ ------------ ------------ ------------ ------------
End of period.................... $ 732,789 $ 287,460 $ 404,754 $ 458,919 $ 395,921 $ 156,776
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
NATURAL RESOURCES SERIES
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)..... $ 2,297 $ (300) $ 129
Net realized gain (loss) on
investments..................... 10,664 9,791 (1,860)
Net change in unrealized
appreciation (depreciation) of
investments..................... (13,000) 12,469 (632)
---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations........................ (39) 21,960 (2,363)
---------- ---------- ----------
POLICY RELATED TRANSACTIONS (NOTE
3)
Premiums......................... 600 1,400 --
Net transfers among divisions and
Guaranteed Interest Division of
Golden American................. 48,568 62,755 (4,184)
Benefits, surrenders, and other
withdrawals..................... -- (28,313) --
Policy related charges and
fees............................ (3,300) (1,481) (515)
---------- ---------- ----------
Net increase (decrease) in net
assets resulting from policy
related transactions.............. 45,868 34,361 (4,699)
---------- ---------- ----------
Net increase (decrease) in net
assets............................ 45,829 56,321 (7,062)
Net assets:
Beginning of period.............. 74,581 18,260 25,322
---------- ---------- ----------
End of period.................... $ 120,410 $ 74,581 $ 18,260
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
---------------------------------------------------------------------------
ALL-GROWTH SERIES REAL ESTATE SERIES
------------------------------------ ------------------------------------
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)..... $ 1,083 $ (2,576) $ (1,223) $ 15,548 $ 4,750 $ 1,334
Net realized gain (loss) on
investments..................... (47,715) 33,072 7,824 13,055 16,647 35
Net change in unrealized
appreciation (depreciation) of
investments..................... (19,285) (26,722) (20,715) (18,600) (1,258) 4,718
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations........................ (65,917) 3,774 (14,114) 10,003 20,139 6,087
---------- ---------- ---------- ---------- ---------- ----------
POLICY RELATED TRANSACTIONS (NOTE
3)
Premiums......................... 900 2,800 107,920 -- 10,000 60,000
Net transfers among divisions and
Guaranteed Interest Division of
Golden American................. 236,186 (358,981) 58,432 140,671 66,057 57,436
Benefits, surrenders, and other
withdrawals..................... (5,020) (6,237) (12,390) (510) (4,694) --
Policy related charges and
fees............................ (11,668) (4,226) (13,945) (5,772) (2,341) (361)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from policy
related transactions.............. 220,398 (366,644) 140,017 134,389 69,022 117,075
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets............................ 154,481 (362,870) 125,903 144,392 89,161 123,162
Net assets:
Beginning of period.............. 405,592 768,462 642,559 218,090 128,929 5,767
---------- ---------- ---------- ---------- ---------- ----------
End of period.................... $ 560,073 $ 405,592 $ 768,462 $ 362,482 $ 218,090 $ 128,929
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
FULLY MANAGED SERIES
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)..... $ 21,457 $ 7,261 $ 2,852
Net realized gain (loss) on
investments..................... (2,220) 27,438 2,312
Net change in unrealized
appreciation (depreciation) of
investments..................... (75,040) (13,511) 10,645
---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations........................ (55,803) 21,188 15,809
---------- ---------- ----------
POLICY RELATED TRANSACTIONS (NOTE
3)
Premiums......................... 900 22,800 40,000
Net transfers among divisions and
Guaranteed Interest Division of
Golden American................. 742,826 22,773 47,848
Benefits, surrenders, and other
withdrawals..................... (50,611) (361) --
Policy related charges and
fees............................ (22,796) (4,862) (3,548)
---------- ---------- ----------
Net increase (decrease) in net
assets resulting from policy
related transactions.............. 670,319 40,350 84,300
---------- ---------- ----------
Net increase (decrease) in net
assets............................ 614,516 61,538 100,109
Net assets:
Beginning of period.............. 351,322 289,784 189,675
---------- ---------- ----------
End of period.................... $ 965,838 $ 351,322 $ 289,784
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
SEPARATE ACCOUNT A
COMBINED STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
DIVISIONS INVESTING IN
---------------------------------------------------------------------------------------
CAPITAL APPRECIATION SERIES
MULTIPLE ALLOCATION SERIES
------------------------------------------ ------------------------------------------
1994 1993 1992 1994 1993 1992(a)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................ $ 36,080 $ 31,137 $ 15,898 $ 5,178 $ 2,500 $ 490
Net realized gain
(loss) on
investments........... 4,426 2,557 6,934 1,432 26,814 3,936
Net change in
unrealized
appreciation
(depreciation) of
investments........... (54,357) 6,985 (22,705) (15,841) (2,821) 8,493
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from operations......... (13,851) 40,679 127 (9,231) 26,493 12,919
------------ ------------ ------------ ------------ ------------ ------------
POLICY RELATED
TRANSACTIONS
(NOTE 3)
Premiums............... 2,400 7,000 30,000 -- 10,000 40,000
Net transfers among
divisions and
Guaranteed Interest
Division of Golden
American.............. 768,394 96,915 (91,610) 101,324 214,769 109,600
Benefits, surrenders,
and other
withdrawals........... (38,630) (11,400) (12,610) (498) (76) --
Policy related charges
and fees.............. (27,694) (5,691) (6,646) (13,167) (8,542) (1,990)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from policy related
transactions............ 704,470 86,824 (80,866) 87,659 216,151 147,610
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in net assets........... 690,619 127,503 (80,739) 78,428 242,644 160,529
Net assets:
Beginning of period.... 557,407 429,904 510,643 403,173 160,529 --
------------ ------------ ------------ ------------ ------------ ------------
End of period.......... $ 1,248,026 $ 557,407 $ 429,904 $ 481,601 $ 403,173 $ 160,529
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
RISING DIVIDENDS
EMERGING MARKETS
SERIES SERIES COMBINED
---------------------- ---------------------- -----------------------------------------
1994 1993(b) 1994 1993(b) 1994 1993 1992
--------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................ $ 2,334 $ 2 $ 21,783 $ (231) $ 146,254 $ 64,674 $ 33,674
Net realized gain
(loss) on
investments........... (516) -- 24,042 641 (26,114) 125,357 19,773
Net change in
unrealized
appreciation
(depreciation) of
investments........... (5,226) 371 (149,781) 53,599 (358,487) 15,044 (22,207)
--------- --------- --------- --------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations......... (3,408) 373 (103,956) 54,009 (238,347) 205,075 31,240
--------- --------- --------- --------- ----------- ----------- -----------
POLICY RELATED
TRANSACTIONS
(NOTE 3)
Premiums............... 2,500 7,000 2,700 7,000 3,645,097 709,365 502,785
Net transfers among
divisions and
Guaranteed Interest
Division of Golden
American.............. 278,535 22,024 356,720 304,731 (357,602) 284,983 1,464
Benefits, surrenders,
and other
withdrawals........... -- -- -- (9,083) (154,673) (423,238) (25,000)
Policy related charges
and fees.............. (10,655) (261) (18,915) (910) (154,362) (55,154) (38,584)
--------- --------- --------- --------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from policy related
transactions............ 270,380 28,763 340,505 301,738 2,978,460 515,956 440,665
--------- --------- --------- --------- ----------- ----------- -----------
Net increase (decrease)
in net assets........... 266,972 29,136 236,549 355,747 2,740,113 721,031 471,905
Net assets:
Beginning of period.... 29,136 -- 355,747 -- 3,078,429 2,357,398 1,885,493
--------- --------- --------- --------- ----------- ----------- -----------
End of period.......... $ 296,108 $ 29,136 $ 592,296 $ 355,747 $ 5,818,542 $ 3,078,429 $ 2,357,398
--------- --------- --------- --------- ----------- ----------- -----------
--------- --------- --------- --------- ----------- ----------- -----------
</TABLE>
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account A (the "Account") was established on July 14, 1988, by
Golden American Life Insurance Company ("Golden American"), under Minnesota
insurance law to support the operations of flexible premium variable life
insurance policies ("Policies"). Effective September 30, 1992, Golden American
became a wholly-owned subsidiary of BT Variable, Inc. ("BTV"), an indirect
wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust"). Previously,
Golden American was owned by Mutual Benefit Life Insurance Company in
Rehabilitation ("Mutual Benefit"). Golden American is primarily engaged in the
issuance of variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. Effective
December 30, 1993, Golden American was redomesticated from the State of
Minnesota to the State of Delaware.
Operations of the Account commenced on February 16, 1989. Golden American
provides for variable accumulation and benefits under the Policies by crediting
insurance premiums to one or more divisions within the Account or to the Golden
American Guaranteed Interest Division, which is not part of the Account, as
elected by the Policyowners. The assets of the Account are owned by Golden
American. The portion of the Account's assets applicable to Policies will not be
chargeable with liabilities arising out of any other business Golden American
may conduct, but obligations of the Account, including the promise to make
benefit payments, are obligations of Golden American.
The Account makes available, under Golden Select Policies, ten investment
divisions: the Liquid Asset, the Limited Maturity Bond, the Natural Resources,
the All-Growth, the Real Estate, the Fully Managed, the Multiple Allocation, the
Capital Appreciation (commenced operations on May 4, 1992), the Rising Dividends
(commenced operations on October 4, 1993), and the Emerging Markets (commenced
operations on October 4, 1993) Divisions ("Divisions"). The assets in each
Division are invested in shares of a designated series ("Series") of a mutual
fund, The GCG Trust (the "Trust").
The Account is a unit investment trust and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended.
The net assets maintained in the Account provide the basis for the periodic
determination of the amount of benefits under the Policies. The net assets may
not be less than the amount required under state law to provide for death
benefits (without regard to the minimum death benefit guarantee) and other
policy benefits. Additional assets are held in Golden American's general account
to cover the contingency that the guaranteed minimum death benefit might exceed
the death benefit which would have been payable in the absence of such
guarantee. Golden American has entered into reinsurance agreements with
unaffiliated reinsurers to cover insurance risk under the Policies. Golden
American remains liable to the extent that its reinsurers do not meet their
obligations under the reinsurance agreements.
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all
of the issued and outstanding capital stock of Golden American and Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The transaction had no effect on the
accompanying financial statements of the Account.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Account:
INVESTMENTS: Investments are made in shares of a Series of the Trust
and are valued at the net asset value per share of the respective Series of
the Trust.
Investment transactions in each Series of the Trust are recorded on the
trade date. Distributions of net investment income and capital gains of each
Series of the Trust are recognized on the ex-distribution date. Realized
gains and losses on redemptions of the Series of the Trust shares are
determined on the identified cost basis.
54
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the years ended December 31, 1994, 1993 and 1992, the cost of
purchases of shares of the Trust aggregated $11,528,695, $6,803,925, and
$5,380,142, respectively, and the proceeds from sales of shares of the Trust
aggregated $8,391,221, $6,223,181, and $4,907,359, respectively.
FEDERAL INCOME TAXES: The operations of the Account form a part of, and
are taxed with, the total operations of Golden American which is taxed as a
life insurance company under the Internal Revenue Code. Earnings and
realized capital gains of the Account attributable to the Policyowners are
excluded in the determination of the federal income tax liability of Golden
American.
3. CHARGES AND FEES
Under the terms of the Policies, certain charges are allocated to the
Policies to cover Golden American's expenses in connection with the issuance and
administration of the Policies. Following is a summary of these charges:
MORTALITY AND EXPENSE RISK CHARGES: Golden American assumes mortality
and expense risks related to the operations of the Account and, in
accordance with the terms of the Policies, deducts a daily charge from the
assets of the Account at annual rates of either .80% or .90% of the assets
attributable to Policies to cover these risks.
ADMINISTRATIVE CHARGE: An administrative charge of $200 is made to
cover the cost of underwriting and issuing a Policy on a simplified issue
basis and $300 for a Policy that is medically underwritten. The charge is
deducted in installments on each Policy processing date during the first
Policy year. Also, a quarterly administrative charge of $18.75 per Policy
processing period is made to cover ongoing administrative expenses. The
charge is deducted on the Policy processing date. For certain policies, a
daily charge at an annual rate of .10% is deducted from assets attributable
to Policies.
MORTALITY COST: A mortality cost is deducted which is equal to the cost
of providing coverage under the Policy. Such cost is based on each insured's
sex, attained age, smoking status and underwriting class. The maximum cost
of insurance is shown in the Policy.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: A minimum death benefit
guarantee charge is made of a maximum per year of $0.60 per $1,000 of face
or net amount at risk, as defined in each Policy. The charge is deducted in
equal installments on each Policy quarterly processing date during the
guarantee period.
LOAN CHARGE: A net loan charge of up to 1.00% is made based on the
Policy loan amount on policies that allow loans. The charge is accrued
daily, as applicable, and deducted on each Policy processing date.
OTHER CHARGES: Five free investment re-allocations among divisions per
Policy are allowed each Policy year. For each additional investment
re-allocation, a $25 charge is made from the amount transferred from each
division. Also, for each partial withdrawal, a charge is made equal to the
lesser of $25 and 2% of the amount withdrawn.
POLICY SALES LOAD AND PREMIUMS TAXES: A policy sales load of up to
7 1/2% is applied to each premium payment to compensate for sales related
expenses (see Note 4), as is an amount equal to the premium tax applicable
to some policies. Although the sales load and the premium tax are chargeable
to each premium when it is received, the amount of such charges is initially
advanced by Golden American to Policyowners and included as a component of
the Policyowner's investment value and then deducted in equal installments
on each Policy processing date over a period of either six or ten years.
Upon the surrender of the Policy, any unamortized deferred sales load and
premium taxes are deducted from the Policyowner's investment value. For some
policies, the deferred premium taxes are collected in one installment at the
end of the Policy processing period
55
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. CHARGES AND FEES (CONTINUED)
following the premium collection. The net assets retained in the Account by
Golden American in the accompanying financial statements represent the
unamortized deferred sales load and premium taxes.
Net assets retained in the Account by Golden American:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Balance at January 1............................................ $ 153,495 $ 121,090 $ 110,431
Sales load advanced............................................. 197,222 38,282 16,548
Premium tax advanced............................................ 84,376 14,547 9,358
Net transfer from Guaranteed Interest Division.................. 50,696 10,092 --
Amortization of deferred sales load and premium tax............. (107,257) (30,516) (15,247)
------------ ----------- -----------
Balance at December 31.......................................... $ 378,532 $ 153,495 $ 121,090
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
4. OTHER RELATED PARTY TRANSACTIONS
DSI, a registered broker/dealer, acts as the distributor and principal
underwriter (as defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) of the Contracts issued through the Account. For 1994,
1993 and 1992, fees paid by Golden American to DSI in connection with sales of
the Policies aggregated $286,476, $53,587, and $15,709.
Under the terms of an expense limitation agreement ("Expense Agreement")
between DSI and the Trust, DSI paid the Trust for ordinary expenses which
exceeded certain prescribed limits. The Expense Agreement was terminated
effective September 30, 1993, and was replaced by a unified fee payable by the
Trust to DSI, covering all expenses of the Trust, except trustee fees which are
borne by the Trust. For the years ended December 31, 1993 and 1992, DSI paid the
Trust $255,476, and $311,745, respectively, relating to the Expense Agreement.
56
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 31, 1994, 1993, and 1992
and assumes the combined expense rates indicated were in effect for all periods
presented:
<TABLE>
<CAPTION>
LIQUID ASSET DIVISION LIMITED MATURITY BOND DIVISION
------------------------------ -------------------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Investment income............. 3.70% 2.64% 3.13% 4.84% 4.38% 5.88%
Net realized and unrealized
gain (loss) on investments... -- -- -- (6.03) 1.82 (1.04)
------ ------ ------ ------- ------ -------
Gross return.................. 3.70 2.64 3.13 (1.19) 6.20 4.84
Expense charges (c)........... .83 .82 .83 .79 .85 .84
------ ------ ------ ------- ------ -------
Net return.................... 2.87% 1.82% 2.30% (1.98)% 5.35% 4.00%
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
<CAPTION>
NATURAL RESOURCES DIVISION
ALL-GROWTH DIVISION
------------------------------ ------------------------------
1994 1993 1992 1994 1993 1992
------ ------ -------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income............. 2.60% .74% 1.18% .84% .39% .55%
Net realized and unrealized
gain (loss) on investments... (.07) 49.19 (10.99) (11.62) 6.17 (3.14)
------ ------ -------- -------- ----- -------
Gross return.................. 2.53 49.93 (9.81) (10.78) 6.56 (2.59)
Expense charges (c)........... .82 1.20 .72 .71 .86 .78
------ ------ -------- -------- ----- -------
Net return.................... 1.71% 48.73% (10.53)% (11.49)% 5.70% (3.37)%
------ ------ -------- -------- ----- -------
------ ------ -------- -------- ----- -------
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE DIVISION FULLY MANAGED DIVISION MULTIPLE ALLOCATION
DIVISION
----------------------- ----------------------- --------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
----- ------ ------ ------- ----- ----- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income........ 5.36% 3.30% 5.11% 2.66% 3.08% 2.13% 3.53% 6.92% 4.61%
Net realized and
unrealized gain (loss)
on investments.......... .98 13.97 8.76 (9.93) 4.51 4.10 (4.71) 4.21 (2.73)
----- ------ ------ ------- ----- ----- ------- ------ -------
Gross return............. 6.34 17.27 13.87 (7.27) 7.59 6.23 (1.18) 11.13 1.88
Expense charges (c)...... .85 .94 .91 .74 .86 .85 .78 .89 .82
----- ------ ------ ------- ----- ----- ------- ------ -------
Net return............... 5.49% 16.33% 12.96% (8.01)% 6.73% 5.38% (1.96)% 10.24% 1.06%
----- ------ ------ ------- ----- ----- ------- ------ -------
----- ------ ------ ------- ----- ----- ------- ------ -------
</TABLE>
<TABLE>
<CAPTION>
RISING EMERGING MARKET
CAPITAL APPRECIATION DIVIDENDS
DIVISION DIVISION DIVISION
------------------------ -------------- -----------------
1994 1993 1992(a) 1994 1993(b) 1994 1993(b)
------- ----- ------ ------ ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income.................. 1.98% 1.40% .87% 1.37% .14% 3.79% -- %
Net realized and unrealized gain
(loss) on investments............. (3.57) 6.91 10.00 (.78) 3.00 (18.97) 24.40
------- ----- ------ ------ ----- -------- ------
Gross return....................... (1.59) 8.31 10.87 .59 3.14 (15.18) 24.40
Expense charges (c)................ .79 .87 .59 .80 .20 .67 .24
------- ----- ------ ------ ----- -------- ------
Net return......................... (2.38)% 7.44% 10.28% (.21)% 2.94% (15.85) 24.16%
------- ----- ------ ------ ----- -------- ------
------- ----- ------ ------ ----- -------- ------
</TABLE>
- ------------------------
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operations, October 4, 1993.
(c) Expense charges represent only the mortality and expense risk charges at an
annual rate of .80% of the assets of the Account.
57
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. NET RETURN (CONTINUED)
The following tables show the net return and the components thereof with
respect to the Divisions for the years ended December 31, 1994, 1993 and 1992
and assumes the combined expense rates indicated were in effect for all periods
presented:
<TABLE>
<CAPTION>
LIQUID ASSET DIVISION LIMITED MATURITY BOND DIVISION
--------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income............. 3.70% 2.64% 3.13% 4.84% 4.38 % 5.88%
Net realized and unrealized
gain (loss) on investments... -- -- -- (6.03) 1.82 (1.04)
--- --- --- --------- --- ---------
Gross return.................. 3.70 2.64 3.13 (1.19) 6.20 4.84
Expense charges (c)........... 1.04 1.03 1.04 .98 1.06 1.05
--- --- --- --------- --- ---------
Net return.................... 2.66% 1.61% 2.09% (2.17)% 5.14 % 3.79%
--- --- --- --------- --- ---------
--- --- --- --------- --- ---------
<CAPTION>
NATURAL RESOURCES DIVISION
ALL-GROWTH DIVISION
--------------------------------- ----------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income............. 2.60% .74% 1.18% .84% .39 % .55%
Net realized and unrealized
gain (loss) on investments... (.07) 49.19 (10.99) (11.62) 6.17 (3.14)
--------- --------- --------- --------- --- ---------
Gross return.................. 2.53 49.93 (9.81) (10.78) 6.56 (2.59)
Expense charges (c)........... 1.02 1.50 .90 .89 1.07 .98
--------- --------- --------- --------- --- ---------
Net return.................... 1.51% 48.43% (10.71)% (11.67)% 5.49 % (3.57)%
--------- --------- --------- --------- --- ---------
--------- --------- --------- --------- --- ---------
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE DIVISION FULLY MANAGED DIVISION MULTIPLE ALLOCATION
DIVISION
--------------------------- --------------------------- ---------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income.................. 5.36% 3.30% 5.11% 2.66% 3.08% 2.13% 3.53% 6.92% 4.61%
Net realized and unrealized gain
(loss) on investments............. .98 13.97 8.76 (9.93) 4.51 4.10 (4.71) 4.21 (2.73)
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross return....................... 6.34 17.27 13.87 (7.27) 7.59 6.23 (1.18) 11.13 1.88
Expense charges (c)................ 1.06 1.17 1.14 .93 1.08 1.07 .98 1.11 1.02
------- ------- ------- ------- ------- ------- ------- ------- -------
Net return......................... 5.28% 16.10% 12.73% (8.20)% 6.51% 5.16% (2.16)% 10.02% .86%
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
RISING DIVIDENDS EMERGING MARKET
CAPITAL APPRECIATION
DIVISION DIVISION DIVISION
--------------------------- ----------------- ------------------
1994 1993 1992(a) 1994 1993(b) 1994 1993(b)
------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income.................. 1.98% 1.40% .87% 1.37% .14% 3.79% -- %
Net realized and unrealized gain
(loss) on investments............. (3.57) 6.91 10.00 (.78) 3.00 (18.97) 24.40
------- ------- ------- ------- ------- -------- -------
Gross return....................... (1.59) 8.31 10.87 .59 3.14 (15.18) 24.40
Expense charges (c)................ .98 1.09 .74 1.00 .25 .84 .30
------- ------- ------- ------- ------- -------- -------
Net return......................... (2.57)% 7.22% 10.13% (.41)% 2.89% (16.02)% 24.10%
------- ------- ------- ------- ------- -------- -------
------- ------- ------- ------- ------- -------- -------
</TABLE>
- ------------------------
(a) Commencement of operations, May 4, 1992.
(b) Commencement of operation, October 4, 1993.
(c) Expense charges represent only the combined mortality and expense risk and
asset-based administrative charges at an annual rate of 1.00% of the assets
of the Account. Such charges became effective May 1, 1991 for contracts
issued on and after such date. In the above tables, the net returns were
calculated as though the combined expense rate of 1.00% had been in effect
since commencement of operations.
58
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Fixed maturities available for sale, at market value...... $ 17,428
Short-term investments.................................... 15,340
Equity securities, at market value........................ 16
Policy loans.............................................. 911
Cash...................................................... 2,279
Accrued investment income................................. 265
Deferred policy acquisition costs......................... 61,570
Other assets.............................................. 12,215
Separate Account Assets................................... 942,028
-----------
Total Assets.............................................. $ 1,052,052
-----------
-----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves............................ $ 17,025
Accrued expenses and other liabilities.................... 4,495
Separate Account liabilities.............................. 942,028
-----------
Total liabilities......................................... 963,548
-----------
STOCKHOLDER'S EQUITY
Common Stock.............................................. 2,500
Preferred Stock........................................... 50,000
Additional paid-in capital................................ 37,086
Unrealized depreciation of equity securities.............. (1)
Unrealized depreciation of fixed maturities
available-for-sale....................................... (81)
Retained earnings......................................... (1,000)
-----------
Total stockholder's equity................................ 88,504
-----------
Total liabilities and stockholder's equity.................. $ 1,052,052
-----------
-----------
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS.
59
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED STATEMENT OF INCOME (UNAUDITED)
QUARTER ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES
Variable Life and annuity product fees and policy
charges.................................................. $ 4,643
Net investment income..................................... 406
Realized losses on investments............................ (34)
-------
5,015
EXPENSES
Operating and administrative.............................. 3,956
Amortization of deferred policy acquisition costs......... 1,216
-------
5,172
-------
Net Income.................................................. $ (157)
-------
-------
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
QUARTER ENDED MARCH 31
(IN THOUSANDS)
<TABLE>
<S> <C>
Net cash provided by operating activities................... $ 14,557
Investing activities:
Purchases of investments.................................. (19,216)
Sales of investments...................................... 4,371
Maturities of investments................................. 15
--------
Net cash used in investing activities..................... (14,830)
Financing Activities:
Dividends paid on preferred stock......................... (764)
--------
Net cash used in financing activities..................... (764)
--------
Decrease in cash............................................ (1,037)
Cash at beginning of year................................... 3,316
--------
Cash at end of year......................................... $ 2,279
--------
--------
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTE TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995. For further
information, refer to the financial statements and footnotes thereto included in
the Golden American Life Insurance Company annual report.
60
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Golden
American Life Insurance Company (the "Company") as of December 31, 1994 and
1993, and the related statutory-basis statements of operations, capital and
surplus, and cash flow for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the acounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company presents its 1994 and 1993 financial statements in conformity
with accounting practices prescribed or permitted by the Department of Insurance
of the State of Delaware. The variances between such practices and generally
accepted accounting principles and the effects on the accompanying financial
statements are described in Notes 2 and 4.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, or the results of
its operations or its cash flow for the years then ended. However, in our
opinion, the supplementary information included in Note 4 presents fairly, in
all material respects, stockholder's equity at December 31, 1994 and 1993, and
net income (loss) for the years ended December 31, 1994 and 1993, in conformity
with generally accepted accounting principles.
Also, in our opinion, the statutory-basis financial statements referred to
above present fairly, in all material respects, the financial position of Golden
American Life Insurance Company at December 31, 1994 and 1993, and the results
of its operations and its cash flow for the years then ended in conformity with
accounting practices prescribed or permitted by the Department of Insurance of
the State of Delaware for the years ended December 31, 1994 and 1993.
[SIGNATURE]
February 14, 1995,
except for Note 11, as to which the date is
June 29, 1995
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1994 1993
----------------- ----------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds...................................................................... $ 2,673,223 $ 2,127,036
Short-term investments..................................................... 13,933,550 15,231,954
Common stock............................................................... 15,609 321,842
Funds held in escrow pursuant to an Exchange Agreement....................... 2,757,467 1,375,000
Cash......................................................................... 3,315,768 4,075,718
Policy loans................................................................. 513,350 144,529
----------------- ----------------
23,208,967 23,276,079
Investment income due and accrued............................................ 92,423 68,002
Due from reinsurers.......................................................... 14,506,893 162,041
Due from parent and affiliates............................................... -- 466,129
Separate account assets...................................................... 950,291,746 810,150,858
Other assets................................................................. 80,119 --
----------------- ----------------
Total admitted assets.................................................... $ 988,180,148 $ 834,123,109
----------------- ----------------
----------------- ----------------
LIABILITIES AND CAPITAL AND SURPLUS
Policy and contract liabilities:
Insurance and annuity reserves............................................. $ 6,036,021 $ 2,389,726
Due to reinsurers.......................................................... 13,860,267 87,977
----------------- ----------------
19,896,288 2,477,703
Other liabilities:
Due from separate accounts for net transfers............................... (49,758,887) (39,158,451)
Due to parent and affiliates............................................... 232,587 --
Accrued expenses and other liabilities..................................... 745,569 1,220,619
Adjustable principal amount promissory note, 7.5%, due 1997................ 438,636 438,636
Borrowed money............................................................. -- 40,040,278
Asset valuation reserve and interest maintenance reserve................... 41,598 131,060
----------------- ----------------
(28,404,209) 2,672,142
Separate account liabilities................................................. 950,291,746 810,150,858
----------------- ----------------
Total liabilities............................................................ 921,887,537 815,300,703
Capital and surplus:
Common stock, par value $10 per share:
Authorized, issued and outstanding 250,000 shares 2,500,000 2,500,000
Redeemable preferred stock, par value $5,000 per share,
50,000 shares authorized, 10,000 shares issued and
outstanding in 1994....................................................... 50,000,000 --
Paid-in surplus............................................................ 42,699,479 33,949,479
Unassigned surplus (deficit)............................................... (28,906,868) (17,627,073)
----------------- ----------------
Total capital and surplus.................................................... 66,292,611 18,822,406
----------------- ----------------
Total liabilities and capital and surplus.................................... $ 988,180,148 $ 834,123,109
----------------- ----------------
----------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1994 1993
----------------- ----------------
<S> <C> <C>
Premiums and annuity considerations....................................... $ 294,549,961 $ 505,465,379
Reserve adjustments on reinsurance ceded.................................. 12,705,353 --
----------------- ----------------
307,255,314 505,465,379
Investment income:
Gross investment income................................................. 578,107 245,507
Less investment expenses................................................ (2,310) (773,443)
----------------- ----------------
575,797 (527,936)
Amortization of interest maintenance reserve.............................. 3,323 14,720
Commissions and expense allowances on reinsurance ceded................... 1,140,402 --
Other income.............................................................. -- 8,446
----------------- ----------------
Total income.............................................................. 308,974,836 504,960,609
Benefits paid or provided:
Annuity benefits........................................................ 18,263,492 9,591,886
Surrender benefits...................................................... 86,014,940 26,809,545
Increase (decrease) in insurance and annuity reserves................... 3,646,295 (59,390)
----------------- ----------------
107,924,727 36,342,041
Net transfers to separate accounts........................................ 178,965,551 434,471,301
Expenses:
Commissions............................................................. 17,569,333 34,259,911
General insurance expenses.............................................. 15,838,760 9,337,982
----------------- ----------------
33,408,093 43,597,893
----------------- ----------------
Total benefits and expenses............................................... 320,298,371 514,411,235
----------------- ----------------
Net loss from operations before federal income tax benefit
and net realized capital gains........................................... (11,323,535) (9,450,626)
Federal income tax benefit................................................ -- 16,083
Net realized capital gains................................................ 63,500 33,657
----------------- ----------------
Net loss.................................................................. $ (11,260,035) $ (9,400,886)
----------------- ----------------
----------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
63
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL AND SURPLUS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1993
---------------- --------------
<S> <C> <C>
Balance at beginning of year................................................ $ 18,822,406 $ 12,204,962
Net loss.................................................................... (11,260,035) (9,400,886)
Change in net unrealized appreciation of investments........................ (62,320) 47,856
Change in asset valuation reserve........................................... 92,811 (29,526)
Change in non-admitted assets............................................... (50,251) --
Issuance of redeemable preferred stock...................................... 50,000,000 --
Issuance of common stock.................................................... -- 1,000,000
Contribution of capital by parent........................................... 8,750,000 15,000,000
---------------- --------------
Net increase in capital and surplus......................................... 47,470,205 6,617,444
---------------- --------------
Balance at end of year...................................................... $ 66,292,611 $ 18,822,406
---------------- --------------
---------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1993
------------------ ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations, net................................. $ 308,461,038 $ 505,337,943
Policy loans............................................................. (368,822) 202,132
Investment income, net of interest paid.................................. 465,559 (484,512)
Federal income tax benefit recovered..................................... -- 16,083
Benefits paid............................................................ (104,913,778) (36,551,412)
Commissions and other operating expenses................................. (33,764,277) (42,607,803)
Net transfers to separate accounts....................................... (189,565,987) (458,548,369)
Other.................................................................... 845,300 (274,409)
------------------ ----------------
Net cash used in operating activities.................................... (18,840,967) (32,910,347)
INVESTING ACTIVITIES
Proceeds from maturity and calling of bonds.............................. 321,110 552,100
Proceeds from sale of common stock....................................... 313,500 240,492
Cost of bonds acquired................................................... (857,274) (543,368)
Cost of common stock acquired............................................ (6,087) (260,576)
Investments held in escrow pursuant to an Exchange Agreement, (net)...... (1,300,000) (1,375,000)
------------------ ----------------
Net cash used in investing activities.................................... (1,528,751) (1,386,352)
FINANCING ACTIVITIES
Issuance of common stock................................................. -- 1,000,000
Issuance of redeemable preferred stock................................... 50,000,000 --
Contribution of capital by parent........................................ 8,750,000 15,000,000
Borrowed money........................................................... (40,438,636) 33,600,000
------------------ ----------------
Net cash provided by financing activities................................ 18,311,364 49,600,000
------------------ ----------------
Net (decrease) increase in cash and short-term investments............... (2,058,354) 15,303,301
Cash and short-term investments at beginning of year..................... 19,307,672 4,004,371
------------------ ----------------
Cash and short-term investments at end of year........................... $ 17,249,318 $ 19,307,672
------------------ ----------------
------------------ ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company
("Golden American") became a wholly-owned subsidiary of BT Variable, Inc.
("BTV"), an indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers
Trust"). Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a life
insurance company in the District of Columbia and all states except New York.
Effective December 30, 1993, Golden American was redomesticated from the State
of Minnesota to the State of Delaware.
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all
of the issued and outstanding capital stock of Golden American and Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at $11.6
million, subject to subsequent adjustment pursuant to the Exchange Agreement.
This allocation was based primarily on the estimated value of insurance
contracts in force and also included the acquisition of net tangible assets of
$.4 million. The transaction involved settlement of pre-existing claims of
Bankers Trust against Mutual Benefit. The ultimate value of these claims has not
yet been determined by the Superior Court of New Jersey and is contingently
supported by a $5 million note payable from Golden American and a $6 million
letter of credit from Bankers Trust. The Golden American note is secured by a
pledge of Golden American's right to receive certain deferred sales loads.
Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $438,636 at December 31, 1994 and 1993. During 1994 and
1993, Golden American deposited with an escrow agent $1,300,000 and $1,375,000,
respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly and
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994 and 1993, BTV contributed
additional capital and paid-in surplus of $8,750,000 and $16,000,000,
respectively, to Golden American, including $1,000,000 in 1993 through the
issuance of an additional 100,000 shares of common stock. In 1994, Golden
American issued $50,000,000 of preferred stock that was purchased by BTV for
$50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements for the years ended December 31, 1994
and 1993 have been prepared on the basis of accounting practices and procedures
prescribed or permitted by the Department of Insurance of the State of Delaware
(the "Department") and the National Association of Insurance Commissioners
("NAIC"). These practices differ in certain respects from generally accepted
accounting principles ("GAAP"). The more significant accounting practices
followed and, where indicated, their variation from GAAP, are summarized as
follows:
ADMITTED ASSETS
Assets in the accompanying balance sheets are stated at "admitted asset"
values. The term "admitted assets" means the assets are stated at values
required or permitted to be reported to the Department in accordance with the
rules and regulations of the Department and the NAIC.
ACQUISITION
The acquisition of Golden American by Bankers Trust had no effect on the
carrying value of the acquired assets and liabilities reported in the
accompanying statutory-basis financial statements. Under GAAP, the acquisition
of Golden American has been accounted for as a purchase by Bankers
66
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Trust and, accordingly, the acquired assets and the liabilities assumed were
reported at their estimated fair values at the date of acquisition. In addition,
for GAAP purposes Golden American recorded an asset for the cost assigned to
insurance contracts in force, which represents the value of the right to receive
future profits from the life insurance and annuity policies existing at the
acquisition date. Such value is the actuarially-determined present value of
projected future profits from the acquired contracts discounted at an interest
rate of 15%. Cost assigned to insurance contracts in force is being amortized
over the estimated life of the applicable insurance contracts in relation to
estimated future gross profits with interest at 8%.
INVESTMENTS
The admitted asset values of bonds and stocks have been determined on the
basis prescribed by the NAIC. Such admitted asset values represent principally
amortized cost for bonds (market value -- 1994: $2,658,448 and 1993: $2,198,654)
and market value for common stocks (cost -- 1994: $16,429 and 1993: $260,342).
As prescribed by the NAIC, an Asset Valuation Reserve ("AVR") is required to
be maintained by insurance companies. The AVR is computed in accordance with a
prescribed formula and represents a provision for possible fluctuations in the
value of bonds, equity securities, mortgage loans, real estate, and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus. As also prescribed by the NAIC, beginning in 1992, Golden
American adopted an Interest Maintenance Reserve ("IMR") that represents the net
accumulated unamortized realized capital gains and losses attributable to
changes in the general level of interest rates on sales of fixed income
investments, principally bonds and mortgage loans. Such gains or losses are
amortized into income on a straight-line basis over the remaining period to
maturity. Under GAAP, the AVR and IMR are not recorded.
Net realized capital gains and losses on investments are included in the
determination of net income using the specific identification method. Through
the use of the IMR such net realized gains and losses may be deferred, net of
applicable capital gains taxes, and amortized into investment income over the
life of the investments sold.
Unrealized gains and losses on stocks are recognized directly in unassigned
surplus. Short-term investments are carried at cost, which, when combined with
accrued interest income, approximates fair value.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden American
provides for variable accumulation and benefits under the policies and contracts
by crediting life and annuity considerations in accordance with contractholder
direction to one or more divisions within various separate accounts or Golden
American's guaranteed interest division. Allocation of premiums to the
guaranteed interest division was discontinued in 1991.
Premiums and annuity considerations are recorded as received and are
presented net of reinsurance premiums of $16.1 million and $.7 million in 1994
and 1993, respectively. Under GAAP, revenues from variable life and annuity
products consist of policy charges for mortality and expense risk, the cost of
insurance and policy administration costs that have been assessed against policy
account balances during the period.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent policy account balances invested in
the guaranteed interest division less the related unamortized portion of the
deferred sales load and other policy charges. Such reserves include provisions
for minimum death benefit guarantees.
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Surrender values are not promised in excess of the legally computed
reserves. There was no insurance in-force at December 31, 1994 for which the
gross premiums were less than net premiums.
POLICY BENEFITS
Policy benefits paid or provided include benefit claims incurred in the
period and are net of reinsurance of $2.4 million and $.4 million in 1994 and
1993, respectively. Interest credited rates for the guaranteed interest division
ranged from 4.0% to 5.0% during 1994 and 1993. Under GAAP, policy benefits that
are charged to expense include benefits incurred in the period in excess of the
policy account balances and interest credited to policy account balances
invested in the guaranteed interest division.
ACQUISITION COSTS
Commissions and other costs incurred in acquiring new business are charged
to operations as incurred. Under GAAP, these costs are deferred and are
amortized over the lives of the policies in relation to the present value of
estimated gross profits from policy sales load and investment returns, and
mortality and expense margins.
SEPARATE ACCOUNTS
The separate accounts are registered investment companies under the
provisions of the Investment Company Act of 1940. At the direction of the
policyowners and contractholders, the separate accounts invest the premium and
annuity considerations from the sale of variable life and annuity products in
either shares of specified mutual funds or directly in other investment
securities. The assets and liabilities of Golden American's separate accounts
are identified and segregated from other assets and liabilities of Golden
American. The portion of the separate account assets applicable to policies and
contracts cannot be charged with liabilities arising out of any other business
Golden American may conduct.
Separate account assets are carried at the net asset value of the underlying
mutual funds, which approximates market value, and generally represent
contractholder and policyowner funds maintained in the accounts and unamortized
deferred sales loads and other charges payable to Golden American over a
specified period. Net investment income and realized and unrealized capital
gains and losses related to separate account assets are not included in the
accompanying statements of operations of Golden American.
A sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for policy related expenses. Although this
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the separate or general account assets, as
applicable, and then deducted in equal installments on each contract processing
date over a period specified in the contract or policy. Sales loads are included
in operations when assessed by Golden American. Under GAAP, these sales loads
are earned over the life of the contract in relation to estimated future gross
profits. Sales load amounts that have been deducted but not yet earned are
reported as unearned income.
REINSURANCE
Premiums and policy benefits are reported in the accompanying financial
statements net of reinsurance ceded. Golden American would remain liable to the
extent that any reinsurers do not meet their obligations under the reinsurance
agreements. FASB Statement No. 113, "Accounting and Reporting for Reinsurance of
Short Duration and Long Duration Contracts" which was issued in December 1992,
was adopted by Golden American in 1993. However, its adoption did not have a
material impact on the financial statements of Golden American.
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Federal income tax benefits are based on net losses from operations after
adjusting for certain income and expense items, principally differences between
statutory and tax reserves, accrual of bond discount, and specified policy
acquisition expenses that, in accordance with the provisions of the Internal
Revenue Code ("IRC"), are not included in the determination of current taxable
income.
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the IRC. At December 31, 1994 and
1993, Golden American had net operating loss ("NOL") carryforwards for federal
income tax purposes of approximately $17.3 million and $7.3 million,
respectively. Approximately $2.4 million of these NOL's, relating to operations
prior to ownership by Mutual Benefit, can be used to offset future taxable
income of Golden American only through the year 2005, subject to annual
limitations. Approximately $.8 million, $4.1 million and $10.0 million are
available through the years 2007, 2008, and 2009, respectively.
STATEMENTS OF CASH FLOW
For purposes of Golden American's statements of cash flow, all highly liquid
investments with a maturity of one year or less are considered to be short-term
investments.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount promissory
note, and policy and contract liabilities and determined that carrying amounts
reported in the balance sheets approximate fair value.
4. CAPITAL AND SURPLUS
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain jurisdictions in which Golden American operates.
Golden American is required to maintain a minimum total statutory-basis capital
and surplus of not less than $5,000,000 under the provisions of the insurance
laws of certain states in which it is presently licensed to sell variable life
and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/ health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained by
an insurance company is to be determined based on the various risk factors
related to it. Golden American met the RBC requirements as of December 31, 1994
and 1993.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock in 1994. As of December 31, 1994, Dividends in Arrears on the
Redeemable Preferred Stock were $17,917 or $1.79 per share. The dividends are
cumulative and are calculated based on a rate not to exceed the sum of the Prime
Rate and 1.5%. The Redeemable Preferred Stock is redeemable at the option of
Golden American at the redemption price of $5,000 per share.
Dividend payments to common stockholders are limited by statutory
restrictions issued by the State of Delaware. The maximum amount of dividends
which can be paid by State of Delaware insurance companies to stockholders
without prior approval of the Insurance Commissioner is the higher of either (a)
prior year net income or (b) 10% of ending prior year surplus. Statutory surplus
at December 31, 1994, was $13,792,611. The net loss for 1994 was $(11,260,035).
The maximum dividend payout which may be made without prior approval in 1995 is
$1,379,261. No dividends were paid in 1994.
69
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
4. CAPITAL AND SURPLUS (CONTINUED)
A reconciliation of Golden American's GAAP-basis stockholder's equity as of
December 31, 1994 and 1993 and net loss for the years ended December 31, 1994
and 1993 to its statutory-basis capital and surplus and net loss included in the
accompanying financial statements is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME/(LOSS)
--------------------------------- ---------------------------------
1994 1993 1994 1993
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
GAAP-basis................................ $ 89,506,318 $ 28,596,888 $ 2,221,748 $ (1,792,700)
Asset valuation reserve/interest
maintenance reserve...................... (41,598) (131,060) 3,323 14,720
Fixed maturities from acquisition......... (75,609) (96,528) 14,248 4,300
Deferred policy acquisition costs......... (60,662,000) (42,151,111) (18,510,889) (35,101,494)
Cost assigned to insurance contracts in
force.................................... (7,620,000) (9,784,189) 2,164,189 1,356,597
Deferred sales loads and policy charges... 49,223,050 42,223,470 6,999,580 26,695,281
Reserves.................................. (4,985,212) -- (5,016,676) 563,905
Unearned revenue.......................... 1,759,000 164,936 1,594,064 (1,141,495)
Other..................................... (811,338) -- (729,622) --
---------------- --------------- ---------------- ---------------
Statutory-basis........................... $ 66,292,611 $ 18,822,406 $ (11,260,035) $ (9,400,886)
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
</TABLE>
5. INVESTMENTS
Investments in debt securities and other fixed maturity investments
generally are held for investment purposes to maturity. Included in short-term
investments at December 31, 1994 and 1993 are $13.9 million and $15.2 million of
debt securities, respectively, issued by the U.S. Government.
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
COST OR UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
At December 31, 1994:
U.S. Treasury bonds.............................. $ 2,673,223 $ 21,055 $ (35,830) $ 2,658,448
-------------- ------------ ------------ --------------
Total bonds........................................ $ 2,673,223 $ 21,055 $ (35,830) $ 2,658,448
-------------- ------------ ------------ --------------
-------------- ------------ ------------ --------------
At December 31, 1993:
U.S. Treasury.................................... $ 2,032,905 $ 68,669 $ (4,191) $ 2,097,383
Corporate securities............................. 94,131 7,140 -- 101,271
-------------- ------------ ------------ --------------
Total bonds........................................ $ 2,127,036 $ 75,809 $ (4,191) $ 2,198,654
-------------- ------------ ------------ --------------
-------------- ------------ ------------ --------------
</TABLE>
Fair values generally represent quoted market value prices for securities
traded in the public marketplace.
Maturities of long-term bonds are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
------------- --------------
<S> <C> <C>
Due in one year or less..................................................... $ 701,048 $ 688,136
Due after one year through five years....................................... 849,927 827,009
Due after five years through ten years...................................... 1,122,248 1,143,303
------------- --------------
$ 2,673,223 $ 2,658,448
------------- --------------
------------- --------------
</TABLE>
Proceeds from the sale of investments in bonds during 1994 and 1993 were
$321,110 and $552,100; gross gains of $6,672 and $24,919 were realized on those
sales, respectively.
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
5. INVESTMENTS (CONTINUED)
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities was $(820) and $61,500, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with regulatory
authorities pursuant to certain statutory requirements.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year ended December 31, 1993, Golden
American incurred $311,121 for such services. The agreement was terminated as of
January 1, 1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994, were
sold primarily through two broker/dealer institutions. For 1994 and 1993,
commissions paid by Golden American to DSI aggregated $17,569,333 and
$34,259,911, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative, and clerical services and the use of certain
facilities. Golden American charged DSI for such expenses and all other general
and administrative costs, first on the basis of direct charges when
identifiable, and the remainder allocated based on the estimated amount of time
spent by Golden American's employees on behalf of DSI. In the opinion of
management, this method of cost allocation is reasonable. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,486 and
$2,012,969, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year
ended December 31, 1993, fees earned by BTV from Golden American for these
services aggregated $2,700,850. The agreement was terminated as of January 1,
1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative, and clerical services and the use of certain
of its facilities. BTV charged Golden American for such expenses and all other
general and administrative costs, first on the basis of direct charges when
identifiable, and second allocated based on the estimated amount of time spent
by BTV's employees on behalf of Golden American. For the year ended December 31,
1993, BTV allocated to Golden American $1,503,159. The agreement was terminated
on January 1, 1994.
At December 31, 1994 and 1993, Golden American's cash and short-term
investments on deposit at Bankers Trust were $10,063,172 and $19,307,672,
respectively.
7. REINSURANCE
Variable life and annuity product fees are reported in the accompanying
financial statements net of reinsurance premiums of $16.1 million and $.7
million in 1994 and 1993, respectively. Effective September 30, 1992, Golden
American terminated all reinsurance agreements with Mutual Benefit.
Concurrently, Golden American entered into agreements covering mortality risks
under both life policies and annuity contracts with an unaffiliated reinsurer.
Also, effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. Golden
American remains liable to the extent that its reinsurers do not meet their
obligations under the reinsurance agreements. Reinsurance in-force for life
mortality risks were $23.3 million and $15.4 million at December 31, 1994 and
1993 and for annuity mortality risks were $149.6 million and $46.5 million at
December 31, 1994 and 1993, respectively. FASB Statement
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
7. REINSURANCE (CONTINUED)
No. 113, "Accounting and Reporting for Reinsurance of Short Duration and Long
Duration Contracts," was issued in December 1992 and adopted by Golden American
in 1993. However, its adoption did not have a material impact on the financial
statements of Golden American.
8. LIFE AND ANNUITIES ACTUARIAL RESERVES
The following is a reconciliation of the Life and Annuities actuarial
reserves presented in the 1994 Annual Statements of Golden American and Golden
American Separate Accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT TOTAL
------------ --------------
<C> <S> <C> <C>
1. Subject to discretionary withdrawal
1.1 -- with market value adjustment..................................... $ -- 0%
------------ ---
1.2 -- at book value less current surrender charge of 5% or more........ -- 0%
------------ ---
1.3 -- at market value.................................................. -- 0%
------------ ---
1.4 -- Total with adjustment or at market value......................... 893,814,295 100%
------------ ---
1.5 -- at book value without adjustment (minimal or no charge or
adjustment)...................................................... 520,244 0%
------------ ---
2. Not subject to discretionary withdrawal................................. -- 0%
------------ ---
3. Total (gross)........................................................... 894,334,539 100%
------------ ---
4. Reinsurance ceded....................................................... --
------------
5. Total (net)* (3) - (4).................................................. $894,334,539
------------
------------
</TABLE>
- ------------------------
*Reconciliation of total annuity actuarial reserves and deposit fund
liabilities.
<TABLE>
<S> <C>
Life and Accident and Health Annual Statement:
6. Exhibit 8, Section B, Total (net)........................................ $ 520,244
-------------
7. Exhibit 8, Section C, Total (net)........................................ --
-------------
8. Exhibit 10, Column 1, Line 12............................................ --
-------------
9. Subtotal................................................................. 520,244
-------------
Separate Accounts Statement:
10. Exhibit 6, Column 2, Line B.10........................................... 893,814,295
-------------
11. Exhibit 6, Column 2, Line C.5............................................ --
-------------
12. Page 3, Line 3........................................................... --
-------------
13. Page 3, Line 3........................................................... --
-------------
14. Subtotal................................................................. 893,814,295
-------------
15. Combined total........................................................... $ 893,334,539
-------------
-------------
</TABLE>
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
DECEMBER 31, 1994
9. BORROWED MONEY
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed under
this loan had been guaranteed by Bankers Trust.
10. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
Golden American's employees are covered under the Parent's benefit plans.
The noncontributory pension plan and the profit sharing plan of the Parent are
also available to eligible employees of the Company. Total 1994 expenses
relating to these Parent company benefit plans were approximately $207,000.
11. SUBSEQUENT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony"), BTV
and BTV's immediate parent, Whitewood Properties Corp. ("Whitewood"), entered
into an agreement providing for the acquisition by First Colony of a minority
interest in BTV. On June 29, 1995, BTV, Whitewood and First Colony agreed to
terminate the agreement between and among the parties.
73
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying balance sheets of Golden American Life
Insurance Company (the "Company") as of December 31, 1994 and 1993 and the
related statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1994 and 1993 and for the period from
September 30, 1992 (date of acquisition) to December 31, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Golden American Life
Insurance Company at December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1993 and
for the period from September 30, 1992 to December 31, 1992, in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company adopted, as
of December 31, 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
[SIGNATURE]
February 14, 1995,
except for Note 10, as to which the date is
June 29, 1995
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1994 1993
-------------- -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost (market -- $2,659 and
$2,199)........................................................................... $ 2,749 $ 2,224
Short-term investments, at cost, which approximates market......................... 13,933 15,232
Equity securities, at market (cost -- $17 and $260)................................ 16 322
Policy loans....................................................................... 513 144
-------------- -----------
Total investments................................................................ 17,211 17,922
Cash................................................................................. 3,316 4,076
Accrued investment income............................................................ 92 68
Due from affiliates and separate accounts............................................ 963 466
Deferred policy acquisition costs.................................................... 60,662 42,151
Unamortized cost assigned to insurance contracts in force............................ 7,620 9,784
Funds held in escrow pursuant to an Exchange Agreement............................... 2,757 1,375
Due from reinsurers.................................................................. 1,713 162
Other assets......................................................................... 134 --
Separate account assets.............................................................. 950,292 810,151
-------------- -----------
Total assets..................................................................... $ 1,044,760 $ 886,155
-------------- -----------
-------------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Insurance and annuity reserves (including $17 and $31 of unamortized deferred sales
load)............................................................................. $ 1,051 $ 2,421
Due to affiliates and separate accounts............................................ 660 3,462
Accrued expenses and other liabilities............................................. 1,053 920
Short-term debt.................................................................... -- 40,000
Unearned revenue................................................................... 1,759 165
Adjustable principal amount promissory note, 7.50%, due 1997....................... 439 439
Separate account liabilities (including $48,924 and $42,192 of unamortized deferred
sales load)....................................................................... 950,292 810,151
-------------- -----------
Total liabilities................................................................ 955,254 857,558
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share, authorized, issued, and outstanding 250,000
shares.............................................................................. 2,500 2,500
Redeemable preferred stock, par value $5,000 per share, 50,000 shares authorized,
10,000 issued and outstanding in 1994............................................... 50,000 --
Additional paid-in capital........................................................... 37,086 28,336
Unrealized (depreciation) appreciation of equity securities.......................... (1) 62
Retained earnings (deficit).......................................................... (79) (2,301)
-------------- -----------
Total stockholder's equity......................................................... 89,506 28,597
-------------- -----------
Total liabilities and stockholder's equity....................................... $ 1,044,760 $ 886,155
-------------- -----------
-------------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 PERIOD
SEPTEMBER 30, 1992
---------------------- TO
1994 1993 DECEMBER 31, 1992
---------- ---------- ---------------------
<S> <C> <C> <C>
REVENUES
Variable life and annuity product fees and policy charges......... $ 17,519 $ 10,192 $ 694
Net investment income............................................. 560 216 67
Realized capital gain (loss)...................................... 65 35 (2)
---------- ---------- -------
Total revenues.................................................... 18,144 10,443 759
EXPENSES
Policy benefits................................................... 35 1,747 34
Commissions and overrides......................................... 16,741 34,260 6,429
Salaries, benefits and other employee-related costs............... 5,866 -- --
Financing charges and interest.................................... 1,962 726 53
Other general, administrative, and operating expenses............. 7,665 9,248 1,662
Deferral of policy acquisition costs.............................. (23,119) (37,129) (7,059)
Amortization of deferred policy acquisition costs................. 4,608 2,027 10
Amortization of cost assigned to insurance contracts in force..... 2,164 1,357 138
---------- ---------- -------
Total expenses.................................................... 15,922 12,236 1,267
---------- ---------- -------
Net income (loss)................................................. $ 2,222 $ (1,793) $ (508)
---------- ---------- -------
---------- ---------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
PERIOD SEPTEMBER 30, 1992 TO DECEMBER 31, 1992 AND THE YEARS ENDED DECEMBER 31,
1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
SHARES SHARES ADDITIONAL
COMMON PREFERRED COMMON PREFERRED PAID-IN
STOCK STOCK STOCK STOCK CAPITAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1992 (date of acquisition)............ 150,000 $ 1,500 $ 13,336
Net loss........................................................
Unrealized appreciation of equity securities....................
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1992................................... 150,000 1,500 13,336
Issuance of common stock........................................ 100,000 1,000
Contribution of capital......................................... 15,000
Net loss........................................................
Change in unrealized appreciation of equity securities..........
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1993................................... 250,000 2,500 -- 28,336
Issuance of preferred stock..................................... 10,000 50,000
Contribution of capital......................................... 8,750
Net income......................................................
Change in unrealized depreciation of equity securities..........
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1994................................... 250,000 10,000 $ 2,500 $ 50,000 $ 37,086
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
UNREALIZED RETAINED TOTAL
APPRECIATION OF EARNINGS STOCKHOLDER'S
EQUITY SECURITIES (DEFICIT) EQUITY
----------------- ----------- ---------------
<S> <C> <C> <C>
Balances at September 30, 1992 (date of acquisition)............ $ 14,836
Net loss........................................................ $ (508) (508)
Unrealized appreciation of equity securities.................... $ 14 14
--- ----------- ---------------
Balances at December 31, 1992................................... 14 (508) 14,342
Issuance of common stock........................................ 1,000
Contribution of capital......................................... 15,000
Net loss........................................................ (1,793) (1,793)
Change in unrealized appreciation of equity securities.......... 48 -- 48
--- ----------- ---------------
Balances at December 31, 1993................................... 62 (2,301) 28,597
Issuance of preferred stock..................................... 50,000
Contribution of capital......................................... 8,750
Net income...................................................... 2,222 2,222
Change in unrealized depreciation of equity securities.......... (63) (63)
--- ----------- ---------------
Balances at December 31, 1994................................... $ (1) $ (79) $ 89,506
--- ----------- ---------------
--- ----------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES.
77
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
DECEMBER 31 SEPTEMBER 30, 1992
----------------------- TO
1994 1993 DECEMBER 31, 1992
----------- ---------- ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................ $ 2,222 $ (1,793) $ (508)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Amortization of deferred policy acquisition costs.............. 4,608 2,027 10
Amortization of cost assigned to insurance contracts in
force......................................................... 2,164 1,357 138
Change in unearned revenue..................................... 1,594 (1,141) (136)
Increase in accrued investment income.......................... (24) (1) (13)
Change in due to/from affiliates and separate accounts......... (3,299) 2,976 (81)
Changes in other assets, accrued expenses and other
liabilities................................................... (1,552) 42 (154)
Policy acquisition costs deferred.............................. (23,119) (37,129) (7,059)
Change in insurance and annuity reserves....................... (1,370) 550 45
Amortization of premium on fixed maturity investments.......... 13 -- --
----------- ---------- -------
Net cash used in operating activities............................ (18,763) (33,112) (7,758)
INVESTING ACTIVITIES
Purchases of fixed maturities.................................... (857) (543) (151)
Sales of fixed maturities........................................ 319 552 1,177
Purchases of common stock........................................ (7) (260) (2)
Sales of common stock............................................ 250 240 --
(Increase) decrease in policy loans.............................. (369) 202 (29)
Funds held in escrow pursuant to an Exchange Agreement........... (1,382) (1,375) --
----------- ---------- -------
Net cash (used in) provided by investing activities.............. (2,046) (1,184) 995
FINANCING ACTIVITIES
(Retirement) issuances of short-term debt........................ (40,000) 33,600 6,400
Issuance of common stock......................................... -- 1,000 --
Issuance of preferred stock...................................... 50,000 -- --
Contribution of capital by parent................................ 8,750 15,000 --
----------- ---------- -------
Net cash provided by financing activities........................ 18,750 49,600 6,400
----------- ---------- -------
Net (decrease) increase in cash and short-term investments....... (2,059) 15,304 (363)
Cash and short-term investments at beginning of year............. 19,308 4,004 4,367
----------- ---------- -------
Cash and short-term investments at end of year................... $ 17,249 $ 19,308 $ 4,004
----------- ---------- -------
----------- ---------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
Effective September 30, 1992, Golden American Life Insurance Company
("Golden American") became a wholly-owned subsidiary of BT Variable, Inc.
("BTV"), an indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers
Trust"). Previously, Golden American was owned by Mutual Benefit Life Insurance
Company in Rehabilitation ("Mutual Benefit"). Golden American is primarily
engaged in the issuance of variable insurance products and is licensed as a life
insurance company in the District of Columbia and all states except New York.
Effective December 30, 1993, Golden American was redomesticated from the State
of Minnesota to the State of Delaware.
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement, all
of the issued and outstanding capital stock of Golden American and Directed
Services, Inc. ("DSI"), an affiliate of Golden American, and certain related
assets and contributed them to BTV. The portion of the aggregate consideration
exchanged by Bankers Trust, allocable to Golden American, was valued at
approximately $11.6 million, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of insurance contracts in force and also included the acquisition of net
tangible assets of $.4 million. The transaction involved settlement of
pre-existing claims of Bankers Trust against Mutual Benefit. The ultimate value
of these claims has not yet been determined by the Superior Court of New Jersey
and is contingently supported by a $5 million note payable from Golden American
and a $6 million letter of credit from Bankers Trust. The Golden American note
is secured by a pledge of Golden American's right to receive certain deferred
sales loads. Bankers Trust has estimated that the contingent liability due from
Golden American amounted to $438,636 at December 31, 1994 and 1993. Golden
American deposited with an escrow agent $1,300,000 and $1,375,000, in 1994 and
1993, respectively, pursuant to certain provisions of the Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American, to
have at all times statutory capital and surplus of no less than the sum of (i)
$5,000,000 and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1994, 1993, and 1992, BTV
contributed additional capital and paid-in surplus of $8,750,000, $16,000,000,
and $3,200,000, respectively, to Golden American, including $1,000,000 in 1993
through the issuance of an additional 100,000 shares of common stock. In 1994,
Golden American issued $50,000,000 of preferred stock that was purchased by BTV
for $50,000,000 in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been presented in accordance with
generally accepted accounting principles ("GAAP"). The acquisition of Golden
American has been accounted for as a purchase by Bankers Trust and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair values
at September 30, 1992. In accordance with requirements of the Securities and
Exchange Commission, this new basis of accounting has been "pushed down" to
Golden American.
INVESTMENTS
Fixed maturities are carried at amortized cost. Short-term investments are
carried at cost, which approximates market. Equity securities, principally
investments in mutual funds, are carried at market based on quoted market
prices. Net unrealized appreciation of equity securities is included as a
component of stockholder's equity. The cost of investments sold is determined by
using the specific identification method.
VARIABLE LIFE AND ANNUITY PRODUCTS
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden American
provides for variable accumulation and benefits under the policies and contracts
by crediting life and annuity considerations in accordance
79
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with contractholder direction to one or more divisions within various separate
accounts or Golden American's guaranteed interest division. Allocation of
premiums to the guaranteed interest division was discontinued in 1991.
SEPARATE ACCOUNTS
The separate accounts are registered under the provisions of the Investment
Company Act of 1940. At the direction of the policyowners and contractholders,
the separate accounts invest the premium and annuity considerations from the
sale of variable life and annuity products either in shares of specified mutual
funds or directly in other investments. The assets and liabilities of Golden
American's separate accounts are clearly identified and segregated from other
assets and liabilities of Golden American. The portion of the separate account
assets applicable to policies and contracts cannot be charged with liabilities
arising out of any other business Golden American may conduct.
Separate account assets are carried at net asset value, which approximates
market value and generally represent policyowner and contractholder investment
values maintained in the accounts and unamortized deferred sales loads and other
charges payable to Golden American over a specified period. Separate account
liabilities represent account balances for the variable life policies and
annuity contracts invested in the separate accounts, which include unamortized
deferred sales loads. Net investment income and realized and unrealized capital
gains and losses related to separate account assets are not reflected in the
accompanying statements of operations of Golden American.
REVENUE RECOGNITION
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, the cost of insurance and contract administration
charges that have been assessed against account balances during the period. In
addition, a sales load ranging from 0% to 9% in addition to other charges is
applicable to each premium payment for contract related expenses. Although such
sales load is assessed on each premium when it is received by Golden American,
such sales load is initially advanced by Golden American to contractholders and
policyowners and included in the general or separate account assets, as
applicable, and then deducted or amortized in equal installments on each
contract processing date over a period specified in the contract or policy.
These sales loads are earned over the life of the insurance contract in relation
to estimated future gross profits using methods and assumptions similar to those
for cost assigned to insurance contracts in force. Sales loads that have been
deducted but not yet earned are reported as unearned revenue.
COST ASSIGNED TO INSURANCE CONTRACTS IN FORCE
The cost assigned to insurance contracts in force represents the value of
the right to receive future profits from the life insurance and annuity policies
existing at the acquisition date. Such value is the actuarially-determined
present value of projected future profits from the acquired contracts discounted
at an interest rate of 15%. Cost assigned to insurance contracts in force is
being amortized over the estimated life of the applicable insurance contracts in
relation to estimated future gross profits with interest at 8%.
The following is a reconciliation of the costs assigned to insurance
contracts in force for the years ended December 31, 1994, 1993, and the period
September 30, 1992 to December 31, 1992:
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1992
------------------------------- TO
1994 1993 DECEMBER 31, 1992
--------------- -------------- ---------------------
<S> <C> <C> <C>
Beginning balance............................... $ 9,784,000 $ 11,140,000 $ 11,278,000
Interest accrued................................ 696,000 942,000 244,000
Amortization.................................... (2,860,000) (2,298,000) (382,000)
--------------- -------------- ---------------------
Ending balance.................................. $ 7,620,000 $ 9,784,000 $ 11,140,000
--------------- -------------- ---------------------
--------------- -------------- ---------------------
</TABLE>
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the expected amortization of the cost assigned
to insurance contracts in force over the next five years. The amortization may
be adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<S> <C>
1995................................................... $1,481,000
1996................................................... 1,232,000
1997................................................... 1,156,000
1998................................................... 936,000
1999................................................... 580,000
</TABLE>
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and are
directly related to the production of new and renewal business. Acquisition
costs for variable life and annuity products are being amortized over the lives
of the policies in relation to the present value of estimated future gross
profits. The future gross profit estimates are subject to periodic evaluation
with necessary revisions applied against amortization to date.
INSURANCE AND ANNUITY RESERVES
Insurance and annuity reserves represent variable life and annuity account
balances invested in the guaranteed interest division. Interest credited rates
for this division ranged from 4.0% to 5.0% during 1994 and 1993.
POLICY BENEFITS
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited to
policy account balances invested in the guaranteed interest division.
REINSURANCE
Included in the accompanying financial statements are net considerations to
reinsurers of $2.4 million and $.7 million in 1994 and 1993, respectively.
Effective September 30, 1992, Golden American terminated all reinsurance
agreements with Mutual Benefit. Concurrently, Golden American entered into
agreements covering mortality risks under both life policies and annuity
contracts with an unaffiliated reinsurer. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the reinsurance
agreements. Reinsurance in-force for life mortality risks were $23.6 million and
$15.4 million at December 31, 1994 and 1993 and for annuity mortality risks were
$149.6 million and $46.5 million at December 31, 1994 and 1993, respectively.
FASB Statement No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts," was adopted by Golden American in 1993.
However, its adoption did not have a material impact on the financial statements
of Golden American.
Also effective June 1, 1994, Golden American entered into a reinsurance
agreement on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects of the treaty
which reduced 1994 net income by $27,000.
CASH EQUIVALENTS
The Company considers all short-term investments (including commercial
paper, money markets, and certificates of deposit) with a maturity of three
months or less when purchased to be cash equivalents.
PRESENTATION
Certain prior-year balances have been reclassified to conform to the
current-year financial statement presentation.
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Golden American has evaluated its financial instruments, principally
short-term investments, policy loans, the adjustable principal amount promissory
note, and insurance and annuity reserves and determined that carrying amounts
reported in the balance sheets approximate fair value.
4. INVESTMENTS
Effective with the December 31, 1993 financial statements, Golden American
adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its fixed maturities as held to maturity
based on its intent and ability to hold them to maturity. The adoption of FASB
Statement No. 115 had no impact on Golden American's financial statements. The
major categories of investment income for 1994, 1993, and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities held to maturity............................................. $142 $114 $47
Short-term investments........................................................ 226 90 14
Equity securities............................................................. 1 1 2
Policy loans.................................................................. 11 11 4
Cash.......................................................................... 99 -- --
Funds held in escrow.......................................................... 83 -- --
---- ---- ----
Gross investment income....................................................... 562 216 67
Investment expenses........................................................... (2) -- --
---- ---- ----
Net investment income......................................................... $560 $216 $67
---- ---- ----
---- ---- ----
</TABLE>
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1994:
U.S. Treasury securities.......................................... $ 16,682 $ (90) $ 16,592
--------- ----- ---------
--------- ----- ---------
At December 31, 1993:
U.S. Treasury securities.......................................... $ 17,357 $ (27) $ 17,330
Corporate securities.............................................. 99 2 101
--------- ----- ---------
$ 17,456 $ (25) $ 17,431
--------- ----- ---------
--------- ----- ---------
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................... $ 14,634 $ 14,622 $ 15,454 $ 15,452
Due after one year through five years............. 850 827 793 791
Due after five years through ten years............ 1,198 1,143 1,209 1,188
----------- ----------- ----------- -----------
$ 16,682 $ 16,592 $ 17,456 $ 17,431
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
At December 31, 1994 and 1993, gross unrealized (depreciation) appreciation
of marketable equity securities recognized directly in stockholder's equity was
$(1,000) and $62,000, respectively.
At December 31, 1994 and 1993, $2,695,000 and $2,150,000, respectively, in
principal amount of fixed maturity investments were on deposit with regulatory
authorities pursuant to certain statutory requirements.
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. STOCKHOLDER'S EQUITY
The payment of cash dividends by Golden American is subject to statutory
restrictions imposed by certain of the jurisdictions in which Golden American
operates. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5,000,000 under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products. Dividend payments by Golden
American are limited by statutory restrictions to the higher of 10% of surplus
or 100% of the prior year's net gain, not to exceed unassigned surplus, subject
to the broad discretionary powers of insurance regulatory authorities to further
limit dividend payments of insurance companies.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/ health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained by
an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1994 and 1993, Golden American met the RBC
requirements.
On December 30, 1994, Golden American issued 10,000 shares of Redeemable
Preferred Stock. There were no dividends declared or paid on the Redeemable
Preferred Stock. As of December 31, 1994, Dividends in Arrears on the Redeemable
Preferred Stock were $17,917 or $1.79 per share. The dividends are cumulative
and are calculated based on a rate not to exceed the sum of the Prime Rate and
1.5%. The Redeemable Preferred Stock is redeemable at the option of Golden
American at the redemption price of $5,000 per share.
6. RELATED PARTY TRANSACTIONS
Prior to 1994, Golden American had entered into agreements with DSI to
perform services related to the management of its investments and the
distribution of its products. For the year 1993 and the period from September
30, 1992 to December 31, 1992, Golden American incurred $311,000 and $35,000,
respectively, for such services. The agreement was terminated as of January 1,
1994.
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American which as of December 31, 1994, are
sold primarily through two broker/dealer institutions. For the years ended 1994
and 1993 and the period from September 30, 1992 to December 31, 1992,
commissions paid by Golden American to DSI aggregated, $17,569,000, $34,260,000,
and $6,429,197, respectively.
Golden American provided to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charged DSI for such expenses and all other general
and administrative costs, first on the basis of direct charges when
identifiable, and the remainder allocated based on the estimated amount of time
spent by Golden American's employees on behalf of DSI. In the opinion of
management, this method of cost allocation is reasonable. For the years ended
December 31, 1994 and 1993, expenses allocated to DSI were $1,983,000 and
$2,013,000, respectively.
Prior to 1994, Golden American had arranged with BTV to perform services
related to the development and administration of its products. For the year 1993
and the period from September 30, 1992 to December 31, 1992, fees earned by BTV
from Golden American for these services aggregated $2,701,000 and $209,000,
respectively. The agreement was terminated as of January 1, 1994.
In addition, BTV provided to Golden American certain of its personnel to
perform management, administrative and clerical services and the use of certain
of its facilities. BTV charged Golden American for such expenses and all other
general and administrative costs, first on the basis of direct charges when
identifiable, and second allocated based on the estimated amount of time spent
by BTV's employees on behalf of Golden American. For the year 1993 and the
period from September 30, 1992 to December 31, 1992, BTV allocated to Golden
American $1,503,000 and $450,000, respectively. The agreement was terminated on
January 1, 1994.
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Golden American's cash is on deposit at Bankers Trust.
7. INCOME TAXES
Golden American is taxed, on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code (the
"Code"). At December 31, 1994 and 1993, Golden American had net operating loss
("NOL") carryforwards for federal income tax purposes of approximately $17.3
million and $7.3 million, respectively. Approximately $2.4 million of these
NOL's, relating to operations prior to ownership by Mutual Benefit, can be used
to offset future taxable income of Golden American only through the year 2005,
subject to annual limitations. Approximately $.8 million, $4.1 million and $10.0
million are available through the years 2007, 2008, and 2009, respectively.
Significant components of Golden American's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs................................... $ 21,200 $ 14,800
Unamortized cost assigned to insurance contracts in force........... 2,700 3,400
---------- ---------
23,900 18,200
Deferred tax assets:
Net operating loss carryforwards.................................... 6,000 2,400
Insurance liabilities............................................... 15,200 14,800
Deferred policy acquisition costs proxy tax......................... 3,700 2,900
Other............................................................... 700 --
---------- ---------
25,600 20,100
Valuation allowance for deferred tax assets........................... 1,700 1,900
---------- ---------
Net deferred tax liabilities...................................... $ -- $ --
---------- ---------
---------- ---------
</TABLE>
The differences between the provision (benefit) for income taxes at the
federal statutory income tax rate and the taxes based on income (loss) were as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate............................................ 35% 35% 34%
--------- --------- ---------
--------- --------- ---------
Taxes at statutory rate........................................... $ 778 $ (627) $ (173)
Dividends received deduction...................................... (368) (194) --
Other, net........................................................ (210) (379) (92)
Valuation allowance............................................... (200) 1,200 265
--------- --------- ---------
Taxes based on income (loss).................................. $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. SHORT-TERM DEBT
At December 31, 1993, Golden American had short-term debt outstanding with
an unaffiliated bank of $40,000,000 at an interest rate equal to the daily
average rate of overnight Federal Funds plus 0.25%. All short-term debt was
repaid as of December 30, 1994. Interest paid during 1994 and 1993 was $2.0
million and $.6 million, respectively. The repayment of amounts borrowed under
this loan had been guaranteed by Bankers Trust.
9. PENSION AND PROFIT SHARING PLAN AND OTHER EMPLOYEE BENEFITS
The Company's employees are covered under the Parent's benefit plans. The
noncontributory pension plan and the profit sharing plan of the Parent are also
available to eligible employees of the Company. Total 1994 expenses relating to
these Parent company benefit plans were $.2 million.
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
10. SUBSEQUENT EVENT
Effective October 3, 1994, First Colony Corporation ("First Colony"), BTV
and BTV's immediate parent, Whitewood Properties Corp. ("Whitewood"), entered
into an agreement providing for the acquisition by First Colony of a minority
interest in BTV. On June 29, 1995, BTV, Whitewood and First Colony agreed to
terminate the agreement between and among the parties.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
A Subsidiary of Bankers Trust Company
GOLDEN AMERICAN LIFE INSURANCE COMPANY IS A STOCK COMPANY
DOMICILED IN WILMINGTON, DELAWARE
IN 3458 GS VLI (Prosp.) 1/96
