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File Nos. 33-23458, 811-5627
Filed under Rule 497(c)
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+ GOLDENSELECT GENESIS I & GOLDENSELECT GENESIS FLEX +
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Wilming-
ton, 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 in-
surance policies offered by Golden American Life Insurance Company ("Golden
American," "We," "Our" or "Us"). Both the individual policy and the group pol-
icy and any certificates issued thereunder (collectively the "Policies" and
separately the "Policy") permit the Policyowner ("You" or "Your") to make addi-
tional 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 to-
gether 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 "GCG Trust"), the Equi-Select Series Trust (the "ESS Trust") and the
PIMCO Variable Insurance Trust (the "PIMCO 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 "modi-
fied 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 Consid-
erations, 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 re-
sults 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 pre-
miums 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 AC-
CURACY 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 PROSPECTUSES FOR THE GCG TRUST, THE ESS TRUST
AND THE PIMCO TRUST. THE FIXED ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES. YOU
MAY CONTACT OUR CUSTOMER SERVICE CENTER TO FIND OUT ABOUT STATE AVAILABILITY.
ISSUED BY: DISTRIBUTED ADMINISTERED AT:
Golden BY: Customer Service Center
American Directed Mailing Address: P.O. Box 8794
Life Services, Wilmington, DE 19899-8794 1-800-366-0066
Insurance Inc.
Company Wilmington,
Delaware 19801
PROSPECTUS DATE: MAY 1, 1998
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TABLE OF CONTENTS
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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IMPORTANT TERMS............................................................ 3
SUMMARY OF THE POLICY...................................................... 5
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT............... 9
Golden American........................................................... 9
The Trusts................................................................ 9
Account A................................................................. 10
Account A Divisions....................................................... 10
Changes Within Account A.................................................. 17
The Fixed Account......................................................... 17
FACTS ABOUT THE POLICY..................................................... 18
Who May be Covered by a Policy............................................ 18
Death Benefit Options..................................................... 18
Premium Payments.......................................................... 18
Making Additional Premium Payments........................................ 19
Allocation of Premium Payments............................................ 19
Your Right to Reallocate.................................................. 20
Transfers from the Fixed Account.......................................... 20
Dollar Cost Averaging..................................................... 21
What Happens if a Division is not Available............................... 21
Your Investment Value..................................................... 21
Investment Value in Each Division of Account A............................ 21
Tabular Value............................................................. 22
Measurement of Investment Experience...................................... 22
CHARGES AND DEDUCTIONS
Deductions for Deferred Loading........................................... 23
Deductions for Insurance Based Charges.................................... 23
Issue Charges............................................................. 23
Mortality Charges......................................................... 24
Deductions for Transaction and Other Charges.............................. 24
Deductions from Divisions of Account A.................................... 25
Trust Expenses............................................................ 25
YOUR POLICY'S BENEFITS
Your Policy's Cash Surrender Value........................................ 25
Policy Loans.............................................................. 25
Taking Partial Withdrawals................................................ 26
Your Right to Cancel or Exchange Your Policy.............................. 28
INSURANCE BENEFITS
Death Benefit Proceeds.................................................... 28
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Variable Insurance Amount............................................... 29
Net Single Premium Factor............................................... 29
Changes in Face Amount.................................................. 30
Guarantee Period........................................................ 30
Changing the Death Benefit Option....................................... 31
When Your Guarantee Period Ends Before the Maturity Date................ 31
Policy Guarantees....................................................... 31
CHOOSING AN INCOME PLAN.................................................. 32
Payment When Named Person Dies.......................................... 32
OTHER IMPORTANT INFORMATION.............................................. 32
Other General Policy Provisions.......................................... 32
Your Voting Privileges................................................... 35
Sales and Other Agreements............................................... 35
Group or Sponsored Arrangements.......................................... 36
State Regulation......................................................... 36
Registration Statement................................................... 36
Legal Considerations for Employers....................................... 36
Legal Proceedings........................................................ 36
Legal Matters............................................................ 36
Experts.................................................................. 37
Reinsurance.............................................................. 37
Additional Information................................................... 37
MANAGEMENT............................................................... 37
FEDERAL INCOME TAX CONSIDERATIONS........................................ 38
Golden American -- Tax Status............................................ 39
Deferred Acquisition Costs............................................... 39
Death Benefits........................................................... 39
Survivorship Policies and Policies Issued to Individuals with
Substandard Mortality Risks............................................. 39
Surrender................................................................ 39
Partial Withdrawals...................................................... 40
Loans.................................................................... 40
Change of Ownership or Assignment........................................ 40
Modified Endowment Contracts............................................. 40
Code Section 1035 Exchanges.............................................. 42
Diversification Standards................................................ 42
Ownership Treatment...................................................... 42
ILLUSTRATIONS............................................................ 43
FINANCIAL STATEMENTS..................................................... 48
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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 perfor-
mance.
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 re-
main in force regardless of Investment experience unless there is Debt and the
Cash Surrender Value is negative. Additional payments may increase Your Guar-
antee 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 Pe-
riod.
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 mea-
suring 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 sin-
gle life policy or the younger Insured under a survivorship policy. On this
date coverage under the Policy terminates and the Cash Surrender Value is pay-
able 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 in-
terest at an annual rate of 4%.
NET RATE OF RETURN
The Investment performance for a division of Account A during a Valuation Pe-
riod.
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.
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IMPORTANT TERMS (CONTINUED)
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.
OPTION II DEATH BENEFIT ADJUSTMENT
The greater of (i) the Option II Guaranteed Death Benefit and (ii) the Invest-
ment 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 Anniver-
saries. 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. The Policy owner is referred to as "you."
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 under-
lying 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 calcula-
tion 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 mor-
tality 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 Fac-
tor.
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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 survi-
vorship policy, if both Insureds are age 75 or under. Under survivorship poli-
cies, at least one Insured must be age 20 or older. We will take under consid-
eration applications for Insured(s) up to age 80. See Facts About the Policy,
Who May Be Covered.
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 mini-
mum planned annual premium under Genesis Flex will be no less 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 payable for periods other than 10 years and may be
payable on a basis other than annual. See Facts About the Policy, Premium Pay-
ments.
UNPLANNED PREMIUMS
Additional premium payments may be made on an unplanned basis provided the In-
sured 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 Arrange-
ments. 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 in-
come 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 Endow-
ment 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 Poli-
cy. Thereafter, subject to Our
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GLOBAL SUMMARY OF THE POLICY (CONTINUED)
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.
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 Vari-
able 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 Bene-
fits, 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 insur-
ability 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. Un-
der the Genesis I Policy, We may limit the Guarantee Period to a specified
number of years under group or sponsored arrangements. See Other Important In-
formation, 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 twenty-four divisions in Account A offered under this prospectus.
You may invest Your Investment Value in up to twenty-four 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 GCG Trust, the ESS Trust and the PIMCO Trust, at their net asset value.
Each Series has a different investment objective. See Facts About Golden Amer-
ican Account A Divisions.
THE FIXED ACCOUNT
In addition to the divisions of Account A described above, you may also allo-
cate Your Investment Value to the Fixed Account. Premium payments may be allo-
cated 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 de-
termine 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 Re-
sults. 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 Invest-
ment 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.
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SUMMARY OF THE POLICY (CONTINUED)
CHARGES DEDUCTED FROM YOUR INVESTMENT VALUE
We periodically deduct charges from Your Investment Value to cover the serv-
ices provided, expenses incurred and risks assumed in connection with the Pol-
icies. 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 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 pe-
riod (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 lo-
cal 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 ap-
proximate the average premium tax that We expect to pay. Currently, the pre-
mium 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 Poli-
cies, 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 de-
ducted 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 cur-
rently 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 Tab-
ular Net Amount at Risk. The amount is based on the Attained Age of the In-
sured (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 equiva-
lent to an annual rate of 0.90%.
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SUMMARY OF THE POLICY (CONTINUED)
ASSET BASED ADMINISTRATIVE CHARGE
We deduct from each division of Account A, a daily asset based charge equiva-
lent 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 and
expenses and deductions of certain charges from the GCG Trust, the ESS Trust
and the PIMCO Trust will affect Your Investment Value. Please read the Trusts'
prospectuses 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 fea-
ture. See Your Policy's Benefits, Policy Loans. Loans under "modified endow-
ment 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 Invest-
ment Value. Partial withdrawals may be taken four times per Policy Year with-
out charge. Partial withdrawals are subject to certain restrictions and par-
tial withdrawals above a maximum amount may be subject to an accelerated re-
covery 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 trans-
ferred from the Fixed Account, the Limited Maturity Bond Division or the Liq-
uid 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 pre-
miums paid without interest. Generally under a Genesis I Policy, this period
ends 10 days from the date You receive the Policy. For purposes of administer-
ing 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 pro-
vide 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 in 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.
8
<PAGE>
SUMMARY OF THE POLICY (CONTINUED)
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT
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 de-
cision 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 rep-
resentation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual Val-
ues will be different than those illustrated. See Illustrations.
GOLDEN AMERICAN
Golden American Life Insurance Company ("Golden American" or the "Company") is
a stock life insurance company organized under the laws of the State of Dela-
ware and is a wholly owned subsidiary of Equitable of Iowa Companies, Inc.
("Equitable of Iowa") which, in turn, is a wholly owned subsidiary of ING
Groep, N.V. ("ING"). Prior to December 30, 1993, Golden American was a Minne-
sota corporation. Prior to August 13, 1996, Golden American was a wholly owned
indirect subsidiary of Bankers Trust Company. We are authorized to do business
in all jurisdictions except New York. In May 1996, we established a subsidi-
ary, First Golden American Life Insurance Company of New York, which is autho-
rized to do business in New York and Delaware. We offer variable annuities and
variable life insurance. Administrative services for the Contract are provided
at our Customer Service Center, the address is shown on the cover.
Equitable of Iowa is the holding company for Equitable Life Insurance Company
of Iowa ("Equitable Life"), USG Annuity & Life Company, Locust Street Securi-
ties, Inc., Equitable American Insurance Company, Equitable of Iowa Securities
Network, Inc., Directed Services, Inc. ("DSI"), and Golden American. On Octo-
ber 24, 1997, ING acquired all interest in Equitable of Iowa and its subsidi-
aries including Golden American. ING, based in the Netherlands, is a global
financial services holding company with over $307.6 billion in assets. Equita-
ble of Iowa and another ING affiliate own ING Investment Management, LLC, who
assumed EISI's portfolio management responsibilities for the GCG Trust and the
ESS Trust as of January 1, 1998.
YEAR 2000
Based on a study of its computer software and hardware, Golden American has
determined its exposure to the Year 2000 change of the century date issue.
Management believes the Company's systems are or will be substantially compli-
ant by the Year 2000, and Golden American has engaged external consultants to
validate this assumption. The only system known to be affected by this issue
is a system maintained by an affiliate who will incur the related costs to
make the system compliant. To mitigate the effect of outside influences and
other dependencies relative to the Year 2000, Golden American will continue to
contact significant customers, suppliers and other third parties. To the ex-
tent these third parties would be unable to transact business in the Year 2000
and thereafter, the Company's operations could be adversely affected.
THE TRUSTS
The GCG Trust is an open-end management investment company, more commonly
called a mutual fund. The GCG Trust's shares may also be available to certain
separate accounts funding variable annuity contracts offered by Golden Ameri-
can. This is called "mixed funding."
The GCG 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." After the GCG Trust receives the requisite order from
the SEC, shares of the GCG Trust may also be sold to certain qualified pension
and retirement plans.
The ESS Trust is also an open-end management investment company. The ESS
Trust's shares are not available to separate accounts of other insurance com-
panies other than insurance companies affiliated with Equitable of Iowa such
as Golden American.
The PIMCO Trust is also an open-end management investment company. The Series
of the PIMCO Trust were designated to be used as investment vehicles by sepa-
rate accounts of insurance companies, including Golden American, for both
variable annuity contracts and variable life insurance policies and by quali-
fied pension and retirement plans.
Golden American does not anticipate any inherent difficulties arising from the
mixed and/or shared
9
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
funding or sales to pension or retirement plans by the GCG Trust or the PIMCO
Trust. However, there is a possibility that, due to differences in tax treat-
ment or other considerations, the interests of Contractowners of various con-
tracts participating in the Trusts may conflict. The Board of Trustees of the
GCG Trust and the PIMCO Trust, DSI, PIMCO and we and any other insurance com-
panies participating in the Trusts are required to monitor events to identify
any material conflicts that arise from the use of the GCG Trust and/or the
PIMCO Trust for mixed and/or shared funding between various policy owners and
pension and retirement plans. In the event of a material conflict, Golden
American will take the necessary steps, including removing the Separate Ac-
count from that Trust, to resolve the matter. See the GCG Trust and PIMCO
Trust prospectuses for more information.
You will find complete information about the GCG Trust, the ESS Trust, and the
PIMCO Trust, including the risks associated with each Series, in the accompa-
nying Trusts' prospectuses. You should read them carefully in conjunction with
this prospectus before investing. Additional copies of the Trusts' prospec-
tuses may be obtained by contacting our Customer Service Center.
PROPOSED TRUST CONSOLIDATION. In an effort to consolidate the operations of
the GCG Trust and the ESS Trust ("Trust Consolidation"), the affiliated insur-
ance companies of Equitable of Iowa, including Golden American (the "Compa-
nies"), filed an application with the SEC requesting permission via an order
to substitute shares of each Series of the ESS Trust with shares of similar
Series of the GCG Trust (the "Substitution"). The table below identifies the
ESS Portfolios currently available under the Contract and the new GCG Series
substituted for each. The Substitution of shares will reduce operating ex-
penses and create larger economies of scale from which a further reduction of
expenses is anticipated. Contractholders will benefit directly from any reduc-
tion of Trust expenses. CONTRACTHOLDERS WILL NOT BEAR ANY EXPENSE ASSOCIATED
WITH THE SUBSTITUTION.
<TABLE>
<CAPTION>
GCG TRUST SUBSTITUTE
ESS TRUST REPLACED PORTFOLIO SERIES
- ---------------------------- -----------------------
<S> <C>
OTC Portfolio Mid-Cap Growth Series
Research Portfolio Research Series
Total Return Portfolio Total Return Series
Growth & Income Portfolio Growth & Income Series
Value + Growth Portfolio Value + Growth Series
International Fixed Income Portfolio Global Fixed Income
Series
</TABLE>
Upon obtaining the requested order for substitution from the SEC, and subject
to any required prior approval by applicable insurance authorities, the Compa-
nies will effect the Substitution by simultaneously placing an order for each
Division to redeem the shares of the Series of the ESS Trust and an order for
each Division to purchase shares of the designated respective Series of the
GCG Trust. After the Trust Consolidation has occurred, Customer Service will
send affected contractholders a notice within five days.
ACCOUNT A
All obligations under a Policy are general obligations of Golden American. Ac-
count 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 ac-
counts. As required, the assets in Account A are at least equal to the re-
serves 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 fol-
lowing the redomestication of Golden American, operates under Delaware law.
Account A may invest in mutual funds, unit investment trusts and other invest-
ment 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 (the "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.
10
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
ACCOUNT A DIVISIONS
Currently, each division of Account A invests in a Series of the GCG Trust,
the ESS Trust or the PIMCO Trust. DSI serves as the Manager to each Series of
the GCG Trust and to each Series of the ESS Trust, and Pacific Investment Man-
agement Company ("PIMCO") serves as Manager to each Series of the PIMCO Trust.
The GCG and ESS Trusts and DSI have retained several portfolio managers to
manage the assets of each Series of the ESS and GCG Trusts. PIMCO manages the
assets of each Series of the PIMCO Trust. 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 regula-
tions. There is no guarantee that any Series will meet its investment objec-
tive. Success in meeting the investment objective of a Series depends on vari-
ous factors, particularly how well the portfolio manager anticipates changing
economic and market conditions.
DSI and PIMCO provide the overall business management and administrative serv-
ices necessary for the Series' operation and provide or procure the services
and information necessary to the proper conduct of the business of the Series.
See the Trusts' prospectuses for details.
DSI and PIMCO are responsible for providing or procuring, at their own ex-
pense, the services reasonably necessary for the ordinary operation of the Se-
ries of the GCG and PIMCO Trusts. The ESS Trust pays its own expenses. DSI and
PIMCO do not bear the expense of brokerage fees and other transactional ex-
penses for securities or other assets (which are generally considered part of
the cost for assets), taxes (if any) paid by a Series of the GCG Trust or the
PIMCO Trust, interest on borrowing, fees and expenses of the independent
trustees, and extraordinary expenses, such as litigation or indemnification
expenses. See the GCG and PIMCO Trusts' prospectuses for details.
The GCG and ESS Trust, each pay DSI for its services a fee, payable monthly,
based on the annual rates of the average daily net assets of the Series shown
in the tables below. DSI (and not the Trusts) pays each portfolio manager a
monthly fee for managing the assets of the Series.
THE GCG TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEES (based on combined assets of the indicated groups
SERIES AVAILABLE CURRENTLY of Series)
- ------------------------------------------------- ------------------------------------------------------
<S> <C>
Multiple Allocation, Fully Managed, Capital 1.00% of first $750 million;
Appreciation, Rising Dividends, All-Growth, 0.95% of next $1.250 billion;
Real Estate, Hard Assets, Value Equity, 0.90% of next $1.5 billion; and
Strategic Equity, and Small Cap Series: 0.85% of amount in excess of $3.5 billion
Growth Opportunities Series(/1/): 1.10% of first $250 million;
1.05% of next $400 million;
1.00% of next $450 million; and
0.95% of amount in excess of $1.1 billion
Managed Global Series: 1.25% of first $500 million;
1.05% of amount in excess of $500 million
Emerging Markets and Developing World Series: 1.75% of average daily net assets
Limited Maturity Bond and Liquid Asset Series: 0.60% of first $200 million;
0.55% of next $300 million; and
0.50% of amount in excess of $500 million
<CAPTION>
SERIES ADDED TO THE GCG TRUST AND FEES (based on combined assets of the indicated groups
AVAILABLE AFTER TRUST CONSOLIDATION of Series)
- ------------------------------------------------- ------------------------------------------------------
<S> <C>
Growth & Income and Value + Growth Series(/1/): 1.10% of first $250 million;
1.05% of next $400 million;
1.00% of next $450 million; and
0.95% of amount in excess of $1.1 billion
Mid-Cap Growth, Total Return, and Research
Series: 1.00% of first $250 million;
0.95% of next $400 million;
0.90% of next $450 million; and
0.85% of amount in excess of $1.1 billion
Global Fixed Income Series: 1.60%
- -------------------
</TABLE>
(1) After Trust Consolidation, the assets of the Growth Opportunities, the
Growth & Income and Value + Growth Series will be combined for the
purposes of determining fees.
11
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
THE ESS TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES FEES
- ------------------------------------------------ -----------------------------------------
<S> <C>
OTC, Research, and Total Return Portfolios: 0.80% of first $300 million;
0.55% of amount in excess of $300 million
Growth & Income Portfolio: 0.95% of first $200 million;
0.75% of amount in excess of $200 million
Value + Growth Portfolio: 0.95% of first $500 million;
0.75% of amount in excess of $500 million
International Fixed Income Portfolio: 0.85% of first $200 million;
0.75% of next $300 million;
0.60% of next $500 million;
0.55% of next $1.0 billion; and
0.40% of amount in excess of $2.0 billion
</TABLE>
The PIMCO Trust pays PIMCO an advisory fee (see the table following) and an
administrative fee of 0.25%, each payable monthly, based on the average daily
net assets of each of the Series, for managing the assets of the Series and
for administering the Trust.
THE PIMCO TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES ADVISORY FEE
- ------------------------------------------------ ------------
<S> <C>
PIMCO High Yield Bond Portfolio: 0.50%
PIMCO StocksPLUS Growth and Income Portfolio: 0.40%
- -------------------------------------------------------------
</TABLE>
EXPENSES OF THE TRUSTS
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a Series or on the combined average daily net assets of the indicated
groups of Series):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
SERIES AVAILABLE CURRENTLY FEES(/1/) EXPENSES(/2/) EXPENSES
- -------------------------- ---------- ------------- --------
<S> <C> <C> <C>
Multiple Allocation, Fully
Managed, Capital
Appreciation, Rising
Dividends, All-Growth,
Real Estate, Hard Assets,
Value Equity, Strategic
Equity, and Small Cap
Series: 0.98% 0.01% 0.99%
Growth Opportunities
Series(/3/): 1.10% 0.01% 1.11%
Managed Global Series: 1.25% 0.11% 1.36%
Emerging Markets and
Developing World Series: 1.75% 0.05% 1.80%
Limited Maturity Bond and
Liquid Asset Series: 0.60% 0.01% 0.61%
<CAPTION>
SERIES ADDED TO THE GCG OTHER
TRUST AND EXPENSES(/2/) TOTAL EXPENSES
AVAILABLE AFTER MANAGEMENT AFTER EXPENSE AFTER EXPENSE
TRUST CONSOLIDATION(/4/) FEES(/1/) REIMBURSEMENT(/5/) REIMBURSEMENT(/5/)
- ------------------------ ---------- ------------------ ------------------
<S> <C> <C> <C>
Mid-Cap Growth
Series(/6/)(/7/): 0.96% 0.01% 0.97%
Research Series(/6/): 0.96% 0.00% 0.96%
Total Return Series(/6/): 0.96% 0.01% 0.97%
Growth & Income and
Value + Growth Series(/6/): 1.10% 0.01% 1.11%
Global Fixed Income
Series(/8/): 1.60% 0.00% 1.60%
</TABLE>
12
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
THE ESS TRUST ANNUAL EXPENSES (prior to Trust Consolidation) (as a percentage
of the average daily net assets of a Series):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
SERIES FEES(/1/) EXPENSES EXPENSES
- ------ ---------- ------------- --------
<S> <C> <C> <C>
OTC Portfolio: 0.80% 0.19% 0.99%
Research Portfolio: 0.80% 0.16% 0.96%
Total Return Portfolio: 0.80% 0.17% 0.97%
Growth & Income Portfolio: 0.95% 0.17% 1.12%
Value + Growth Portfolio: 0.95% 0.25% 1.20%
International Fixed Income Portfolio: 0.85% 0.98% 1.83%
THE PIMCO TRUST ANNUAL EXPENSES (as a percentage of the average daily net
assets of a Series):
<CAPTION>
ADVISORY OTHER TOTAL
SERIES FEES EXPENSES(/7/) EXPENSES
- ------ ---------- ------------- --------
<S> <C> <C> <C>
PIMCO High Yield Bond Portfolio:............ 0.50% 0.25% 0.75%
PIMCO StocksPLUS Growth and Income Portfo-
lio:....................................... 0.40% 0.25% 0.65%
</TABLE>
- -------------------
(1) Fees decline as combined assets increase (see Account A Divisions and the
Trust prospectuses for details).
(2) Other Expenses generally consist of independent trustees fees and expenses
and certain expenses associated with investing in international markets.
Other Expenses are estimated for the Growth Opportunities and Developing
World Series, since as of December 31, 1997, these Series had not yet com-
menced operations.
(3) After Trust Consolidation (see The Trusts, Proposed Trust Consolidation),
the assets of the Growth Opportunities, the Growth & Income and the Value
+ Growth Series will be combined to determine the actual fee payable to
Directed Services, Inc. ("DSI"), the manager of the GCG Trust.
(4) See Facts about the Company and the Contracts, The Trusts, Proposed Trust
Consolidation for more information regarding Trust Consolidation. Upon
Trust Consolidation, the ESS Trust will cease to exist and new GCG Trust
Series will be substituted for the ESS Portfolios.
(5) DSI has agreed voluntarily to reimburse expenses and waive management
fees, if necessary, to maintain total expenses at the levels shown for the
Research and the Global Fixed Income Series (formerly the International
Fixed Income Portfolio). This agreement will remain in place through De-
cember 31, 1999, and after that time may be terminated at any time. With-
out this agreement and based on current estimates, Total Expenses would be
0.97% and 1.65%, for the Research and the Global Fixed Income Series, re-
spectively.
(6) After Trust Consolidation (see The Trusts, Proposed Trust Consolidation),
the assets of the Mid-Cap Growth (formerly the OTC Portfolio), Research
and the Total Return Series will be combined to determine the actual fee
payable to DSI.
(7)The OTC Portfolio prior to Trust Consolidation.
(8)The International Fixed Income Portfolio prior to Trust Consolidation.
(9) Other Expenses are estimated for the PIMCO High Yield Bond and PIMCO
StocksPLUS Growth and Income Portfolios, since as of December 31, 1997,
these Series had not yet commenced operations.
The following Divisions invest in designated Series of the GCG Trust.
MULTIPLE ALLOCATION DIVISION
MULTIPLE ALLOCATION SERIES
OBJECTIVE - The highest total return, consisting of capital appreciation and
current income, consistent with the preservation of capital and elimination of
unnecessary risk.
INVESTMENTS - Investment in equity and debt securities and the use of certain
sophisticated investment strategies and techniques.
PORTFOLIO MANAGER - Zweig Advisors Inc.
FULLY MANAGED DIVISION
FULLY MANAGED SERIES
OBJECTIVE - High total investment return over the long term, consistent with
the preservation of capital and prudent investment risk.
INVESTMENTS - Pursues an active asset allocation strategy whereby investments
are allocated, based upon an evaluation of economic and market trends and the
anticipated relative total return available, among three asset classes -- debt
securities, equity securities and money market instruments.
PORTFOLIO MANAGER - T. Rowe Price Associates, Inc.
13
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
CAPITAL APPRECIATION DIVISION
CAPITAL APPRECIATION SERIES
OBJECTIVE - Long-term capital growth.
INVESTMENTS - Invests in common stocks and preferred stock that will be allo-
cated 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 posi-
tions; and demonstrate above-average growth rates as compared to published
Standard & Poor's 500 Stock Index ("S&P 500") earnings projections; and (ii)
The Value Component-Securities that the portfolio manager regards as fundamen-
tally 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 pub-
licly-owned companies that, in the portfolio manager's judgement, offer an op-
timum combination of current dividend yield, expected dividend growth, and
discount to current real estate value.
PORTFOLIO MANAGER - Chancellor LGT Asset Management, Inc.
RISING DIVIDENDS DIVISION
RISING DIVIDENDS SERIES
OBJECTIVE - Capital appreciation, with dividend income as a secondary objec-
tive.
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, LLC
ALL-GROWTH DIVISION
ALL-GROWTH SERIES
OBJECTIVE - Capital appreciation.
INVESTMENTS - Investment in securities selected for their long-term growth
prospects.
PORTFOLIO MANAGER - Pilgrim Baxter & Associates, Ltd.
REAL ESTATE DIVISION
REAL ESTATE SERIES
OBJECTIVE - Capital appreciation, with current income as a secondary objec-
tive.
INVESTMENTS - Investment in publicly traded equity securities of companies in
the real estate industry listed on national exchanges or on the National Asso-
ciation of Securities Dealers Automated Quotation System.
PORTFOLIO MANAGER - EII Realty Securities, Inc.
HARD ASSETS DIVISION (FORMERLY NATURAL RESOURCES)
HARD ASSETS SERIES
OBJECTIVE - Long-term capital appreciation.
INVESTMENTS - Investment in equity and debt securities of companies engaged in
the exploration, development, production, management, and distribution of hard
assets.
PORTFOLIO MANAGER - Van Eck Associates Corporation
VALUE EQUITY DIVISION
VALUE EQUITY SERIES
OBJECTIVE - Capital appreciation with a secondary objective of dividend in-
come.
INVESTMENTS - Investment primarily in equity securities of U.S. and foreign
issuers which, when purchased, meet quantitative standards believed by the
Portfolio Manager to indicate above average financial soundness and high in-
trinsic 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 eq-
uity 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
14
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
of shares outstanding -- within the range of companies included in the Russell
2000 Growth Index.
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, Latin
America and elsewhere. Income is not an objective, and any production of cur-
rent income is considered incidental to the objective of growth of capital.
PORTFOLIO MANAGER - Putnam Investment Management, Inc.
MANAGED GLOBAL DIVISION
MANAGED GLOBAL SERIES
OBJECTIVE - Capital appreciation.
INVESTMENTS - Investment primarily in common stocks of both domestic and for-
eign issuers.
PORTFOLIO MANAGER - Putnam Investment Management, Inc.
GROWTH OPPORTUNITIES DIVISION
GROWTH OPPORTUNITIES SERIES
OBJECTIVE - Capital appreciation.
INVESTMENTS - Investment primarily in equity securities of domestic companies
emphasizing companies with market capitalizations of $1 billion or more.
PORTFOLIO MANAGER - Montgomery Asset Management, LLC
DEVELOPING WORLD DIVISION
DEVELOPING WORLD SERIES
OBJECTIVE - Capital appreciation.
INVESTMENTS - Investment primarily in equity securities of companies in coun-
tries having economies and markets generally considered to be emerging or de-
veloping.
PORTFOLIO MANAGER - Montgomery Asset Management, LLC
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 with-
out significant risk to principal.
INVESTMENTS - Investment primarily in a diversified portfolio of limited matu-
rity debt securities. No individual security will at the time of purchase have
a remaining maturity longer than seven years and the dollar-weighted average
maturity of the Series will not exceed five years.
PORTFOLIO MANAGER - ING Investment Management, LLC
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 instru-
mentalities; bank obligations; commercial paper and short-term corporate debt
securities.
TERM - All issues maturing in less than one year.
PORTFOLIO MANAGER - ING Investment Management, LLC
The following Divisions invest currently in designated Series of the ESS
Trust. After Trust Consolidation, they will invest in designated Series of the
GCG Trust.
OTC DIVISION (At the time of Trust Consolidation, the OTC Division will be re-
named the Mid-Cap Growth Division and it will then invest in the Mid-Cap
Growth Series of the GCG Trust.)
OTC PORTFOLIO
OBJECTIVE - Long-term growth of capital.
INVESTMENTS - Investment primarily in securities of companies that are traded
principally on the over-the-counter (OTC) market.
PORTFOLIO MANAGER - Massachusetts Financial Services Company
After Trust Consolidation:
MID-CAP GROWTH DIVISION
MID-CAP GROWTH SERIES OF THE GCG TRUST
OBJECTIVE - Long-term growth of capital.
INVESTMENTS - Investment primarily in equity securities with medium market
capitalization.
PORTFOLIO MANAGER - Massachusetts Financial Services Company
RESEARCH DIVISION
RESEARCH PORTFOLIO
OBJECTIVE - Long term growth of capital and future income.
15
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
INVESTMENTS - Investment primarily in common stocks or securities convertible
into common stocks of companies believed to possess better than average pros-
pects for long-term growth.
PORTFOLIO MANAGER - Massachusetts Financial Services Company
After Trust Consolidation:
RESEARCH DIVISION
RESEARCH SERIES OF THE GCG TRUST
OBJECTIVE - Long-term growth of capital and future income.
INVESTMENTS - Investment primarily in common stocks or securities convert-
ible into common stocks of companies believed to possess better than aver-
age prospects for long-term growth.
PORTFOLIO MANAGER - Massachusetts Financial Services Company
TOTAL RETURN DIVISION
TOTAL RETURN PORTFOLIO
OBJECTIVE - Above-average income consistent with prudent employment of capi-
tal.
INVESTMENTS - Investment primarily in equity securities.
PORTFOLIO MANAGER - Massachusetts Financial Services Company
After Trust Consolidation:
TOTAL RETURN DIVISION
TOTAL RETURN SERIES OF THE GCG TRUST
OBJECTIVE - Above-average income consistent with prudent employment of cap-
ital.
INVESTMENTS - Investment primarily in equity securities.
PORTFOLIO MANAGER - Massachusetts Financial Services Company
GROWTH & INCOME DIVISION
GROWTH & INCOME PORTFOLIO
OBJECTIVE - Long-term total return.
INVESTMENTS - Investment primarily in equity and debt securities, focusing on
small- and mid-cap companies that offer potential appreciation, current in-
come, or both.
PORTFOLIO MANAGER - Robertson, Stephens & Company Investment Management, L.P.
After Trust Consolidation:
GROWTH & INCOME DIVISION
GROWTH & INCOME SERIES OF THE GCG TRUST
OBJECTIVE - Long-term total return.
INVESTMENTS - Investment primarily in equity and debt securities, focusing
on small- and mid-cap companies that offer potential appreciation, current
income, or both.
PORTFOLIO MANAGER - Robertson, Stephens & Company Investment Management,
L.P.
VALUE + GROWTH DIVISION
VALUE + GROWTH PORTFOLIO
OBJECTIVE - Capital appreciation.
INVESTMENTS - Investment primarily in mid-cap growth companies with favorable
relationships between price/earnings ratios and growth rates. Mid-cap compa-
nies are those with market capitalizations ranging from $750 million to ap-
proximately $2 billion.
PORTFOLIO MANAGER - Robertson, Stephens & Company Investment Management, L.P.
After Trust Consolidation:
VALUE + GROWTH DIVISION
VALUE + GROWTH SERIES OF THE GCG TRUST
OBJECTIVE - Capital appreciation.
INVESTMENTS - Investment primarily in mid-cap growth companies with favora-
ble relationships between price/earnings ratios and growth rates. Mid-cap
companies are those with market capitalizations ranging from $750 million
to approximately $2.0 billion.
PORTFOLIO MANAGER - Robertson, Stephens & Company Investment Management,
L.P.
GLOBAL FIXED INCOME DIVISION
INTERNATIONAL FIXED INCOME PORTFOLIO
OBJECTIVE - High total return.
INVESTMENTS - Investment in both domestic and foreign debt securities and re-
lated foreign currency transactions. The total return will be sought through a
combination of current income, capital gains and gains in currency positions.
PORTFOLIO MANAGER - Baring International Investment Limited
16
<PAGE>
FACTS ABOUT GOLDEN AMERICAN, ACCOUNT A AND THE FIXED ACCOUNT (CONTINUED)
After Trust Consolidation:
GLOBAL FIXED INCOME DIVISION
GLOBAL FIXED INCOME SERIES OF THE GCG TRUST
OBJECTIVE - High total return.
INVESTMENTS - Investment in both domestic and foreign debt securities and
related foreign currency transactions. The total return will be sought
through a combination of current income, capital gains and gains in cur-
rency positions.
PORTFOLIO MANAGER - Baring International Investment Limited
The following Divisions invest in designated Series of the PIMCO Trust.
HIGH YIELD BOND DIVISION
PIMCO HIGH YIELD BOND PORTFOLIO
OBJECTIVE - Maximize total return.
INVESTMENTS - Invests in at least 65% of its assets in a diversified portfolio
of junk bonds rated at least B by Moody's Investor Services, Inc. or Standard
& Poor's Rating Services, a Division of the McGraw Hill Cos., Inc., or, if
unrated, determined by the Adviser to be of comparable quality.
PORTFOLIO MANAGER - PIMCO
STOCKSPLUS GROWTH AND INCOME DIVISION
PIMCO STOCKSPLUS GROWTH AND INCOME PORTFOLIO
OBJECTIVE - Total return that exceeds the total return of the S&P 500.
INVESTMENTS - Invests in common stocks, options, futures, options on futures
and swaps consistent with its portfolio management strategy to attempt to
equal or exceed the performance of the S&P 500.
PORTFOLIO MANAGER - PIMCO
CHANGES WITHIN ACCOUNT A
We may from time to time make additional divisions available to You. These di-
visions will invest in investment portfolios We find suitable for the Poli-
cies. 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 port-
folio'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 be-
fore 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 provi-
sions of the 1933 Act or the 1940 Act. Accordingly, the Securities and Ex-
change 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, sub-
ject 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.
17
<PAGE>
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 survivor-
ship 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 applica-
tions 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 classifi-
cation 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. Any money submitted prior to a policy being issued
will be applied to our general account. At issue, the initial premium will be
allocated to the Liquid Asset Division.
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 ev-
ery three Policy Years. See Insurance Benefits, Changing the Death Benefit Op-
tion. 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 cov-
erage 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 Op-
tion I Death Benefit with an initial premium payment. The minimum initial Gen-
esis I premium is $25,000 ($15,000 if under a 1035 exchange, see Federal In-
come Tax Considerations, Code Section 1035 Exchanges). The minimum planned an-
nual 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 differ-
ences in costs or services and will not discriminate unfairly against any per-
son.
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>
SURVIVORSHIP, NON-SMOKERS
<TABLE>
<CAPTION>
ISSUE AGE
-----------
MALE FEMALE PREMIUM
---- ------ -------
<C> <C> <S>
55 45 $ 63,990
60 55 86,763
70 65 120,989
</TABLE>
18
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
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
---- ------ -------
<C> <C> <S>
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 Fed-
eral 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 Insur-
ance 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 pre-
mium 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 pre-
mium will also be treated as an unplanned premium.
UNPLANNED PREMIUMS
Unplanned premiums can be made while coverage is in effect provided the In-
sured 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 Pol-
icy. 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, Invest-
ment Value in Each Division.
(3) The Tabular Value will increase. See Facts About the Policy, Tabular Val-
ue.
On the Processing Date on or next following the date We receive and accept
the additional premium payment, the guaranteed benefits will increase as fol-
lows:
(1) If the Guarantee Period prior to such premium payment ends before the Ma-
turity 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.
ALLOCATION OF PREMIUM PAYMENTS
Prior to the end of the Free Look Period, Your initial premium is allocated to
the Liquid Asset Division.
19
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
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 ac-
cepted according to Our rules. Unless You specify otherwise, additional pre-
mium payments will be allocated among the divisions of Account A and the
Fixed Account in proportion to the Investment Value in each division of Ac-
count A and the Fixed Account on the date the premium is considered to be ac-
cepted. If there is no Investment Value attributable to Account A, the addi-
tional 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 as-
sess 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 divi-
sion 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 addi-
tion, we reserve the right to defer the reallocation privilege at any time we
are unable to purchase or redeem shares of the Trusts. We also reserve the
right to modify or terminate your right to reallocate your 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 real-
location 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 re-
quest if we believe that: (a) excessive trading by you or a specific realloca-
tion request may have a detrimental effect on unit Values or the share prices
of the underlying Series; or (b) we are informed by a 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 detrimen-
tal effect on share prices of the respective Trust.
Where permitted by law, we may accept your authorization of third party real-
location 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 cancella-
tion. 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 pro-
vided evidence satisfactory to us that: (a) such third party has been ap-
pointed 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 alloca-
tion 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 re-
ceive 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 valua-
tion period in which a satisfactory transfer request is received at our Serv-
ice 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.
20
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
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 of dollar cost averaging is to attempt to
shield Your investment from short-term price fluctuations. Since the same dol-
lar 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 In-
vestment 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 trans-
ferred 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 di-
vision 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 pro-
gram 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 dis-
tribution, 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 allo-
cation to other than the Specially Designated Division, You must provide sat-
isfactory notice to Us at least seven days prior to the date the portfolio ma-
tures. Such allocations are not counted as an allocation change of the Invest-
ment 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 ex-
cess 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 de-
ducted on such date. We adjust Your Investment Value daily to reflect its In-
vestment Results. See Facts About the Policy, Measurement of Investment Expe-
rience.
You may choose up to sixteen 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 Ac-
count 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 Valu-
ation 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 cur-
rent Valuation Period.
21
<PAGE>
FACTS ABOUT THE POLICY (CONTINUED)
(6) We subtract from (5) any partial withdrawal and any associated charges al-
located 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 sub-
tract from (8) the amounts allocated to the applicable division for de-
ferred 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 Deduc-
tions. 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 ex-
cept 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,
except for the Growth Opportunity, Developing World, OTC, Research, Total Re-
turn, Growth & Income, Value + Growth, and Global Fixed Income Divisions
which started with indices of $10.97, $10.63, $14.64, $16.43, $13.76, $10.94,
$11.99, and $12.24, respectively. 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 experi-
ence for that date.
HOW WE DETERMINE THE EXPERIENCE FACTOR
For divisions of Account A, the experience factor reflects the Investment ex-
perience 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 rein-
vested 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 Adminis-
trative 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.
22
<PAGE>
CHARGES AND DEDUCTIONS
The charges described below are deducted from Your Investment Value. With re-
spect 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.
We deduct the charges described below to cover our costs and expenses, serv-
ices provided and risks assumed under the Policy. We incur certain costs and
expenses for the distribution and administration of the Policies and for pro-
viding the benefits payable thereunder. Our administrative services include:
processing applications for and issuing the Policies, processing premium pay-
ment and allocations as required, maintaining records, administering planned
payment programs and allocation programs, providing toll-free inquiry services
and furnishing telephone transfer services. The benefits We provide include
death benefits, withdrawals and surrender benefits, loan benefits and payout
benefits. The risks We assume include the risk that Our costs in providing the
services and benefits under the Policies will exceed our revenues from Policy
charges (which cannot be changed by Us). The amount of a charge may not neces-
sarily correspond to the costs associated with providing the services or bene-
fits indicated by the designation of the charge or associated with a particu-
lar Policy. For example, the sales load collected may not fully cover all of
the sales and distribution expenses actually incurred by us. In the event that
there are any profits from fees and charges deducted under the Policies, in-
cluding but not limited to mortality and expense risks charges, such profits
could be used to finance the distribution of the Policies.
DEDUCTIONS FOR DEFERRED LOADING
RECOVERY OF DEFERRED LOADING
Although the sales load is chargeable to each premium payment when it is re-
ceived, the amount of the deferred loading is deducted in equal installments
on each Policy Anniversary over a six year period following receipt and ac-
ceptance of each premium payment. It applies both to the initial and any ad-
ditional premiums. The deferred loading applicable to each premium payment is
6.0% (a deduction 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 unrecov-
ered 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 de-
ferred loading been deducted from Your premium.
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 pre-
mium. 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 per-
centage 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 in-
stallments on each Policy Anniversary over a six year period following re-
ceipt 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.
ISSUE CHARGES
PER POLICY CHARGE
We charge $200 for Policies written on a single life basis and $300 for Poli-
cies written on a survi-
23
<PAGE>
CHARGES AND DEDUCTIONS (CONTINUED)
vorship basis. This charge is incurred on the Issue Date and deducted from
the Investment Value on the first Policy Anniversary. This charge is cur-
rently 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 Is-
sue 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 Amount.
We deduct the total amount of any deferred face amount charge not yet de-
ducted when determining the Cash Surrender Value payable if You surrender
Your Policy.
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 Pe-
riod 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 be-
ginning 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 re-
sult 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 in-
surance 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 survivor-
ship 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 In-
vestment 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 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 Anniversary 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.
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 Ac-
count. This charge is cost based and designed to cover Our administrative
costs in processing excess allocation change.
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 with-
24
<PAGE>
CHARGES AND DEDUCTIONS (CONTINUED)
drawn for each additional partial withdrawal. The charge will be deducted in
proportion to the Investment Value in each division or the applicable alloca-
tion 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.
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 real-
ize 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 divi-
sion.
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 Trusts will affect Your Investment Value. Please read the Trusts' prospec-
tuses for details.
YOUR POLICY'S BENEFITS
YOUR POLICY'S CASH SURRENDER VALUE
Your Policy's Cash Surrender Value fluctuates daily with the Investment Re-
sults. 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 effec-
tive 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 Pol-
icies that are "modified endowment contracts," see Federal Income Tax Consid-
erations.
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 bor-
row. 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. Un-
less otherwise specified, loan repayments will be allocated in proportion to
the amount of Investment Value in each division.
25
<PAGE>
YOUR POLICY'S BENEFITS (CONTINUED)
For Genesis I Policies, there may be a 10% penalty tax on loans. For informa-
tion on the tax treatment of loans from policies that are "modified endowment
contracts," see Federal Income Tax Considerations, Modified Endowment Con-
tracts, Penalty Tax.
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 col-
lateral 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. Be-
tween Policy Anniversaries, Your Cash Surrender Value will reflect the ac-
crued 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 Anniver-
sary 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 partici-
pate in the Investment Results while the loan is outstanding. If the amount
credited to the collateral is more than Investment Results, the Cash Surren-
der 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 Invest-
ment Value. Under Policies purchased in connection with a 1035 Exchange, par-
tial 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 accel-
erating 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 divi-
sion or the Fixed Account from which the excess partial withdrawal was taken.
26
<PAGE>
YOUR POLICY'S BENEFITS (CONTINUED)
Collection of a portion of the deferred loading for an excess partial with-
drawal 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 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 per-
centage of the Investment Value by which the withdrawal is in excess of the
maximum (($30,000 - $18,000) / $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 unrecov-
ered 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 par-
tial 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, IN-
CLUDING THE TREATMENT FOR POLICIES THAT ARE MODIFIED ENDOWMENT CONTRACTS, SEE
FEDERAL INCOME TAX CONSIDERATIONS.
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 reduc-
tion 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 associ-
ated 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 be-
comes payable before the Processing Date on or next following the effec-
tive date of a partial withdrawal, We will deduct the amount of the par-
tial withdrawal from the Death Benefit proceeds payable, if the Death Ben-
efit 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 associ-
ated 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 "modi-
fied endowment contract." See Federal Income Tax Considerations, Modified
Endowment Contracts.
27
<PAGE>
YOUR POLICY'S BENEFITS (CONTINUED)
(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 Poli-
cy. 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.
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 pe-
riod ends 10 days from the date You receive the Policy. For purposes of ad-
ministering 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 lat-
est 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 ap-
plying 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 un-
der 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 pre-
mium 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 addi-
tional premium payments, less any partial withdrawals; and
(2) the Variable Insurance Amount as of the date of death.
28
<PAGE>
INSURANCE BENEFITS (CONTINUED)
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 pre-
miums 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);
(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 as-
sociated 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 dur-
ing 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 de-
lay payment of all or part of the death benefit proceeds under certain cir-
cumstances. 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 underwrit-
ing 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.
29
<PAGE>
INSURANCE BENEFITS (CONTINUED)
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
SURVIVORSHIP, MALE AND FEMALE, AGE 35,
NON-SMOKERS
<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>
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 ap-
plied 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 Endow-
ment 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 Guaran-
tee Period to life will be applied as a net single premium for life to in-
crease 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 Guar-
antee 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 Guaran-
tee 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 Pe-
riod 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.
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<PAGE>
INSURANCE BENEFITS (CONTINUED)
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 Guaran-
tee 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 re-
ceive 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 fol-
lowing 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 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 In-
surance Benefits, Guarantee Period.
GENERAL
When a change in Face Amount is made, the Tabular Value will be used to cal-
culate 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 in-
sufficient. (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 can-
cel 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 re-
instatement.
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.
31
<PAGE>
INSURANCE BENEFITS (CONTINUED)
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 Mor-
tality 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 guar-
anteed mortality rates.
CHOOSING AN INCOME PLAN
We offer several income plans to provide for payment of the Death Benefit pro-
ceeds 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 bene-
fit is payable, the beneficiary has one year to apply the death benefit pro-
ceeds to one or more of the plans. You may also choose one or more income
plans on surrender of the Policy.
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 beneficia-
ry; 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 guar-
anteed 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 pay-
ments 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 in-
terest 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 op-
tions described in the Policy.
If You, the Policyowner, are not the Insured, You may want to name a contin-
gent owner. If You die before the Insured, the contingent owner will own
32
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
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 af-
fect 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 beneficia-
ries. 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, but will not affect any payment made or action taken by Us before re-
ceipt 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 va-
lidity of a Policy if any material misstatements are made in the initial ap-
plication 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 mis-
statements 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 dur-
ing 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 In-
sured. 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 ef-
fective 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 de-
partment of the jurisdiction in which the Policy is delivered.
You will also receive annual reports containing a financial statement for Ac-
count A and any shareholder reports of the Trusts, as well as any other re-
ports, 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 in-
surance under the Internal Revenue Code or successor law. Therefore, to as-
sure 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
33
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
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 ad-
vance 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 enroll-
ment form, the death benefit shall be that which would be purchased by the
mortality cost determined for the current Processing Period based on the cor-
rect 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 Cen-
ter. 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 bene-
fit 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 re-
ceive and accept an additional payment, any amount of death 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 effec-
tive 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 mortal-
ity 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 insur-
ability, 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 prac-
tical 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 af-
ter 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 In-
sured (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
The Policyowner 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
34
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
release an assignment. We are not responsible for the validity of any assign-
ment.
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 Pol-
icy is delivered.
YOUR VOTING PRIVILEGES
You have the right to instruct Us as to how to vote at shareholder meetings of
the Trusts on the ratification of the selection of independent auditors and
such other matters as the 1940 Act requires.
We will vote the shares of each Trust owned by Account A according to Your in-
structions. However, if the Investment Company Act of 1940 or any related reg-
ulations 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
Trusts 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 each Trust's meet-
ing. 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 divi-
sion. 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 authori-
ties to disregard voting instructions. This may happen if following the in-
structions would mean voting to change the sub-classification or investment
objectives of the portfolios, or to approve or disapprove an investment advi-
sory 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 pro-
posed 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 un-
sound 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 Equitable of Iowa. DSI is regis-
tered with the SEC as a broker-dealer and is a member of the National Associa-
tion 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 approxi-
mately $293,000 for 1995, $835,000 for 1996, and $1,372,000 for 1997.
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 vari-
able annuities. The offering of the Policies will be continuous.
35
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the deferred load-
ing, 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 cov-
ering each individual in a group on a group basis. Sponsored arrangements in-
clude 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, 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 require-
ments for size and number of years in existence. Group or sponsored arrange-
ments that have been set up solely to buy policies or that have been in exist-
ence less than six months will not qualify for reduced charges.
We will make any reductions according to Our rules in effect when an applica-
tion 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 Dela-
ware and in other jurisdictions.
We are required to submit annual statements of Our operations, including fi-
nancial statements, to the insurance departments of the various jurisdictions
in which We do business to determine solvency and compliance with local insur-
ance 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 compensa-
tion plan could not, under Title VII of the Civil Rights Act of 1964, vary be-
tween men and women. In that case, the Court applied its decision only to ben-
efits 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 Cir-
cuit, 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 organiza-
tions 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
The Company and its subsidiaries, like other insurance companies, are involved
in lawsuits, including class action lawsuits. In some class action and other
lawsuits involving insurers, substantial damages have been sought and/or mate-
rial settlement payments have been made. Although the outcome of any litiga-
tion cannot be predicted with certainty, the Company believes that at the
present time, there are no pending or threatened lawsuits that are reasonably
like to have a material adverse impact on Separate Account A or the Company.
LEGAL MATTERS
The legal validity of the Policies described in this prospectus has been
passed on by Myles R. Tashman, Executive Vice President, General Counsel and
Secretary of Golden American. Sutherland, Asbill & Brennan, LLP of Washington,
D.C.
36
<PAGE>
OTHER IMPORTANT INFORMATION (CONTINUED)
has provided advice on certain matters relating to Federal securities laws.
EXPERTS
The financial statements of Golden American Life Insurance Company and Sepa-
rate 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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
POSITION(S) WITH THE
NAME (AGE) COMPANY
---------- ---------------------------------------------------
<C> <S>
Barnett Chernow (48) President and Director
Myles R. Tashman (55) Director, Executive Vice President, General Counsel
and Secretary
Susan B. Watson (31) Director, Senior Vice President and Chief Financial
Officer
Frederick S. Hubbell (47) Director and Chairman
Paul E. Larson (45) Director
Keith T. Glover (47) Executive Vice President
James R. McInnis (49) Executive Vice President
Dennis D. Hargens (55) Treasurer
David L. Jacobson (48) Senior Vice President and Assistant Secretary
Stephen J. Preston (40) Senior Vice President and Chief Actuary
William B. Lowe (33) Senior Vice President
Edward M. Syring, Jr. (59) Senior Vice President
</TABLE>
Each director is elected to serve for one year or until the next annual meet-
ing of shareholders or until his or her successor is elected. Most directors
are directors of insurance company subsidiaries of Golden American's parent,
Equitable of Iowa. The principal positions of Golden American's directors and
senior executive officers for the past five years are listed below:
Mr. Barnett Chernow became President and Director of Golden American Life In-
surance Company ("Golden American") and President of First Golden American
Life Insurance Company of New York ("First Golden") in April, 1998. From 1993
to 1998, Mr. Chernow served as Executive Vice President of Golden American. He
was elected to serve as Executive Vice President and Director of First Golden
in June, 1996. From 1997 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. Myles R. Tashman joined Golden American in August, 1994 as Senior Vice
President and was named Executive Vice President, General Counsel and Secre-
tary effective January 1, 1996. He was elected to serve as a director of
Golden American in
37
<PAGE>
MANAGEMENT (CONTINUED)
January, 1998. From 1986 through 1993, he was Senior Vice President and Gen-
eral Counsel of United Pacific Life Insurance Company.
Ms. Susan B. Watson joined Equitable Life Insurance Company of Iowa in 1991 as
an Assistant Vice President and Corporate Actuary and is currently Senior Vice
President and Chief Financial Officer for Equitable of Iowa and many of its
subsidiaries. She was elected to serve as a director of Golden American in
January, 1998.
Mr. Frederick S. Hubbell is a Director of Golden American since August, 1996
and Chairman since September, 1996. He also serves as a Director and Chairman
of First Golden, having been first appointed as a Director in December, 1997
and as Chairman in April, 1998. He was appointed General Manager of ING FSI NA,
in October, 1997 and General Manager, President and Chief Executive Officer of
ING Life & Annuities in April 1998. Mr. Hubbell served as Chairman, President
and Chief Executive Officer of Equitable of Iowa from 1991 until October, 1997.
He also has served as Chairman and President of Equitable Life Insurance
Company of Iowa from 1987 until October, 1997.
Mr. Paul E. Larson joined Equitable of Iowa in 1997 and is currently President
of Equitable Life. He was elected to serve as a director of Golden American in
August, 1996. He also served as Executive Vice President, CFO, and Assistant
Secretary of Golden American from December, 1996 through December, 1997.
Mr. Keith T. Glover became Executive Vice President of Golden American Life
Insurance Company ("Golden American") and First Golden American Life Insurance
Company of New York ("First Golden") in February, 1998. From 1991 to 1998, Mr.
Glover served as Executive Vice President of several Golden American affili-
ates; from 1996 to 1998, Southland Life Insurance Company; from 1995 to 1996,
ING FSI North America; and from 1991 to 1994, Security Life of Denver. From
1994 to 1995, Mr. Glover served as President of ING Insurance Services--ING
American Life, another Golden American affiliate.
Mr. James R. McInnis joined Golden American in December, 1997 as Executive
Vice President. From 1982 through November, 1997, he was with the Endeavor
Group and was President upon leaving.
Mr. Dennis D. Hargens was elected Treasurer of Golden American in December,
1996. He joined Equitable Life Insurance Company of Iowa in 1961 and is cur-
rently Treasurer and was elected Treasurer of USG Annuity & Life Company in
1996.
Mr. David L. 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. Stephen J. Preston joined Golden American in December, 1993 as Senior Vice
President, Chief Actuary and Controller. He currently serves as Senior Vice
President and Chief Actuary. 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 leav-
ing.
Mr. William B. Lowe joined Equitable Life as Vice President, Sales & Marketing
in January, 1994. He became a Senior Vice President, Sales & Marketing, of
Golden American in August, 1997. He is also President of Equitable of Iowa Se-
curities Network, Inc. Prior to joining Equitable Life, he was an Associate
Vice President of Lincoln Benefit Life form July, 1990 through December, 1993.
Mr. Edward Syring, Jr. joined Golden American in February as a Senior Vice
President, Sales & Marketing. Prior to joining Golden American, he was with
Putnam Mutual Funds from April, 1991 through February, 1995.
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 continu-
ation 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.
38
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
Golden American makes no guarantee regarding the tax consequences of any poli-
cy. 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 en-
tity from Golden American and its operations form a part of Golden American.
However, the assets in the Account are segregated from all of Golden Ameri-
can'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. Un-
der existing Federal income tax law, the investment income of the Account, in-
cluding 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 earn-
ings 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 addi-
tion to premium taxes) in several states. At present, these taxes are not sig-
nificant. 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, attribut-
able to the Account.
DEFERRED ACQUISITION COSTS
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance compa-
nies are required to capitalize and amortize specified policy acquisition ex-
penses 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 ac-
quisition costs in the year in which they were incurred. This revised treat-
ment 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 un-
der applicable Federal income tax law as of the date(s) of such premium pay-
ments. We believe this charge will be reasonable in relation to Our increased
tax liability resulting from the capitalization and amortization of policy ac-
quisition 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 treat-
ment 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, sub-
ject to the discussion below. Thus, the death benefit proceeds under the Pol-
icy should be excludable from the gross income of the beneficiary under Sec-
tion 101(a)(1) of the Code and the owner should not be deemed to be in con-
structive 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. Cur-
rently, these proposed regulations deny certain safe harbors to survivorship
policies and policies issued on the lives of insureds who constitute substan-
dard 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 con-
tinue 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
39
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
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 pol-
icy is a "modified endowment contract," partial withdrawals are fully taxable
to the extent of income in the policy and are possibly subject to an addi-
tional 10% tax. See Modified Endowment Contracts, Penalty Tax and Distribu-
tions 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 distri-
bution 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 endow-
ment 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 be fore
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 is-
suance. 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 Con-
tracts, Penalty Tax and Distributions Affected. If the Policy is not a "modi-
fied 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 ef-
fect. However, with respect to Preferred Loans it is possible that the Inter-
nal 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 re-
spect 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.
If the policy is owned by a business or corporation, the Code imposes addi-
tional 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 "modi fied endowment contract," but that the 15 year pe-
riod 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.
In addition, in the case of Policies issued to a non-natural taxpayer, such as
a corporation or trust (or held for the benefit of such an entity), a portion
of a taxpayer's otherwise deductible interest expenses may not be deductible
as a result of woernership od a Policy even if no loans are taken under the
Policy. An exception to this rule is provided for certain life insurance
contracts which cover the life of an individual who is a 20-percent owner, or
an officer, director, or employee of, a trade or business. Entities that are
considering purchasing the Policy, or entities that will be beneficiaries
under a Policy, should consult a tax advisor.
CHANGE OF OWNERSHIP OR ASSIGNMENT
A change of ownership or assignment of coverage may have tax consequences de-
pending 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 as-
signment.
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 (gener-
40
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
ally, the excess of Investment Value plus any Debt, over premiums paid). Pol-
icies 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 fu-
ture benefits after the payment of seven level annual premiums. In addition,
a "modified endowment contract" includes any life insurance contract that is
received in exchange for a "modified endowment contract." Except where the
policy was purchased as a "modified endowment contract," We will monitor pre-
miums 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 re-
turned with Investment experience for that portion attributable to the sepa-
rate 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 antici-
pation of such failure also are considered distributions under a "modified
endowment contract." All distributions made within two years prior to a fail-
ure 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 ex-
ceptions. 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 attribut-
able 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 pre-
miums 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 re-
duction 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 pol-
icy 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 pre-
mium 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 con-
tracts" that are issued within the same calendar year to the same policyowner
by one company or its affiliates are treated as one "modified endowment con-
tract" 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 ap-
plied as if the contract had originally been issued with the lower death ben-
efit. 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 Distri-
butions Affected for
41
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
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 rec-
ognized on the exchange of certain types of policies. Special rules and proce-
dures apply to Code Section 1035 transactions. Prospective Policyowners wish-
ing 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.
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 invest-
ments; (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 limi tations are increased based on a formula that takes into ac-
count the percentage of the Account's investment in United States Treasury se-
curities.
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 consid-
ered the owners, for Federal income tax purposes, of the assets of the sepa-
rate 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 con-
trol 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 in-
vestment 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 op-
tions which are somewhat more similar to each other in their in vestment ob-
jectives 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 Trea-
sury Department were 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
42
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS (CONTINUED)
policyholder might be retroactively determined to be the owner of the assets
of the Account.
ILLUSTRATIONS
The following tables demonstrate the way in which a 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 with an initial premium of $10,000, with planned premi-
ums 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 ben-
efit 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 Ac-
count.
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 aver-
aged 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 divi- sions averaged 0%, 6% or 12%, but varied above or below that av-
erage 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 ex-
pense 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 ad-
ministrative 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 Trusts of 1.06% of
the average daily net assets of the Trusts, which is an average of the fees
and expenses for each Series for the year ended December 31, 1997.
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 -2.07%, 3.87% and 9.81%, 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 Ac count 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 under writing 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 cur-
rent policy charges and current mortality rates.
43
<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 $ 515,647
2 110,250 507,639 507,639 538,009
3 115,763 507,639 507,639 561,837
4 121,551 507,639 507,639 587,221
5 127,628 507,639 507,639 614,242
6 134,010 507,639 507,639 642,984
7 140,710 507,639 507,639 677,819
8 147,746 507,639 507,639 714,653
9 155,133 507,639 507,639 753,596
10 162,889 507,639 507,639 794,765
15 207,893 507,639 507,639 1,038,604
20 265,330 507,639 507,639 1,359,990
30 432,194 507,639 507,639 2,340,402
</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 $93,424 $ 99,233 $ 105,035 $88,085 $ 93,895 $ 99,696
2 89,549 101,114 113,333 85,278 96,843 109,062
3 85,746 103,061 122,411 85,543 99,858 119,208
4 82,008 105,069 132,336 79,873 102,933 130,201
5 78,329 107,137 143,184 77,261 106,070 142,117
6 74,700 109,261 155,033 74,700 109,261 155,033
7 72,190 112,511 169,046 72,190 112,511 169,046
8 69,698 115,852 184,338 69,698 115,852 184,338
9 67,220 119,286 201,023 67,220 119,286 201,023
10 64,750 122,810 219,219 64,750 122,810 219,219
15 52,386 141,767 337,885 52,386 141,767 337,885
20 39,636 162,879 519,425 39,636 162,879 519,425
30 9,708 209,339 1,204,803 9,708 209,339 1,204,803
</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 POL-
ICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE BY
GOLDEN AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
44
<PAGE>
ILLUSTRATIONS (CONTINUED)
TABLE 2: SINGLE LIFE GENESIS FLEX POLICY
MALE ISSUE AGE: 55, NON-SMOKER GUARANTEE PERIOD AT ISSUE: 6.50 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 10,000 115,779 181,432 181,432 199,251
10 (age 65) 10,000 132,068 181,432 181,432 227,175
15 168,556 181,432 181,432 294,759
20 215,125 181,432 181,432 386,795
30 (age 85) 350,415 181,432(4) 181,432 667,794
</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 $ 7,551 $ 8,102 $ 8,654 $ 6,183 $ 6,734 $ 7,286
2 14,987 16,557 18,195 13,392 14,963 16,601
3 22,120 25,190 28,521 20,399 23,469 26,801
4 28,965 34,016 39,720 27,218 32,269 37,973
5 35,536 43,050 51,888 33,862 41,377 50,214
6 41,848 52,312 65,152 40,348 50,812 63,652
7 48,196 62,099 79,934 46,696 60,599 78,434
8 54,423 72,276 96,252 52,923 70,776 94,752
9 60,555 82,881 114,175 59,055 81,381 112,675
10 (age 65) 66,707 94,047 133,515 65,207 92,546 132,015
15 49,640 101,766 194,815 49,640 101,766 194,815
20 32,651 109,319 282,714 32,651 109,319 282,714
30 (age 85) 0 116,146 564,697 0 116,146 564,697
</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 POL-
ICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE BY
GOLDEN AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
45
<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: 18.00 YEARS(1)
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 $ 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 10,000 115,779 258,618 258,618 288,479
10 (age 65) 10,000 132,068 258,618 258,618 325,541
15 168,556 258,618 258,618 422,628
20 215,125 258,618 258,618 554,022
30 (age 85) 350,415 258,618 258,618 955,362
</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 $ 8,751 $ 9,331 $ 9,911 $ 7,443 $ 8,023 $ 8,603
2 17,497 19,198 20,969 15,951 17,652 19,422
3 25,934 29,319 32,983 24,250 27,634 31,298
4 34,067 39,701 46,045 32,343 37,978 44,321
5 41,897 50,351 60,254 40,235 48,690 58,592
6 49,429 61,277 75,723 47,929 59,777 74,223
7 56,927 72,747 92,837 55,427 71,247 91,337
8 64,227 84,618 111,677 62,727 83,118 110,177
9 71,329 96,901 132,291 69,829 95,401 130,791
10 (age 65) 78,315 109,691 154,800 76,815 108,191 153,300
15 65,356 126,744 238,779 65,356 126,744 238,779
20 51,626 145,112 364,870 51,626 145,112 364,870
30 (age 85) 9,741 171,190 784,821 9,741 171,190 784,821
</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 POL-
ICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE BY
GOLDEN AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
46
<PAGE>
FINANCIAL STATEMENTS OF ACCOUNT A
The audited financial statements of Account A are listed below and included
herein beginning on the following page:
Report of Independent Auditors
Financial Statements -- Audited
Audited Statement of Assets and Liability --December 31, 1997
Audited Statements of Operations for the Years ended December 31, 1997,
1996 and 1995
Audited Statements of Changes in Net Assets for the Years ended December
31, 1997, 1996 and 1995
Notes to Financial Statements
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
The audited financial statements of Golden American prepared in accordance
with generally accepted accounting principles ("GAAP") are listed below and
included herein following the financial statements of Account A:
Report of Independent Auditors
Financial Statements -- Audited
Consolidated Balance Sheets -- Post-Merger as of December 31, 1997 and
Post-Acquisition as of December 31, 1996
Consolidated Statements of Income -- Post-Merger for the period October 25,
1997 through December 31, 1997, Post-Acquisition for the periods January 1,
1997 through October 24, 1997, and August 14, 1996 through December 31,
1996 and Pre-Acquisition for the period January 1, 1996 through August 13,
1996 and for the year ended December 31, 1995
Consolidated Statements of Changes in Stockholder's Equity -- Post-Merger
for the period October 25, 1997 through December 31, 1997, Post-Acquisition
for the periods January 1, 1997 through October 24, 1997, and August 14,
1996 through December 31, 1996 and Pre-Acquisition for the period January
1, 1996 through August 13, 1996 and for the year ended December 31, 1995
Consolidated Statements of Cash Flows -- Post-Merger for the period October
25, 1997 through December 31, 1997, Post-Acquisition for the periods Janu-
ary 1, 1997 through October 24, 1997, and August 14, 1996 through December
31, 1996 and Pre-Acquisition for the period January 1, 1996 through August
13, 1996 and for the year ended December 31, 1995
Notes to Consolidated Financial Statements --December 31, 1997
The financial statements of Golden American, which are included herein should
be distinguished from the Financial Statements of Account A and should be con-
sidered only as bearing on the ability of Golden American to meet its obliga-
tions under the Policies. They should not be considered as bearing on the in-
vestment performance of the assets held in Account A.
47
<PAGE>
FINANCIAL STATEMENTS
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
48
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 50
Audited Financial Statements
Statement of Assets and Liability........................................... 51
Statements of Operations.................................................... 52
Statements of Changes in Net Assets......................................... 58
Notes to Financial Statements............................................... 64
</TABLE>
49
<PAGE>
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT A
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Golden American Life Insurance Company
We have audited the accompanying statement of assets and liability of Sepa-
rate Account A as of December 31, 1997, and the related statements of opera-
tions and changes in net assets for each of the periods indicated therein.
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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. Our proce-
dures included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the ac-
counting 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 De-
cember 31, 1997, and the results of its operations and changes in its net as-
sets for each of the periods indicated therein in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 12, 1998
50
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
--------
<S> <C>
ASSETS
Investments at net asset value:
The GCG Trust:
Liquid Asset Series, 2,179,480 shares (cost--$2,179)............... $ 2,179
Limited Maturity Bond Series, 88,854 shares (cost--$966)........... 916
Hard Assets Series, 46,960 shares (cost--$958)..................... 707
All-Growth Series, 148,872 shares (cost--$2,087)................... 2,050
Real Estate Series, 43,042 shares (cost--$800)..................... 786
Fully Managed Series, 174,085 shares (cost--$2,577)................ 2,738
Multiple Allocation Series, 181,362 shares (cost--$2,312).......... 2,374
Capital Appreciation Series, 341,957 shares (cost--$5,818)......... 6,035
Rising Dividends Series, 231,684 shares (cost--$3,760)............. 4,643
Emerging Markets Series, 116,971 shares (cost--$1,203)............. 1,029
Value Equity Series, 183,130 shares (cost--$2,843)................. 2,954
Strategic Equity Series, 95,893 shares (cost--$1,178).............. 1,307
Small Cap Series, 167,160 shares (cost--$2,081).................... 2,215
Managed Global Series, 48,135 shares (cost--$595).................. 552
Equi-Select Series Trust:
OTC Portfolio, 28,290 shares (cost--$416).......................... 448
Growth & Income Portfolio, 75,039 shares (cost--$1,152)............ 1,085
Research Portfolio, 48,590 shares (cost--$891)..................... 872
Total Return Portfolio, 33,572 shares (cost--$513)................. 516
Value + Growth Portfolio, 33,263 shares (cost--$478)............... 440
-------
TOTAL ASSETS (cost--$32,807)...................................... 33,846
LIABILITY
Payable to Golden American Life Insurance Company for charges and
fees................................................................. 81
-------
TOTAL NET ASSETS.................................................. $33,765
=======
NET ASSETS
For variable life insurance policies................................. $31,336
Retained in Separate Account A by Golden American Life Insurance
Company.............................................................. 2,429
-------
TOTAL NET ASSETS.................................................. $33,765
=======
</TABLE>
See accompanying notes.
51
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY HARD ASSETS
DIVISION BOND DIVISION DIVISION
----------------------- ------------------------- ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends.............. $ 117 $ 85 $ 44 $ 68 $ 119 -- $ 73 $ 2 $ 3
Capital gains distribu-
tions.................. -- -- -- -- -- -- 79 60 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment in-
come................... 117 85 44 68 119 -- 152 62 3
Expenses:
Mortality and expense
risk and asset based
administrative
charges................ 22 17 8 9 10 $ 6 9 3 1
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income
(loss).................. 95 68 36 59 109 (6) 143 59 2
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVEST-
MENTS
Net realized gain
(loss) on investments.. -- -- -- (24) 39 1 174 28 4
Net unrealized appreci-
ation (depreciation) of
investments............ -- -- -- 19 (113) 67 (248) (7) 9
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 95 $ 68 $ 36 $ 54 $ 35 $ 62 $ 69 $ 80 $ 15
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a)Commencement of operations, January 1, 1995
(b)Commencement of operations, October 2, 1995
(c)Commencement of operations, January 30, 1996
(d)Commencement of operations, September 23, 1996
(e)Commencement of operations, October 2, 1996
(f)Commencement of operations, February 20, 1997
(g)Commencement of operations, February 21, 1997
See accompanying notes.
52
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
DIVISION DIVISION DIVISION
------------------------- ------------------------ ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends.............. $ 4 $ 39 $ 60 $ 29 $ 16 $ 6 $ 89 $ 72 $ 27
Capital gains distribu-
tions 54 6 -- 26 7 -- 130 87 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment in-
come................... 58 45 60 55 23 6 219 159 27
Expenses:
Mortality and expense
risk and asset based
administrative
charges................ 17 16 7 8 2 2 25 16 10
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income
(loss).................. 41 29 53 47 21 4 194 143 17
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVEST-
MENTS
Net realized gain
(loss) on investments.. (21) (7) 73 144 27 (7) 179 18 3
Net unrealized appreci-
ation (depreciation) of
investments............ 55 (82) 5 (54) 27 27 (16) 77 169
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS ........ $ 75 $ (60) $ 131 $ 137 $ 75 $ 24 $ 357 $ 238 $ 189
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a)Commencement of operations, January 1, 1995
(b)Commencement of operations, October 2, 1995
(c)Commencement of operations, January 30, 1996
(d)Commencement of operations, September 23, 1996
(e)Commencement of operations, October 2, 1996
(f)Commencement of operations, February 20, 1997
(g)Commencement of operations, February 21, 1997
See accompanying notes.
53
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MULTIPLE CAPITAL RISING
ALLOCATION APPRECIATION DIVIDENDS
DIVISION DIVISION DIVISION
------------------------ ----------------------- -----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends.............. $ 163 $ 96 $ 109 $ 175 $ 27 $ 92 $ 30 $ 20 $ 6
Capital gains distribu-
tions.................. 80 85 -- 347 168 -- 79 17 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment in-
come................... 243 181 109 522 195 92 109 37 6
Expenses:
Mortality and expense
risk and asset based
administrative
charges................ 21 18 15 31 19 8 33 17 6
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income
(loss).................. 222 163 94 491 176 84 76 20 --
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVEST-
MENTS
Net realized gain
(loss) on investments.. 94 31 21 221 73 109 308 45 21
Net unrealized appreci-
ation (depreciation) of
investments............ 27 (50) 134 122 104 2 523 235 129
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 343 $ 144 $ 249 $ 834 $ 353 $ 195 $ 907 $ 300 $ 150
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
54
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EMERGING VALUE STRATEGIC
MARKETS EQUITY EQUITY
DIVISION DIVISION DIVISION
------------------------- ----------------------- -----------------------
1997 1996 1995 1997 1996 1995(a) 1997 1996 1995(b)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends.............. $2 -- -- $ 210 $ 27 $ 10 $ 64 $ 6 --
Capital gains distribu-
tions.................. -- -- -- 51 49 -- 1 6 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment in-
come................... 2 -- -- 261 76 10 65 12 --
Expenses:
Mortality and expense
risk and asset based
administrative
charges................ 12 $ 9 $ 6 19 10 1 9 2 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income
(loss).................. (10) (9) (6) 242 66 9 56 10 --
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVEST-
MENTS
Net realized gain
(loss) on investments.. 54 (21) (93) 188 12 2 60 13 --
Net unrealized appreci-
ation (depreciation) of
investments............ (184) 59 48 45 42 24 111 17 --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ (140) $ 29 $ (51) $ 475 $ 120 $ $35 $ 227 $ 40 --
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
55
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SMALL CAP MANAGED GLOBAL OTC
DIVISION DIVISION DIVISION
---------------- ---------------- ---------------
1997 1996(c) 1997 1996(d) 1997 1996(e)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends................ -- -- $ 42 -- $ 18 --
Capital gains distribu-
tions.................... -- -- 2 -- 1 $ 4
------- ------- ------- ------- ------- -------
Total investment income.. -- -- 44 -- 19 4
Expenses:
Mortality and expense
risk and asset based ad-
ministrative charges
charges.................. $ 16 $ 6 3 -- 3 --
------- ------- ------- ------- ------- -------
Net investment income
(loss).................... (16) (6) 41 -- 16 4
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments........... 118 8 33 -- -- 2
Net unrealized apprecia-
tion (depreciation) of
investments.............. 101 33 (44) $ 1 36 (4)
------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS................ $ 203 $ 35 $ 30 $ 1 $ 52 $ 2
======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes
56
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL VALUE +
GROWTH & INCOME RESEARCH RETURN GROWTH
DIVISION DIVISION DIVISION DIVISION COMBINED
---------------- -------- -------- -------- -----------------------
1997 1996(e) 1997(f) 1997(g) 1997(g) 1997 1996 1995
------- ------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends.............. $ 87 -- $ 18 $ 12 -- $ 1,201 $ 509 $ 357
Capital gains distribu-
tions.................. 1 -- 7 4 -- 862 489 --
------- ------- ------- ------- ------- ------- ------- -------
Total investment in-
come................... 88 -- 25 16 -- 2,063 998 357
Expenses:
Mortality and expense
risk and asset based
administrative charges
charges................ 7 -- 3 2 $ 2 251 145 70
------- ------- ------- ------- ------- ------- ------- -------
Net investment income
(loss).................. 81 -- 22 14 (2) 1,812 853 287
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVEST-
MENTS
Net realized gain
(loss) on investments.. 142 -- 70 7 55 1,802 268 134
Net unrealized appreci-
ation (depreciation) of
investments............ (69) $ 2 (19) 3 (38) 370 341 614
------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 154 $ 2 $ 73 $ 24 $ 15 $ 3,984 $ 1,462 $ 1,035
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
57
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY HARD ASSETS
DIVISION BOND DIVISION DIVISION
------------------------- ------------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................. $ 95 $ 68 $ 36 $ 59 $ 109 $ (6) $ 143 $ 59 $ 2
Net realized gain
(loss) on investments.. -- -- -- (24) 39 1 174 28 4
Net unrealized appreci-
ation (depreciation) of
investments............ -- -- -- 19 (113) 67 (248) (7) 9
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ 95 68 36 54 35 62 69 80 15
Changes from policy re-
lated transactions:
Premiums............... 10,919 10,103 4,659 23 3 -- 12 4 --
Surrenders and other
withdrawals............ (3,040) (2,084) (210) (106) (22) 1 (45) (44) (48)
Net transfers among Di-
visions and Fixed In-
terest Division of
Golden American........ (7,465) (8,526) (3,223) (107) 334 177 87 375 49
Net additions to (from)
assets retained in the
Account by Golden
American............... 73 (23) 90 (20) 39 -- 1 44 --
Policy related charges
and fees............... (11) (11) (8) (7) (6) (5) (9) (6) (1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
net assets from policy
related transactions... 476 (541) 1,308 (217) 348 173 46 373 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (de-
crease)................ 571 (473) 1,344 (163) 383 235 115 453 15
NET ASSETS AT BEGINNING
OF PERIOD............... 1,603 2,076 732 1,077 694 459 590 137 122
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PE-
RIOD.................... $ 2,174 $ 1,603 $ 2,076 $ 914 $ 1,077 $ 694 $ 705 $ 590 $ 137
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
58
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
DIVISION DIVISION DIVISION
------------------------- ------------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................. $ 41 $ 29 $ 53 $ 47 $ 21 $ 4 $ 194 $ 143 $ 17
Net realized gain
(loss) on investments.. (21) (7) 73 144 27 (7) 179 18 3
Net unrealized
appreciation
(depreciation) of
investments............ 55 (82) 5 (54) 27 27 (16) 77 169
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ 75 (60) 131 137 75 24 357 238 189
Changes from policy re-
lated transactions:
Premiums............... 52 22 5 8 1 -- 55 5 22
Surrenders and other
withdrawals............ (61) (32) (13) (21) (3) (3) (336) (131) (14)
Net transfers among
Divisions and Fixed
Interest Division of
Golden American........ 177 680 468 206 198 (228) 549 787 (20)
Net additions to (from)
assets retained in the
Account by Golden
American............... (29) 63 43 25 20 (7) 40 80 (6)
Policy related charges
and fees............... (14) (13) (6) (7) (2) (1) (26) (13) (11)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
net assets from policy
related transactions... 125 720 497 211 214 (239) 282 728 (29)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase
(decrease)............. 200 660 628 348 289 (215) 639 966 160
NET ASSETS AT BEGINNING
OF PERIOD............... 1,847 1,187 559 436 147 362 2,093 1,127 967
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PE-
RIOD.................... $ 2,047 $ 1,847 $ 1,187 $ 784 $ 436 $ 147 $ 2,732 $ 2,093 $ 1,127
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
59
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MULTIPLE ALLOCATION CAPITAL APPRECIATION RISING DIVIDENDS
DIVISION DIVISION DIVISION
------------------------- ------------------------- ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................. $ 222 $ 163 $ 94 $ 491 $ 176 $ 84 $ 76 $ 20 --
Net realized gain
(loss) on investments.. 94 31 21 221 73 109 308 45 $ 21
Net unrealized appreci-
ation (depreciation) of
investments............ 27 (50) 134 122 104 2 523 235 129
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ 343 144 249 834 353 195 907 300 150
Changes from policy
related transactions:
Premiums............... 97 18 50 82 7 -- 182 37 35
Surrenders and other
withdrawals............ (122) (152) (86) (368) (145) (14) (149) (79) (60)
Net transfers among Di-
visions and Fixed In-
terest Division of
Golden American........ 33 454 91 2,574 1,292 395 1,058 1,355 365
Net additions to (from)
assets retained in the
Account by Golden
American............... 7 38 6 225 151 40 105 161 35
Policy related charges
and fees............... (18) (15) (13) (43) (27) (9) (41) (19) (9)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
net assets from policy
related transactions... (3) 343 48 2,470 1,278 412 1,155 1,455 366
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (de-
crease)................ 340 487 297 3,304 1,631 607 2,062 1,755 516
NET ASSETS AT BEGINNING
OF PERIOD............... 2,029 1,542 1,245 2,719 1,088 481 2,569 814 298
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PE-
RIOD.................... $ 2,369 $ 2,029 $ 1,542 $ 6,023 $ 2,719 $ 1,088 $ 4,631 $ 2,569 $ 814
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes
60
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EMERGING MARKETS VALUE EQUITY STRATEGIC EQUITY
DIVISION DIVISION DIVISION
------------------------- ------------------------- -------------------------
1997 1996 1995 1997 1996 1995(a) 1997 1996 1995(b)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................. $ (10) $ (9) $ (6) $ 242 $ 66 $ 9 $ 56 $ 10 --
Net realized gain
(loss) on investments.. 54 (21) (93) 188 12 2 60 13 --
Net unrealized appreci-
ation (depreciation) of
investments............ (184) 59 48 45 42 24 111 17 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ (140) 29 (51) 475 120 35 227 40 --
Changes from policy
related transactions:
Premiums............... 48 5 23 93 8 -- 45 -- --
Surrenders and other
withdrawals............ (17) (118) (48) (107) (31) -- (17) (1) --
Net transfers among Di-
visions and Fixed In-
terest Division of
Golden American........ 48 527 138 735 1,130 309 467 424 $ 23
Net additions to (from)
assets retained in the
Account by Golden
American............... (20) 45 (6) 59 130 27 53 51 2
Policy related charges
and fees............... (11) (10) (8) (21) (12) (2) (7) (2) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
net assets from policy
related transactions... 48 449 99 759 1,225 334 541 472 25
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (de-
crease)................ (92) 478 48 1,234 1,345 369 768 512 25
NET ASSETS AT BEGINNING
OF PERIOD............... 1,119 641 593 1,714 369 -- 537 25 --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PE-
RIOD.................... $ 1,027 $ 1,119 $ 641 $ 2,948 $ 1,714 $ 369 $ 1,305 $ 537 $ 25
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes
61
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SMALL CAP MANAGED GLOBAL OTC
DIVISION DIVISION DIVISION
---------------- ---------------- ---------------
1997 1996(c) 1997 1996(d) 1997 1996(e)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss).................. $ (16) $ (6) $ 41 $ -- $ 16 $ 4
Net realized gain (loss)
on investments.......... 118 8 33 -- -- 2
Net unrealized apprecia-
tion (depreciation) of
investments............. 101 33 (44) 1 36 (4)
------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations......... 203 35 30 1 52 2
Changes from policy re-
lated transactions:
Premiums................ 98 8 6 (2) 38 1
Surrenders and other
withdrawals............. (40) (5) (4) -- (10) --
Net transfers among Di-
visions and Fixed Inter-
est Division of Golden
American................ 643 1,134 386 87 269 72
Net additions to (from)
assets retained in the
Account by Golden Ameri-
can..................... 38 125 43 8 20 7
Policy related charges
and fees................ (20) (10) (5) -- (5) (1)
------- ------- ------- ------- ------- -------
Increase (decrease) in
net assets from policy
related transactions.... 719 1,252 426 93 312 79
------- ------- ------- ------- ------- -------
Total increase (de-
crease)................. 922 1,287 456 94 364 81
NET ASSETS AT BEGINNING
OF PERIOD................ 1,287 -- 94 -- 81 --
------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PE-
RIOD..................... $ 2,209 $ 1,287 $ 550 $ 94 $ 445 $ 81
======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
62
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH & INCOME RESEARCH TOTAL RETURN VALUE + GROWTH
DIVISION DIVISION DIVISION DIVISION COMBINED
---------------- -------- ------------ -------------- -------------------------
1997 1996(e) 1997(f) 1997(g) 1997(g) 1997 1996 1995
------- ------- -------- ------------ -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income
(loss)................. $ 81 -- $ 22 $ 14 $ (2) $ 1,812 $ 853 $ 287
Net realized gain
(loss) on investments.. 142 -- 70 7 55 1,802 268 134
Net unrealized appreci-
ation (depreciation) of
investments............ (69) $ 2 (19) 3 (38) 370 341 614
------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net assets resulting
from operations........ 154 2 73 24 15 3,984 1,462 1,035
Changes from policy re-
lated transactions:
Premiums............... 78 1 10 1 16 11,863 10,221 4,794
Surrenders and other
withdrawals............ (4) -- (4) (1) -- (4,452) (2,847) (495)
Net transfers among Di-
visions and Fixed In-
terest Division of
Golden American........ 798 71 721 483 229 1,891 394 (1,456)
Net additions to (from)
assets retained in the
Account by Golden
American............... (15) 9 77 10 186 878 948 224
Policy related charges
and fees............... (13) -- (8) (3) (8) (277) (147) (73)
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
net assets from policy
related transactions... 844 81 796 490 423 9,903 8,569 2,994
------- ------- ------- ------- ------- ------- ------- -------
Total increase (de-
crease)................ 998 83 869 514 438 13,887 10,031 4,029
NET ASSETS AT BEGINNING
OF PERIOD............... 83 -- -- -- -- 19,878 9,847 5,818
------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PE-
RIOD.................... $ 1,081 $ 83 $ 869 $ 514 $ 438 $33,765 $19,878 $ 9,847
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------
(a) Commencement of operations, January 1, 1995
(b) Commencement of operations, October 2, 1995
(c) Commencement of operations, January 30, 1996
(d) Commencement of operations, September 23, 1996
(e) Commencement of operations, October 2, 1996
(f) Commencement of operations, February 20, 1997
(g) Commencement of operations, February 21, 1997
See accompanying notes.
63
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1--ORGANIZATION
Separate Account A (the "Account") was established by Golden American Life
Insurance Company ("Golden American") to support the operations of flexible
premium variable life insurance policies ("Policies"). Golden American is pri-
marily 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. The Account is registered as a unit investment trust with the Secu-
rities and Exchange Commission under the Investment Company Act of 1940, as
amended. Golden American provides for variable accumulation and benefits under
the Policies by crediting insurance premiums to one or more divisions within
the Account or the Golden American Fixed Interest Division which is not part
of the Account, as elected by the Policyowners. 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 assets and liabilities of the Account are clearly identi-
fied and distinguished from the other assets and liabilities of Golden Ameri-
can.
At December 31, 1997, the Account had under GoldenSelect Policies, nineteen
investment divisions: the Liquid Asset, the Limited Maturity Bond, the Hard
Assets (formerly the Natural Resources Division), the All-Growth, the Real Es-
tate, the Fully Managed, the Multiple Allocation, the Capital Appreciation,
the Rising Dividends, the Emerging Markets, the Value Equity (commenced opera-
tions January 1995), the Strategic Equity (commenced operations October 1995),
the Small Cap (commenced operations January 1996), the Managed Global (com-
menced operations September 1996), the OTC and the Growth & Income (commenced
operations October 1996), the Research, the Total Return and the Value +
Growth (commenced operations February 1997) ("Divisions"). The assets in each
Division are invested in shares of a designated series ("Series", which may
also be referred to as a "Portfolio") of mutual funds, of The GCG Trust or the
Equi-Select Series Trust (the "Trusts").
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Ac-
count:
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those es-
timates.
Investments: Investments are made in shares of a Series or Portfolio of the
Trusts and are valued at the net asset value per share of the respective Se-
ries or Portfolio of the Trusts. Investment transactions in each Series or
Portfolio of the Trusts are recorded on the trade date. Distributions of net
investment income and capital gains of each Series or Portfolio of the Trusts
are recognized on the ex-distribution date. Realized gains and losses on re-
demptions of the shares of the Series or Portfolio of the Trusts are deter-
mined on the basis of specific identification.
Federal Income Taxes: Operations of the Account form a part of, and are
taxed with, the total operations of Golden American which is taxed as a life
insurance company under the Internal Revenue Code. Earnings and realized capi-
tal gains of the Account attributable to the Policyowners are excluded in the
determination of the federal income tax liability of Golden American.
NOTE 3--CHARGES AND FEES
Under the terms of the Policies, certain charges are allocated to the Poli-
cies to cover Golden American's expenses in connection with the issuance and
administration of the Policies. A summary of these charges follows:
Mortality and Expense Risk and Asset Based Administrative 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 the Policies to cover these risks. For certain
policies, a daily asset based administrative charge at an annual rate of .10%
is deducted from assets attributable to Policies.
64
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE 3--CHARGES AND FEES (CONTINUED)
Administrative Charges: An administrative charge of $200 (single life) or
$300 (joint life) is made to cover the cost of underwriting and issuing a Pol-
icy. The charge is deducted in quarterly installments on each Policy during
the first Policy year. In addition, a quarterly administrative charge of $10
per Policy is deducted quarterly to cover ongoing administrative expenses.
Mortality Cost: A mortality cost is deducted equal to the cost of providing
coverage under the Policy. The cost is based on each insurer's sex, attained
age, 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 install-
ments on each Policy quarterly processing date during the guarantee period.
Deferred Sales Load: Under Policies offered subsequent to October 1995, a
sales load of 6% of premium is deducted in equal installments over a six-year
period. Under Policies offered prior to October 1995, a sales load of up to
7.5% was applicable to each premium payment for sales-related expenses as
specified in the Policy. For the policies previously offered, the sales load
is deducted in equal annual installments over the period the Policy is in
force, not to exceed ten years. The sales load, on all policies, is chargeable
to each premium when it is received by Golden American, the amount of such
charge is initially advanced by Golden American to Policyowners. This amount
is included in the accumulation value, and then deducted in equal installments
on each Policy anniversary date over a period of either six or ten years. Upon
surrender of the Policy, the unamortized deferred sales load is deducted from
the accumulation value by Golden American.
Deferred Face Amount Charge: There is a charge of an amount per $1,000 of
initial face amount and any increases in face amount deducted in equal in-
stallments over a six year period following receipt of the initial premium or
increase in face amount. This charge varies based on the age and sex of the
insured and the Policy chosen. This charge will never exceed a maximum of $12
per $1,000 of face amount. A portion of this charge is considered to be an ad-
ditional sales load.
Premium Taxes: Premiums are subject to a charge for premium and other state
and local taxes. The amount and timing of the deduction depend on the state of
residence and currently ranges up to 4.0% of premiums. Although the premium
tax is chargeable to each premium when received, the amount of such charge is
initially advanced by Golden American to Policyowners and included as a compo-
nent of the Policyowner's investment value and then deducted in equal install-
ments on each Policy anniversary date over a period of either six or ten
years. Upon the surrender of the Policy, any unamortized premium taxes are de-
ducted from the Policyowner's investment value. For some policies, the de-
ferred premium taxes are collected in one installment at the end of the Policy
processing period following the premium collection.
Loan Charge: A current 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 anniversary date.
Other Charges: Twelve free investment re-allocations among Divisions per
Policy are allowed each Policy year. For each additional investment re-alloca-
tion, a $25 charge may be made from the amount transferred from each Division.
For each partial withdrawal in excess of four per year, a charge is made equal
to the lesser of $25 and 2% of the amount withdrawn.
Fees Waived: Certain charges and fees for various types of policies are cur-
rently waived by Golden American. Golden American reserves the right to dis-
continue these waivers at its discretion or to conform with changes in the
law.
65
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE 3--CHARGES AND FEES (CONTINUED)
Net assets retained in the Account by Golden American in the accompanying fi-
nancial statements represent the unamortized deferred sales load and premium
taxes advanced by Golden American, previously noted. Net assets retained for
the periods ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
COMBINED
---------------------------
1997 1996 1995
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period................. $ 1,551 $ 603 $ 379
Sales load advanced............................ 825 758 259
Premium tax advanced........................... 322 304 100
Net transfer from Fixed Interest Division...... 94 38 --
Amortization of deferred sales load and premium
tax............................................ (363) (152) (135)
-------- -------- ------
Balance at end of period....................... $ 2,429 $ 1,551 $ 603
======== ======== ======
</TABLE>
NOTE 4--PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1997 1996 1995
----------------- ----------------- ----------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
--------- ------- --------- ------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
The GCG Trust:
Liquid Asset Series..... $13,442 $12,871 $ 9,546 $10,017 $ 5,306 $3,962
Limited Maturity Bond
Series................. 3,241 3,399 1,100 642 309 142
Hard Assets Series...... 4,335 4,146 576 140 79 77
All-Growth Series....... 1,263 1,099 1,918 1,168 1,501 950
Real Estate Series...... 6,843 6,584 337 102 98 334
Fully Managed Series.... 1,229 751 1,054 180 226 236
Multiple Allocation Se-
ries................... 908 689 915 408 553 413
Capital Appreciation Se-
ries................... 3,945 981 2,513 1,054 1,460 961
Rising Dividends Se-
ries................... 2,021 785 1,653 174 536 168
Emerging Markets Se-
ries................... 588 551 777 335 481 388
Value Equity Series..... 1,952 949 1,390 94 367 25
Strategic Equity Se-
ries................... 1,079 482 583 100 25 --
Small Cap Series........ 2,239 1,535 1,404 153 -- --
Managed Global Series... 809 340 96 3 -- --
Equi-Select Series Trust:
OTC Portfolio........... 416 82 127 47 -- --
Growth & Income Portfo-
lio.................... 4,003 3,074 81 -- -- --
Research Portfolio...... 1,563 742 -- -- -- --
Total Return Portfolio.. 571 65 -- -- -- --
Value + Growth Portfo-
lio.................... 2,605 2,182 -- -- -- --
------- ------- ------- ------- ------- ------
TOTAL................... $53,052 $41,307 $24,070 $14,617 $10,941 $7,656
======= ======= ======= ======= ======= ======
</TABLE>
66
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE 5--SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Policyowner transactions in units were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1997 1996 1995
----------------- ----------------- ----------------
PURCHASES SALES PURCHASES SALES PURCHASE SALES
--------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Liquid Asset Division.... 973,006 937,639 751,988 792,125 445,345 346,247
Limited Maturity Bond
Division................. 195,361 208,941 64,993 41,870 21,819 9,470
Hard Assets Division..... 181,583 177,600 29,493 9,091 5,298 5,102
All-Growth Division...... 80,436 73,085 131,273 83,029 112,852 77,153
Real Estate Division..... 276,497 266,809 15,888 4,944 6,513 23,082
Fully Managed Division... 55,134 38,235 55,652 11,003 16,877 18,610
Multiple Allocation
Division................. 34,857 34,416 43,404 23,182 29,953 25,061
Capital Appreciation
Division................. 159,349 46,074 148,680 67,690 106,129 74,482
Rising Dividends
Division................. 107,589 42,323 113,046 12,227 46,340 14,004
Emerging Markets
Division................. 56,756 54,201 78,278 33,532 51,859 39,746
Value Equity Division.... 102,289 59,623 96,086 6,366 29,415 1,930
Strategic Equity
Division................. 81,966 36,885 51,542 8,565 2,559 --
Small Cap Division....... 187,527 125,606 121,574 12,919 -- --
Managed Global Division.. 65,487 27,970 8,986 250 -- --
OTC Division............. 23,612 4,933 8,153 3,011 -- --
Growth & Income Divsion.. 267,409 204,064 6,613 4 -- --
Research Division........ 84,489 38,856 -- -- -- --
Total Return Division.... 35,701 4,087 -- -- -- --
Value + Growth Division.. 177,892 144,389 -- -- -- --
</TABLE>
NOTE 6--NET ASSETS
Net assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
LIMITED
LIQUID MATURITY HARD ALL- REAL FULLY
ASSET BOND ASSETS GROWTH ESTATE MANAGED
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Unit transactions....... $1,875 $734 $523 $1,834 $516 $1,958
Accumulated net
investment income
(loss).................. 299 230 433 250 282 613
Net unrealized
appreciation
(depreciation) of
investments............. -- (50) (251) (37) (14) 161
------ ---- ---- ------ ---- ------
$2,174 $914 $705 $2,047 $784 $2,732
====== ==== ==== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
MULTIPLE CAPITAL RISING EMERGING VALUE STRATEGIC
ALLOCATION APPRECIATION DIVIDENDS MARKETS EQUITY EQUITY
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
---------- ------------ --------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Unit transactions....... $1,532 $4,610 $3,277 $1,240 $2,319 $1,037
Accumulated net
investment income
(loss).................. 775 1,196 471 (39) 518 139
Net unrealized
appreciation
(depreciation) of
investments............. 62 217 883 (174) 111 129
------ ------ ------ ------ ------ ------
$2,369 $6,023 $4,631 $1,027 $2,948 $1,305
====== ====== ====== ====== ====== ======
</TABLE>
67
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE 6--NET ASSETS (CONTINUED)
Net assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
SMALL MANAGED GROWTH & TOTAL VALUE +
CAP GLOBAL OTC INCOME RESEARCH RETURN GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION COMBINED
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit transactions....... $1,971 $519 $391 $ 925 $796 $490 $423 $26,970
Accumulated net
investment income
(loss).................. 104 74 22 223 92 21 53 5,756
Net unrealized
appreciation
(depreciation) of
investments............. 134 (43) 32 (67) (19) 3 (38) 1,039
------ ---- ---- ------ ---- ---- ---- -------
$2,209 $550 $445 $1,081 $869 $514 $438 $33,765
====== ==== ==== ====== ==== ==== ==== =======
</TABLE>
NOTE 7--UNIT VALUES
Accumulation unit value information (which is based on total assets) for
units outstanding by contract type as of December 31, 1997 was as follows:
<TABLE>
<CAPTION>
TOTAL
SERIES UNITS UNIT VALUE UNIT VALUE
- ------ ------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
LIQUID ASSET
Variable Life--Single......................... 9,290 $14.51 $ 135
Variable Life--Joint.......................... 142,804 14.32 2,044
-----
2,179
LIMITED MATURITY BOND
Variable Life--Single......................... 7,442 16.73 124
Variable Life--Joint.......................... 48,085 16.46 792
-----
916
HARD ASSETS
Variable Life--Single......................... 1,745 21.69 38
Variable Life--Joint.......................... 31,412 21.30 669
-----
707
ALL-GROWTH
Variable Life--Single......................... 13,627 15.10 205
Variable Life--Joint.......................... 124,785 14.79 1,845
-----
2,050
REAL ESTATE
Variable Life--Single......................... 7,211 26.90 194
Variable Life--Joint.......................... 22,467 26.38 592
-----
786
FULLY MANAGED
Variable Life--Single......................... 3,060 20.66 63
Variable Life--Joint.......................... 131,396 20.36 2,675
-----
2,738
MULTIPLE ALLOCATION
Variable Life--Single......................... 9,918 21.59 214
Variable Life--Joint.......................... 101,527 21.28 2,160
-----
2,374
</TABLE>
68
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
NOTE 7--UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
TOTAL
SERIES UNITS UNIT VALUE UNIT VALUE
- ------ ------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CAPITAL APPRECIATION
Variable Life--Single......................... 7,837 $22.79 $ 178
Variable Life--Joint.......................... 259,991 22.53 5,857
------
6,035
RISING DIVIDENDS
Variable Life--Joint.......................... 227,515 20.41 4,643
EMERGING MARKETS
Variable Life--Single......................... 10 8.91 --
Variable Life--Joint.......................... 116,496 8.84 1,029
------
1,029
VALUE EQUITY
Variable Life--Single......................... 2,774 18.59 51
Variable Life--Joint.......................... 157,097 18.48 2,903
------
2,954
STRATEGIC EQUITY
Variable Life--Joint.......................... 90,617 14.42 1,307
SMALL CAP
Variable Life--Joint.......................... 170,576 12.99 2,215
MANAGED GLOBAL
Variable Life--Joint.......................... 46,253 11.93 552
OTC
Variable Life--Joint.......................... 23,821 18.79 448
GROWTH & INCOME
Variable Life--Single......................... 3,347 15.57 52
Variable Life--Joint.......................... 66,607 15.52 1,033
------
1,085
RESEARCH
Variable Life--Joint.......................... 45,633 19.11 872
TOTAL RETURN
Variable Life--Joint.......................... 31,614 16.31 516
VALUE + GROWTH
Variable Life--Joint.......................... 33,503 13.12 440
</TABLE>
NOTE 8--YEAR 2000 (UNAUDITED)
Based on a study of its computer software and hardware, Golden American has
determined its exposure to the Year 2000 change of the century date issue.
Management believes Golden American's systems are or will be substantially
compliant by the Year 2000 and has engaged external consultants to validate
this assumption. The only system known to be affected by this issue is a sys-
tem maintained by an affiliate who will incur the related costs to make the
system compliant. To mitigate the effect of outside influences and other de-
pendencies relative to Year 2000, Golden American will be contacting signifi-
cant customers, suppliers and other third parties. To the extent these third
parties would be unable to transact business in the year 2000 and thereafter,
Golden American's operations could be adversely affected.
69
<PAGE>
______________________________________________________________________________
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
For the year ended December 31, 1997
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying consolidated balance sheets of Golden
American Life Insurance Company as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholder's equity,
and cash flows for the periods from October 25, 1997 through December 31,
1997, January 1, 1997 through October 24, 1997, August 14, 1996 through
December 31, 1996, and January 1, 1996 through August 13, 1996, and the year
ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Golden American Life Insurance Company at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for the
periods from October 25, 1997 through December 31, 1997, January 1, 1997
through October 24, 1997, August 14, 1996 through December 31, 1996, and
January 1, 1996 through August 13, 1996, and the year ended December 31,
1995, in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1998
70
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
______________________________________
December 31, 1997 | December 31, 1996
___________________| _________________
<S> <C> | <C>
ASSETS |
|
Investments: |
Fixed maturities, available for sale, |
at fair value (cost: 1997 - $413,288; |
1996 - $275,153) $414,401 | $275,563
Equity securities, at fair value |
(cost: 1997 - $4,437; 1996 - $36) 3,904 | 33
Mortgage loans on real estate 85,093 | 31,459
Policy loans 8,832 | 4,634
Short-term investments 14,460 | 12,631
___________________| _________________
Total investments 526,690 | 324,320
|
Cash and cash equivalents 21,039 | 5,839
|
Due from affiliates 827 | --
|
Accrued investment income 6,423 | 4,139
|
Deferred policy acquisition costs 12,752 | 11,468
|
Present value of in force acquired 43,174 | 83,051
|
Current income taxes recoverable 272 | --
|
Deferred income tax asset 36,230 | --
|
Property and equipment, less allowances |
for depreciation of $97 in 1997 and |
$63 in 1996 1,567 | 699
|
Goodwill, less accumulated amortization |
of $630 in 1997 and $589 in 1996 150,497 | 38,665
|
Other assets 195 | 2,471
|
Separate account assets 1,646,169 | 1,207,247
___________________| _________________
Total assets $2,445,835 | $1,677,899
===================| =================
</TABLE>
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
______________________________________
December 31, 1997 | December 31, 1996
___________________| _________________
<S> <C> | <C>
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
Policy liabilities and accruals: |
Future policy benefits: |
Annuity and interest sensitive life |
products $505,304 | $285,287
Unearned revenue reserve 1,189 | 2,063
Other policy claims and benefits 10 | --
___________________| _________________
506,503 | 287,350
|
Deferred income tax liability -- | 365
Line of credit with affiliate 24,059 | --
Surplus note 25,000 | 25,000
Due to affiliates 80 | 1,504
Other liabilities 16,711 | 15,949
Separate account liabilities 1,646,169 | 1,207,247
___________________| _________________
2,218,522 | 1,537,415
|
Commitments and contingencies |
|
Stockholder's equity: |
Common stock, par value $10 per share, |
authorized, issued and outstanding |
250,000 shares 2,500 | 2,500
Additional paid-in capital 224,997 | 137,372
Unrealized appreciation (depreciation) |
of securities at fair value 241 | 262
Retained earnings (deficit) (425)| 350
___________________| _________________
Total stockholder's equity 227,313 | 140,484
___________________| _________________
Total liabilities and stockholder's |
equity $2,445,835 | $1,677,899
===================| =================
</TABLE>
See accompanying notes.
71
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
___________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 |October 24, 1997
__________________|________________
|
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $3,834 | $18,288
Management fee revenue 508 | 2,262
Net investment income 5,127 | 21,656
Realized gains (losses) on investments 15 | 151
Other income 236 | 426
__________________|________________
9,720 | 42,783
|
|
Insurance benefits and expenses: |
Annuity and interest sensitive life benefits: |
Interest credited to account balances 7,413 | 19,276
Benefit claims incurred in excess of |
account balances -- | 125
Underwriting, acquisition and insurance |
expenses: |
Commissions 9,437 | 26,818
General expenses 3,350 | 13,907
Insurance taxes 450 | 1,889
Policy acquisition costs deferred (13,678)| (29,003)
Amortization: |
Deferred policy acquisition costs 892 | 1,674
Present value of in force acquired 948 | 5,225
Goodwill 630 | 1,398
__________________|________________
9,442 | 41,309
|
Interest expense 557 | 2,082
__________________|________________
9,999 | 43,391
__________________|________________
Income (loss) before income taxes (279)| (608)
|
Income taxes 146 | (1,337)
__________________|________________
|
Net income (loss) ($425)| $729
==================|================
</TABLE>
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
____________________________________
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
__________________| ________________
|
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $8,768 | $12,259
Management fee revenue 877 | 1,390
Net investment income 5,795 | 4,990
Realized gains (losses) on investments 42 | (420)
Other income 486 | 70
__________________| ________________
15,968 | 18,289
|
|
Insurance benefits and expenses: |
Annuity and interest sensitive life benefits: |
Interest credited to account balances 5,741 | 4,355
Benefit claims incurred in excess of |
account balances 1,262 | 915
Underwriting, acquisition and insurance |
expenses: |
Commissions 9,866 | 16,549
General expenses 5,906 | 9,422
Insurance taxes 672 | 1,225
Policy acquisition costs deferred (11,712)| (19,300)
Amortization: |
Deferred policy acquisition costs 244 | 2,436
Present value of in force acquired 2,745 | 951
Goodwill 589 | --
__________________| ________________
15,313 | 16,553
|
Interest expense 85 | --
__________________| ________________
15,398 | 16,553
__________________| ________________
Income (loss) before income taxes 570 | 1,736
|
Income taxes 220 | (1,463)
__________________| ________________
|
Net income (loss) $350 | $3,199
==================| ================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
__________________
For the year ended
December 31, 1995
__________________
<S> <C>
Revenues:
Annuity and interest sensitive life
product charges $18,388
Management fee revenue 987
Net investment income 2,818
Realized gains (losses) on investments 297
Other income 63
__________________
22,553
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 1,322
Benefit claims incurred in excess of
account balances 1,824
Underwriting, acquisition and insurance
expenses:
Commissions 7,983
General expenses 12,650
Insurance taxes 952
Policy acquisition costs deferred (9,804)
Amortization:
Deferred policy acquisition costs 2,710
Present value of in force acquired 1,552
Goodwill --
__________________
19,189
Interest expense --
__________________
19,189
__________________
Income (loss) before income taxes 3,364
Income taxes --
__________________
Net income (loss) $3,364
==================
</TABLE>
See accompanying notes.
72
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
PRE-ACQUISITION
__________________________________________________________
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
Redeemable tional Securities Retained Stock-
Common Preferred Paid-In at Earnings holder's
Stock Stock Capital Fair Value (Deficit) Equity
__________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 $2,500 $50,000 $37,086 ($1) ($79) $89,506
Contribution of
capital -- -- 7,944 -- -- 7,944
Net income -- -- -- -- 3,364 3,364
Preferred stock
dividends -- -- -- -- (3,348) (3,348)
Unrealized apprecia-
tion of securities
at fair value -- -- -- 659 -- 659
__________________________________________________________
Balance at
December 31, 1995 2,500 50,000 45,030 658 (63) 98,125
Net income -- -- -- -- 3,199 3,199
Preferred stock
dividends -- -- -- -- (719) (719)
Unrealized deprecia-
tion of securities
at fair value -- -- -- (1,175) -- (1,175)
__________________________________________________________
Balance at
August 13, 1996 $2,500 $50,000 $45,030 ($517) $2,417 $99,430
==========================================================
</TABLE>
<TABLE>
<CAPTION>
POST-ACQUISITION
__________________________________________________________
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
Redeemable tional Securities Retained Stock-
Common Preferred Paid-In at Earnings holder's
Stock Stock Capital Fair Value (Deficit) Equity
__________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance at
August 14, 1996 $2,500 $50,000 $87,372 -- -- $139,872
Contribution of
preferred stock
to additional
paid-in capital -- (50,000) 50,000 -- -- --
Net income -- -- -- -- $350 350
Unrealized apprecia-
tion of securities
at fair value -- -- -- $262 -- 262
__________________________________________________________
Balance at
December 31, 1996 2,500 -- 137,372 262 350 140,484
Contribution of
capital -- -- 1,121 -- -- 1,121
Net income -- -- -- -- 729 729
Unrealized apprecia-
tion of securities
at fair value -- -- -- 1,543 -- 1,543
__________________________________________________________
Balance at
October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
==========================================================
POST-MERGER
__________________________________________________________
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
Redeemable tional Securities Retained Stock-
Common Preferred Paid-In at Earnings holder's
Stock Stock Capital Fair Value (Deficit) Equity
__________________________________________________________
Balance at
October 25, 1997 $2,500 -- $224,997 -- -- $227,497
Net loss -- -- -- -- ($425) (425)
Unrealized apprecia-
tion of securities
at fair value -- -- -- $241 -- 241
__________________________________________________________
Balance at
December 31, 1997 $2,500 -- $224,997 $241 ($425) $227,313
==========================================================
</TABLE>
See accompanying notes.
73
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 | October 24, 1997
___________________| ___________________
<S> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) ($425)| $729
Adjustments to reconcile net income (loss) |
to net cash provided by (used in) |
operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Change in annuity and interest |
sensitive life product reserves 7,361 | 19,177
Change in unearned revenues 1,189 | 3,292
Decrease (increase) in accrued |
investment income 1,205 | (3,489)
Policy acquisition costs deferred (13,678)| (29,003)
Amortization of deferred policy |
acquisition costs 892 | 1,674
Amortization of present value of in |
force acquired 948 | 5,225
Change in other assets, other |
liabilities and accrued income taxes 4,205 | (8,944)
Provision for depreciation and |
amortization 1,299 | 3,203
Provision for deferred income taxes 146 | 316
Realized (gains) losses on investments (15)| (151)
___________________| ___________________
Net cash provided by (used in) |
operating activities 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of |
investments: |
Fixed maturities - available for sale 9,871 | 39,622
Mortgage loans on real estate 1,644 | 5,828
Short-term investments - net -- | 11,415
___________________| ___________________
11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale (29,596)| (155,173)
Equity securities (1)| (4,865)
Mortgage loans on real estate (14,209)| (44,481)
Policy loans - net (328)| (3,870)
Short-term investments - net (13,244)| --
___________________| ___________________
(57,378)| (208,389)
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
________________________________________
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
___________________| ___________________
<S> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) $350 | $3,199
Adjustments to reconcile net income (loss) |
to net cash provided by (used in) |
operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Change in annuity and interest |
sensitive life product reserves 5,106 | 4,472
Change in unearned revenues 2,063 | 2,084
Decrease (increase) in accrued |
investment income (877)| (2,494)
Policy acquisition costs deferred (11,712)| (19,300)
Amortization of deferred policy |
acquisition costs 244 | 2,436
Amortization of present value of in |
force acquired 2,745 | 951
Change in other assets, other |
liabilities and accrued income taxes (96)| 4,672
Provision for depreciation and |
amortization 1,242 | 703
Provision for deferred income taxes 220 | (1,463)
Realized (gains) losses on investments (42)| 420
___________________| ___________________
Net cash provided by (used in) |
operating activities (757)| (4,320)
|
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of |
investments: |
Fixed maturities - available for sale 47,453 | 55,091
Mortgage loans on real estate 40 | --
Short-term investments - net 2,629 | 354
___________________| ___________________
50,122 | 55,445
Acquisition of investments: |
Fixed maturities - available for sale (147,170)| (184,589)
Equity securities (5)| --
Mortgage loans on real estate (31,499)| --
Policy loans - net (637)| (1,977)
Short-term investments - net -- | --
___________________| ___________________
(179,311)| (186,566)
</TABLE>
See accompanying notes.
74
<TABLE>
<CAPTION>
PRE-ACQUISITION
_________________
For the year
ended
December 31, 1995
_________________
<S> <C>
OPERATING ACTIVITIES
Net income (loss) $3,364
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operations:
Adjustments related to annuity and
interest sensitive life products:
Change in annuity and interest
sensitive life product reserves 4,664
Change in unearned revenues 4,949
Decrease (increase) in accrued
investment income (676)
Policy acquisition costs deferred (9,804)
Amortization of deferred policy
acquisition costs 2,710
Amortization of present value of in
force acquired 1,552
Change in other assets, other
liabilities and accrued income taxes 4,686
Provision for depreciation and
amortization (142)
Provision for deferred income taxes --
Realized (gains) losses on investments (297)
_________________
Net cash provided by (used in)
operating activities 11,006
INVESTING ACTIVITIES
Sale, maturity or repayment of
investments:
Fixed maturities - available for sale 24,026
Mortgage loans on real estate --
Short-term investments - net --
_________________
24,026
Acquisition of investments:
Fixed maturities - available for sale (61,723)
Equity securities (10)
Mortgage loans on real estate --
Policy loans - net (1,508)
Short-term investments - net (1,681)
_________________
(64,922)
</TABLE>
See accompanying notes.
74
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS -(CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 | October 24, 1997
___________________| ___________________
<S> <C> | <C>
Funds held in escrow pursuant to |
an Exchange Agreement -- | --
Purchase of property and equipment ($252)| ($875)
___________________| ___________________
Net cash used in investing activities (46,115)| (152,399)
|
FINANCING ACTIVITIES |
Proceeds from issuance of surplus note -- | --
Proceeds from line of credit borrowings 10,119 | 97,124
Repayment of line of credit borrowings (2,207)| (80,977)
Receipts from annuity and interest |
sensitive life policies credited |
to policyholder account balances 62,306 | 261,549
Return of policyholder account balances |
on annuity and interest sensitive |
life policies (6,350)| (13,931)
Net reallocations to Separate |
Accounts (17,017)| (93,069)
Contributions of capital by Parent -- | 1,011
Dividends paid on preferred stock -- | --
___________________| ___________________
Net cash provided by financing |
activities 46,851 | 171,707
___________________| ___________________
Increase (decrease) in cash and |
cash equivalents 3,863 | 11,337
|
Cash and cash equivalents at |
beginning of period 17,176 | 5,839
___________________| ___________________
Cash and cash equivalents at end |
of period $21,039 | $17,176
===================| ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $295 $1,912
Income taxes -- 283
Non-cash financing activities:
Contribution of property, plant and equipment
from EIC Variable, Inc. net of $353 of
accumulated depreciation -- 110
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
_____________________________________
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
__________________| _________________
<S> <C> | <C>
INVESTING ACTIVITIES - CONTINUED |
Funds held in escrow pursuant to |
an Exchange Agreement -- | --
Purchase of property and equipment ($137)| --
__________________| _________________
Net cash used in investing activities (129,326)| ($131,121)
|
FINANCING ACTIVITIES |
Proceeds from issuance of surplus note 25,000 | --
Proceeds from line of credit borrowings -- | --
Repayment of line of credit borrowings -- | --
Receipts from annuity and interest |
sensitive life policies credited |
to policyholder account balances 116,819 | 149,750
Return of policyholder account balances |
on annuity and interest sensitive |
life policies (3,315)| (2,695)
Net reallocations to Separate |
Accounts (10,237)| (8,286)
Contributions of capital by Parent -- | --
Dividends paid on preferred stock -- | (719)
__________________| _________________
Net cash provided by financing |
activities 128,267 | 138,050
__________________| _________________
Increase (decrease) in cash and |
cash equivalents (1,816)| 2,609
|
Cash and cash equivalents at |
beginning of period 7,655 | 5,046
__________________| _________________
Cash and cash equivalents at end |
of period $5,839 | $7,655
==================| =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest -- --
Income taxes -- --
Non-cash financing activities:
Contribution of property, plant and equipment
from EIC Variable, Inc. net of $353 of
accumulated depreciation -- --
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
PRE-ACQUISITION
_________________
For the year
ended
December 31, 1995
_________________
<S> <C>
INVESTING ACTIVITIES - CONTINUED
Funds held in escrow pursuant to
an Exchange Agreement ($1,242)
Purchase of property and equipment --
_________________
Net cash used in investing activities (42,138)
FINANCING ACTIVITIES
Proceeds from issuance of surplus note --
Proceeds from line of credit borrowings --
Repayment of line of credit borrowings --
Receipts from annuity and interest
sensitive life policies credited
to policyholder account balances 29,501
Return of policyholder account balances
on annuity and interest sensitive
life policies (1,543)
Net reallocations to Separate
Accounts --
Contributions of capital by Parent 7,944
Dividends paid on preferred stock (3,348)
_________________
Net cash provided by financing
activities 32,554
_________________
Increase (decrease) in cash and
cash equivalents 1,422
Cash and cash equivalents at
beginning of period 3,624
_________________
Cash and cash equivalents at end
of period $5,046
=================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest --
Income taxes --
Non-cash financing activities:
Contribution of property, plant and equipment
from EIC Variable, Inc. net of $353 of
accumulated depreciation --
</TABLE>
See accompanying notes.
75
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include Golden American Life Insurance
Company ("Golden American") and its wholly owned subsidiary, First Golden
American Life Insurance Company of New York ("First Golden," and with Golden
American collectively, the "Company"). All significant intercompany accounts
and transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa Companies,
Inc., offers variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. On January
2, 1997 and December 23, 1997, First Golden became licensed to sell insurance
products in New York and Delaware, respectively. The Company's products are
marketed by broker/dealers, financial institutions and insurance agents. The
Company's primary customers are individuals and families.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable"), pursuant to the terms of the Agreement and Plan of Merger
("Merger Agreement") among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI
is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. As a result of the merger, Equitable was
merged into PFHI which was simultaneously renamed Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"), a Delaware corporation. See Note 5 for
additional information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding capital stock of
EIC Variable, Inc. (formerly known as BT Variable, Inc.) and its wholly owned
subsidiaries, Golden American and Directed Services, Inc. ("DSI") from
Whitewood Properties Corporation ("Whitewood") pursuant to the terms of a
Stock Purchase Agreement between Equitable and Whitewood (the "Purchase
Agreement"). On April 30, 1997, EIC Variable, Inc. was liquidated and its
investments in Golden American and DSI were transferred to Equitable, while
the remainder of its net assets were contributed to Golden American. On
December 30, 1997, EIC Variable, Inc. was dissolved. See Note 6 for additional
information regarding the acquisition.
For financial statement purposes, the merger was accounted for as a purchase
effective October 25, 1997 and the change in control of Golden American through
the acquisition of BT Variable was accounted for as a purchase effective August
14, 1996. The merger and acquisition resulted in new bases of accounting
reflecting estimated fair values of assets and liabilities at their respective
dates. As a result, the Company's financial statements for the period
subsequent to October 24, 1997, are presented on the Post-Merger new basis of
accounting, for the period August 14, 1996 through October 24, 1997, are
presented on the Post-Acquisition basis of accounting, and for August 13, 1996
and prior periods are presented on the Pre-Acquisition basis of accounting.
INVESTMENTS
FIXED MATURITIES: Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
requires fixed maturity securities to be designated as either "available for
sale," "held for investment" or "trading." Sales of fixed maturities
designated as "available for sale" are not restricted by SFAS No. 115.
Available for sale securities are reported at fair value and unrealized gains
and losses on these securities are included directly in stockholder's
equity, after adjustment for related changes in deferred policy acquisition
costs ("DPAC"), present value of in force acquired ("PVIF"), policy reserves
and deferred income
76
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
taxes. At December 31, 1997 and 1996, all of the Company's
fixed maturity securities are designated as available for sale although the
Company is not precluded from designating fixed maturity securities as held for
investment or trading at some future date.
Securities determined to have a decline in value that is other than temporary
are written down to estimated fair value which becomes the security's new cost
basis by a charge to realized losses in the Company's Statement of Income.
Premiums and discounts are amortized/accrued utilizing the scientific interest
method which results in a constant yield over the security's expected life.
Amortization/accrual of premiums and discounts on mortgage-backed securities
incorporates a prepayment assumption to estimate the securities' expected
lives.
EQUITY SECURITIES: Equity securities are reported at estimated fair value if
readily marketable. The change in unrealized appreciation and depreciation of
marketable equity securities (net of related deferred income taxes, if any) is
included directly in stockholder's equity. Equity securities determined to
have a decline in value that is other than temporary are written down to
estimated fair value which becomes the security's new cost basis by a charge
to realized losses in the Company's Statement of Income.
MORTGAGE LOANS: Mortgage loans on real estate are reported at cost adjusted
for amortization of premiums and accrual of discounts. If the value of any
mortgage loan is determined to be impaired (i.e., when it is probable the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement), the carrying value of the mortgage loan is
reduced to the present value of expected future cash flows from the loan,
discounted at the loan's effective interest rate, or to the loan's observable
market price, or the fair value of the underlying collateral. The carrying
value of impaired loans is reduced by the establishment of a valuation
allowance which is adjusted at each reporting date for significant changes in
the calculated value of the loan. Changes in this valuation allowance are
charged or credited to income.
OTHER INVESTMENTS: Policy loans are reported at unpaid principal. Short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts.
FAIR VALUES: Estimated fair values, as reported herein, of publicly traded
fixed maturity securities are as reported by an independent pricing service.
Fair values of conventional mortgage-backed securities not actively traded
in a liquid market are estimated using a third party pricing system. This
pricing system uses a matrix calculation assuming a spread over U.S. Treasury
bonds based upon the expected average lives of the securities. Fair values
of private placement bonds are estimated using a matrix that assumes a spread
(based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Estimated fair values of equity securities which consists of
the Company's investment in its registered separate accounts are based upon
the quoted fair value of the securities comprising the individual portfolios
underlying the separate accounts. Realized gains and losses are determined on
the basis of specific identification and average cost methods for manager
initiated and issuer initiated disposals, respectively.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company considers
all demand deposits and interest-bearing accounts not related to the investment
function to be cash equivalents. All interest-bearing accounts classified as
cash equivalents have original maturities of three months or less.
77
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally commissions and
other expenses related to the production of new business, have been deferred.
Acquisition costs for variable annuity and variable life products are being
amortized generally in proportion to the present value (using the assumed
crediting rate) of expected future gross profits. This amortization is
"unlocked" when the Company revises its estimate of current or future gross
profits to be realized from a group of products. DPAC is adjusted to reflect
the pro forma impact of unrealized gains and losses on fixed maturity
securities the Company has designated as "available for sale" under SFAS No.
115.
PRESENT VALUE OF IN FORCE ACQUIRED
As a result of the merger and the acquisition, a portion of the acquisition
cost related to each transaction was allocated to the right to receive
future cash flows from existing insurance contracts. This allocated cost
represents the PVIF which reflects the value of those purchased policies
calculated by discounting actuarially determined expected future cash flows
at the discount rate determined by the purchaser. Amortization of PVIF is
charged to expense in proportion to expected gross profits. This
amortization is "unlocked" when the Company revises its estimate of current
or future gross profits to be realized from the insurance contracts acquired.
PVIF is adjusted to reflect the pro forma impact of unrealized gains (losses)
on available for sale fixed maturities. See Notes 5 and 6 for additional
information on PVIF resulting from the merger and acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements, office
furniture and equipment and capitalized computer software and are not
considered to be significant to the Company's overall operations. Property
and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily on the basis of the straight-line
method over the estimated useful lives of the assets.
GOODWILL
Goodwill was established as a result of the merger discussed previously and is
being amortized over 40 years on a straight-line basis. Goodwill established
as a result of the acquisition discussed above was being amortized over 25
years on a straight-line basis. See Notes 5 and 6 for additional information
on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for fixed interest divisions of the variable products
are established utilizing the retrospective deposit accounting method. Policy
reserves represent the premiums received plus accumulated interest, less
mortality and administration charges. Interest credited to these policies
ranged from 3.30% to 8.25% during 1997. The unearned revenue reserve
represents unearned distribution fees discussed below. These distribution
fees have been deferred and are amortized over the life of the contract in
proportion to its expected gross profits.
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the accompanying
balance sheets represent funds that are separately administered principally
for variable annuity and variable life contracts. Contractholders, rather than
the Company, bear the investment risk for variable products. At the direction
of the Contractholders, the separate accounts invest the premiums from the
sale of variable annuity and variable life products in shares of specified
mutual funds. The assets and liabilities of the separate accounts are clearly
identified and segregated from other assets and liabilities of the Company.
The portion of the separate account assets applicable to variable annuity and
variable life contracts cannot be charged with liabilities arising out of any
other business the Company may conduct.
78
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
Variable separate account assets carried at fair value of the underlying
investments generally represent Contractholder investment values maintained
in the accounts. Variable separate account liabilities represent account
balances for the variable annuity and variable life contracts invested in the
separate accounts. Net investment income and realized and unrealized capital
gains and losses related to separate account assets are not reflected in the
accompanying Statements of Income.
Product charges recorded by the Company from variable annuity and variable
life products consist of charges applicable to each contract for mortality and
expense risk, cost of insurance, contract administration and surrender charges.
In addition, some variable annuity and all variable life contracts provide for
a distribution fee collected for a limited number of years after each premium
deposit. Revenue recognition of collected distribution fees is amortized over
the life of the contract in proportion to its expected gross profits. The
balance of unrecognized revenue related to the distribution fees is reported
as an unearned revenue reserve.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred tax assets or
liabilities are adjusted to reflect the pro forma impact of unrealized gains
and losses on equity securities and fixed maturity securities the Company has
designated as available for sale under SFAS No. 115. Changes in deferred tax
assets or liabilities resulting from this SFAS No. 115 adjustment are charged
or credited directly to stockholder's equity. Deferred income tax expenses
or credits reflected in the Company's Statement of Income are based on the
changes in the deferred tax asset or liability from period to period
(excluding the SFAS No. 115 adjustment).
DIVIDEND RESTRICTIONS
The Company's ability to pay dividends to its parent is restricted because
prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limitation. During 1998,
Golden American cannot pay dividends to its parent without prior approval of
statutory authorities. The Company has maintained adequate statutory capital
and surplus and has not used surplus relief or financial reinsurance, which
have come under scrutiny by many state insurance departments.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholders unless a notice of
its intention to declare a dividend and amount of the dividend has been filed
not less than thirty days in advance of the proposed declaration. The
superintendent may disapprove the distribution by giving written notice to
First Golden within thirty days after the filing should the superintendent
find that the financial condition of First Golden does not warrant the
distribution.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Management is required to utilize historical experience and assumptions about
future events and circumstances in order to develop estimates of material
reported amounts and disclosures. Included among the material (or potentially
material) reported amounts and disclosures that require extensive use of
estimates and assumptions are (1) estimates of fair values of investments in
securities and other financial instruments, as well as fair values of
policyholder liabilities, (2) policyholder liabilities, (3) deferred policy
acquisition costs and present value of in force acquired, (4) fair values of
assets and liabilities recorded as a result of merger and acquisition
transactions, (5) asset valuation
79
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
allowances, (6) guaranty fund assessment
accruals, (7) deferred tax benefits (liabilities) and (8) estimates for
commitments and contingencies including legal matters, if a liability is
anticipated and can be reasonably estimated. Estimates and assumptions
regarding all of the preceding are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could
materially impact the financial statements.
2. BASIS OF FINANCIAL REPORTING
The financial statements of the Company differ from related statutory-basis
financial statements principally as follows: (1) acquisition costs of
acquiring new business are deferred and amortized over the life of the
policies rather than charged to operations as incurred; (2) an asset
representing the present value of future cash flows from insurance
contracts acquired was established as a result of the merger/acquisition and
is amortized and charged to expense; (3) future policy benefit reserves for
the fixed interest divisions of the variable products are based on full
account values, rather than the greater of cash surrender value or amounts
derived from discounting methodologies utilizing statutory interest rates;
(4) reserves are reported before reduction for reserve credits related to
reinsurance ceded and a receivable is established, net of an allowance for
uncollectible amounts, for these credits rather than presented net of these
credits; (5) fixed maturity investments are designated as "available for
sale" and valued at fair value with unrealized appreciation/depreciation,
net of adjustments to deferred income taxes (if applicable), present value of
in force acquired and deferred policy acquisition costs, credited/charged
directly to stockholder's equity rather than valued at amortized cost;
(6) the carrying value of fixed maturity securities is reduced to fair value
by a charge to realized losses in the Statement of Income when declines in
carrying value are judged to be other than temporary, rather than through the
establishment of a formula-determined statutory investment reserve (carried as
a liability), changes in which are charged directly to surplus; (7) deferred
income taxes are provided for the difference between the financial statement
and income tax bases of assets and liabilities; (8) net realized gains or
losses attributed to changes in the level of interest rates in the market are
recognized when the sale is completed rather than deferred and amortized over
the remaining life of the fixed maturity security; (9) a liability is
established for anticipated guaranty fund assessments, net of related
anticipated premium tax credits, rather than capitalized when assessed and
amortized in accordance with procedures permitted by insurance regulatory
authorities; (10) revenues for variable annuity and variable life products
consist of policy charges for the cost of insurance, policy administration
charges, amortization of policy initiation fees and surrender charges assessed
rather than premiums received; (11) the financial statements of Golden
American's wholly owned subsidiary are consolidated rather than recorded at the
equity in net assets; (12) surplus notes are reported as liabilities rather
than as surplus; and (13) assets and liabilities are restated to fair values
when a change in ownership occurs, with provisions for goodwill and other
intangible assets, rather than continuing to be presented at historical cost.
Net loss for Golden American as determined in accordance with statutory
accounting practices was $428,000 in 1997, $9,188,000 in 1996 and $4,117,000
in 1995. Total statutory capital and surplus was $76,914,000 at December 31,
1997 and $80,430,000 at December 31, 1996.
80
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________________________
For the period| For the period For the period
October 25, 1997| January 1, 1997 August 14, 1996
through| through through
December 31, 1997| October 24, 1997 December 31, 1996
__________________| ____________________________________
(Dollars in thousands)
<S> <C> | <C> <C>
Fixed maturities $4,443 | $18,488 $5,083
Equity securities 3 | -- 103
Mortgage loans on real |
estate 879 | 3,070 203
Policy loans 59 | 482 78
Short-term investments 129 | 443 441
Other, net (154)| 24 2
Funds held in escrow -- | -- --
__________________| ____________________________________
Gross investment income 5,359 | 22,507 5,910
Less investment expenses (232)| (851) (115)
__________________| ____________________________________
Net investment income $5,127 | $21,656 $5,795
==================| ====================================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
_____________________________________
For the period |
January 1, 1996 | For the year
through | ended
August 13, 1996 | December 31, 1995
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Fixed maturities $4,507 | $1,610
Equity securities -- | --
Mortgage loans on real |
estate -- | --
Policy loans 73 | 56
Short-term investments 341 | 899
Other, net 22 | 148
Funds held in escrow 145 | 166
__________________| _________________
Gross investment income 5,088 | 2,879
Less investment expenses (98)| (61)
__________________| _________________
Net investment income $4,990 | $2,818
==================| =================
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________________________
For the period| For the period For the period
October 25, 1997| January 1, 1997 August 14, 1996
through| through through
December 31, 1997| October 24, 1997 December 31, 1996
__________________| ____________________________________
(Dollars in thousands)
<S> <C> | <C> <C>
Fixed maturities, |
available for sale $25 | $151 $42
Mortgage loans (10)| -- --
__________________| ____________________________________
Realized gains (losses) |
on investments $15 | $151 $42
========================================================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
_____________________________________
For the period |
January 1, 1996 | For the year
through | ended
August 13, 1996 | December 31, 1995
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Fixed maturities, |
available for sale ($420)| $297
Mortgage loans -- | --
__________________| _________________
Realized gains (losses) |
on investments ($420)| $297
=====================================
</TABLE>
81
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
The change in unrealized appreciation (depreciation) on securities at
fair value is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
________________________________________________________
For the period | For the period For the period
October 25, 1997 | January 1, 1997 August 14, 1996
through | through through
December 31, | October 24, December 31,
1997 | 1997 1996
__________________| ____________________________________
(Dollars in thousands)
<S> <C> | <C> <C>
Fixed maturities: |
Available for sale $1,113 | $4,607 $410
Held for investment -- | -- --
Equity securities (533)| (465) (3)
__________________| ____________________________________
Unrealized appreciation |
(depreciation) of |
securities $580 | $4,142 $407
========================================================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
_____________________________________
For the period |
January 1, 1996 | For the year
through | ended
August 13, 1996 | December 31, 1995
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Fixed maturities: |
Available for sale ($2,087)| $958
Held for investment -- | 90
Equity securities 1 | 3
__________________| _________________
Unrealized appreciation |
(depreciation) of |
securities ($2,086)| $1,051
=====================================
</TABLE>
At December 31, 1997 and December 31, 1996, amortized cost, gross unrealized
gains and losses and estimated fair values of fixed maturity securities, all
of which are designated as available for sale, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
_______________________________________________
(Dollars in thousands)
December 31, 1997 POST-MERGER
______________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $62,988 $155 ($10) $63,133
Other 5,705 5 (1) 5,709
Foreign governments 2,062 -- (9) 2,053
Public utilities 25,899 49 (4) 25,944
Investment grade corporate 219,526 926 (32) 220,420
Below investment grade
corporate 41,355 186 (210) 41,331
Mortgage-backed securities 55,753 78 (20) 55,811
_______________________________________________
Total $413,288 $1,399 ($286) $414,401
===============================================
December 31, 1996 POST-ACQUISITION
______________________________________________________________________________
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $70,902 $122 ($247) $70,777
Other 3,082 2 (4) 3,080
Public utilities 35,893 193 (38) 36,048
Investment grade corporate 134,487 586 (466) 134,607
Below investment grade
corporate 25,921 249 (56) 26,114
Mortgage-backed securities 4,868 69 -- 4,937
_______________________________________________
Total $275,153 $1,221 ($811) $275,563
===============================================
</TABLE>
82
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
At December 31, 1997, net unrealized investment gains on fixed maturities
designated as available for sale totaled $1,113,000. This appreciation caused
an increase to stockholder's equity of $587,000 at December 31, 1997 (net of
deferred income taxes of $316,000, an adjustment of $35,000 to DPAC and PVIF
of $175,000). Short-term investments with maturities of 30 days or less have
been excluded from the above schedules. Amortized cost approximates fair value
for these securities.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1997, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
POST-MERGER
_____________________________
Estimated
Amortized Fair
December 31, 1997 Cost Value
_____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due within one year $26,261 $26,239
Due after one year through five years 198,249 198,781
Due after five years through ten years 70,037 70,437
_____________ _____________
294,547 295,457
Mortgage-backed securities 118,741 118,944
_____________ _____________
Total $413,288 $414,401
============= =============
</TABLE>
An analysis of sales, maturities and principal repayments of the Company's
fixed maturities portfolio is as follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
For the period October 25,
1997 through
December 31, 1997:
Scheduled principal
repayments, calls and
tenders $6,708 $2 -- $6,710
Sales 3,138 23 -- 3,161
______________________________________________________
Total $9,846 $25 -- $9,871
======================================================
For the period January 1,
1997 through October 24,
1997:
Scheduled principal
repayments, calls and
tenders $25,419 -- -- $25,419
Sales 14,052 $153 ($2) 14,203
______________________________________________________
Total $39,471 $153 ($2) $39,622
======================================================
For the period August 14,
1996 through
December 31, 1996:
Scheduled principal
repayments, calls and
tenders $1,612 -- -- $1,612
Sales 45,799 $115 ($73) 45,841
______________________________________________________
Total $47,411 $115 ($73) $47,453
======================================================
For the period January 1,
1996 through August 13,
1996:
Scheduled principal
repayments, calls and
tenders $1,801 -- -- $1,801
Sales 53,710 $152 ($572) 53,290
______________________________________________________
Total $55,511 $152 ($572) $55,091
======================================================
Year ended December 31,
1995:
Scheduled principal
repayments, calls and
tenders $20,279 $305 ($16) $20,568
Sales 3,450 8 -- 3,458
______________________________________________________
Total $23,729 $313 ($16) $24,026
======================================================
</TABLE>
83
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
INVESTMENT VALUATION ANALYSIS: The Company analyzes its investment portfolio
at least quarterly in order to determine if the carrying value of any of its
investments has been impaired. The carrying value of debt and equity
securities is written down to fair value by a charge to realized losses when
an impairment in value appears to be other than temporary. During 1997 and
1996, no investments were identified as having an impairment other than
temporary.
INVESTMENTS ON DEPOSIT: At December 31, 1997 and 1996, affidavits of deposits
covering bonds with a par value of $6,605,000 were on deposit with regulatory
authorities pursuant to certain statutory requirements.
INVESTMENT DIVERSIFICATIONS: The Company's investment policies related to its
investment portfolio require diversification by asset type, company and
industry and set limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. The following percentages relate to holdings at
December 31, 1997 and December 31, 1996. Fixed maturity investments included
investments in basic industrials (30% in 1997 and 1996), financial companies
(24% in 1997, 18% in 1996), various government bonds and government or agency
mortgage-backed securities (17% in 1997 and 27% in 1996) and public utilities
(7% in 1997, 13% in 1996). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as Utah (13%
in 1997, 4% in 1996), California (12% in 1997, 7% in 1996), and Georgia (11%
in 1997, 17% in 1996). There are no other concentrations of mortgage loans in
any state exceeding ten percent at December 31, 1997 and 1996. Mortgage loans
on real estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (43% in 1997, 36% in 1996),
industrial buildings (33% in 1997, 31% in 1996), retail facilities (15% in
1997, 6% in 1996) and multi-family residential buildings (9% in 1997, 27% in
1996). Equity securities and investments accounted for by the equity method
are not significant to the Company's overall investment portfolio.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of
stockholder's equity at December 31, 1997.
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of estimated fair value of all financial instruments,
including both assets and liabilities recognized and not recognized in a
Company's balance sheet, unless specifically exempted. SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments," requires additional disclosures about derivative financial
instruments. Most of the Company's investments, investment contracts and debt
fall within the standards' definition of a financial instrument. Fair values
for the Company's insurance contracts other than investment contracts are not
required to be disclosed. In cases where quoted market prices are not
available, estimated fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. Accounting, actuarial and regulatory bodies are continuing to study the
methodologies to be used in developing fair value information, particularly as
it relates to such things as liabilities for insurance contracts. Accordingly,
care should be exercised in deriving conclusions about the Company's business
or financial condition based on the information presented herein.
The Company closely monitors the composition and yield of its invested assets,
the duration and interest credited on insurance liabilities and resulting
interest spreads and timing of cash flows. These amounts are taken into
consideration in the Company's overall management of interest rate risk, which
attempts to minimize exposure to changing interest rates through the matching
of investment cash flows with amounts expected to be due under insurance
contracts. As discussed be-
84
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
low, the Company has used discount rates in its
determination of fair values for its liabilities which are consistent with
market yields for related assets. The use of the asset market yield is
consistent with management's opinion that the risks inherent in its asset and
liability portfolios are similar. This assumption, however, might not result
in values consistent with those obtained through an actuarial appraisal of the
Company's business or values that might arise in a negotiated transaction.
The following compares carrying values as shown for financial reporting
purposes with estimated fair values:
<TABLE>
<CAPTION>
December 31 1997 1996
_______________________________________________________________________________
(Dollars in thousands) |
Estimated | Estimated
Carrying Fair | Carrying Fair
Value Value | Value Value
___________ ___________| ___________ ___________
<S> <C> <C> | <C> <C>
ASSETS |
Fixed maturities, available |
for sale $414,401 $414,401 | $275,563 $275,563
Equity securities 3,904 3,904 | 33 33
Mortgage loans on real estate 85,093 86,348 | 31,459 30,979
Policy loans 8,832 8,832 | 4,634 4,634
Short-term investments 14,460 14,460 | 12,631 12,631
Cash and cash equivalents 21,039 21,039 | 5,839 5,839
Separate account assets 1,646,169 1,646,169 | 1,207,247 1,207,247
|
LIABILITIES |
Annuity products 493,181 431,859 | 280,076 253,012
Surplus note 25,000 28,837 | 25,000 28,878
Separate account liabilities 1,646,169 1,443,458 | 1,207,247 1,119,158
|
</TABLE>
The following methods and assumptions were used by the Company in estimating
fair values.
FIXED MATURITIES: Estimated fair values of publicly traded securities are as
reported by an independent pricing service. Estimated fair values of
conventional mortgage-backed securities not actively traded in a liquid market
are estimated using a third party pricing system. This pricing system uses a
matrix calculation assuming a spread over U.S. Treasury bonds based upon the
expected average lives of the securities.
EQUITY SECURITIES: Estimated fair values of equity securities, which consist
of the Company's investment in the portfolios underlying its separate accounts,
are based upon the quoted fair value of the individual securities comprising
the individual portfolios underlying the separate accounts. For equity
securities not actively traded, estimated fair values are based upon values of
issues of comparable yield and quality.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting
expected cash flows, using interest rates currently offered for similar
loans.
POLICY LOANS: Carrying values approximate the estimated fair value for
policy loans.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
reported in the Company's historical cost basis balance sheet approximate
estimated fair value for these instruments, due to their short-term nature.
SEPARATE ACCOUNT ASSETS: Separate account assets are based upon the quoted
fair values of the individual securities in the separate accounts.
85
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
ANNUITY PRODUCTS: Estimated fair values of the Company's liabilities for
future policy benefits for the fixed interest division of the variable annuity
products and for supplemental contracts without life contingencies are based
upon discounted cash flow calculations. Cash flows of future policy benefits
are discounted using the market yield rate of the assets supporting these
liabilities.
SURPLUS NOTE: Estimated fair value of the Company's surplus note was based
upon discounted future cash flows using a discount rate approximating the
Company's return on invested assets.
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at
full account value in the Company's historical cost balance sheet.
Estimated fair values of separate account liabilities are based upon
assumptions using an estimated long-term average market rate of return to
discount future cash flows. The reduction in fair values for separate
account liabilities reflect the present value of future revenue from product
charges, distribution fees or surrender charges.
5. MERGER
TRANSACTION: On October 23, 1997, Equitable shareholders approved the Merger
Agreement dated as of July 7, 1997, among Equitable, PFHI and ING. On October
24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding
capital stock of Equitable pursuant to the Merger Agreement. PFHI is a wholly
owned subsidiary of ING, a global financial services holding company based in
The Netherlands. Equitable, an Iowa corporation, in turn, owned all the
outstanding capital stock of Equitable Life Insurance Company of Iowa
("Equitable Life") and Golden American and their wholly owned subsidiaries.
Equitable also owned all the outstanding capital stock of Locust Street
Securities, Inc. ("LSSI"), Equitable Investment Services, Inc., DSI, Equitable
of Iowa Companies Capital Trust, Equitable of Iowa Companies Capital Trust II
and Equitable of Iowa Securities Network, Inc. In exchange for the outstanding
capital stock of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock plus the assumption of approximately $400 million
in debt according to the Merger Agreement. As a result of the merger,
Equitable was merged into PFHI which was simultaneously renamed Equitable of
Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation. All
costs of the merger, including expenses to terminate certain benefit plans,
were paid by the Parent.
ACCOUNTING TREATMENT: The merger was accounted for as a purchase resulting
in a new basis of accounting, reflecting estimated fair values for assets
and liabilities at October 24, 1997. The purchase price was allocated to EIC
and its subsidiaries. Goodwill was established for the excess of the merger
cost over the fair value of the net assets and pushed down to EIC and its
subsidiaries including Golden American and First Golden. The merger cost is
preliminary with respect to estimated expenses and, as a result, the PVIF and
related amortization and deferred taxes may change. The allocation of the
purchase price to the Company was approximately $227,497,000. The amount of
goodwill allocated to the Company relating to the merger was $151,127,000 at
the merger date and is being amortized over 40 years on a straight-line basis.
The carrying value of goodwill will be reviewed periodically for any
indication of impairment in value. The Company's DPAC, previous balance of
PVIF and unearned revenue reserve, as of the merger date, were eliminated
and an asset of $44,297,000 representing PVIF was established for all policies
in force at the merger date.
PRESENT VALUE OF IN FORCE ACQUIRED: As part of the merger, a portion of the
acquisition cost was allocated to the right to receive future cash flows from
insurance contracts existing with the Company at the date of merger. This
allocated cost represents the present value of in force acquired reflecting
the value of those purchased policies calculated by discounting the
actuarially determined expected future cash flow at the discount rate
determined by ING.
86
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
An analysis of the PVIF asset is as follows:
<TABLE>
<CAPTION>
POST-MERGER
________________________
For the period
October 25, 1997
through
December 31, 1997
________________________
(Dollars in thousands)
<S> <C>
Beginning balance $44,297
Imputed interest 1,004
Amortization (1,952)
Adjustment for unrealized gains
on available for sale securities (175)
________________________
Ending balance $43,174
========================
</TABLE>
Interest is imputed on the unamortized balance of PVIF at a rate of 7.03% for
the period October 25, 1997 through December 31, 1997. The amortization of
PVIF net of imputed interest is charged to expense. PVIF is also adjusted for
the unrealized gains (losses) on available for sale securities; such changes
are included directly in stockholder's equity. Based on current conditions
and assumptions as to the impact of future events on acquired policies in
force, the expected approximate net amoritization for the next five years,
relating to the PVIF as of December 31, 1997, is $6,200,000 in 1998,
$6,000,000 in 1999, $5,600,000 in 2000, $5,000,000 in 2001 and $4,200,000 in
2002. Actual amortization may vary based upon final purchase price allocation
and changes in assumptions and experience.
6. ACQUISITION
TRANSACTION: On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable from Whitewood, a wholly owned subsidiary of
Bankers Trust Company ("Bankers Trust"), pursuant to the terms of the
Purchase Agreement dated as of May 3, 1996 between Equitable and Whitewood.
In exchange for the outstanding capital stock of BT Variable, Equitable paid
the sum of $93,000,000 in cash to Whitewood in accordance with the terms of
the Purchase Agreement. Equitable also paid the sum of $51,000,000 in cash to
Bankers Trust to retire certain debt owed by BT Variable to Bankers Trust
pursuant to a revolving credit arrangement. Subsequent to the acquisition,
the BT Variable, Inc. name was changed to EIC Variable, Inc. At April 30,
1997, EIC Variable, Inc. was liquidated and its investments in Golden American
and DSI were transferred to Equitable, while the remainder of its net assets
were contributed to Golden American. On December 30, 1997, EIC Variable, Inc.
was dissolved.
ACCOUNTING TREATMENT: The acquisition was accounted for as a purchase
resulting in a new basis of accounting, which reflected estimated fair
values for assets and liabilities at August 13, 1996. The purchase price
was allocated to the three companies purchased - BT Variable, DSI and Golden
American. Goodwill was established for the excess of the acquisition cost
over the fair value of the net assets acquired and pushed down to Golden
American. The allocation of the purchase price to the Company was
approximately $139,872,000. The amount of goodwill relating to the
acquisition was $41,113,000 and was amortized over 25 years on a straight-line
basis until the October 24, 1997 merger with ING. The Company's DPAC, previous
balance of PVIF and unearned revenue reserve, as of the merger date, were
eliminated and an asset of $85,796,000 representing PVIF was established for
all policies in force at the acquisition date.
87
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
PRESENT VALUE OF IN FORCE ACQUIRED: As part of the acquisition, a portion of
the acquisition cost was allocated to the right to receive future cash flows
from the insurance contracts existing with the Company at the date of
acquisition. This allocated cost represents the present value of in force
acquired reflecting the value of those purchased policies calculated by
discounting the actuarially determined expected future cash flows at the
discount rate determined by Equitable.
An analysis of the PVIF asset is as follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
_________________________________________________
For the For the | For the
period period | period
January August | January For the
1, 1997 14, 1996 | 1, 1996 year
through through | through ended
October December | August December
24, 1997 31, 1996 | 13, 1996 31, 1995
_______________________| ________________________
(Dollars in thousands)
<S> <C> <C> | <C> <C>
Beginning balance $83,051 $85,796 | $6,057 $7,620
Imputed interest 5,138 2,465 | 273 548
Amortization (10,363) (5,210)| (1,224) (2,100)
Adjustment for unrealized |
gains (losses) on available |
for sale securities (373) -- | 11 (11)
_______________________| ________________________
Ending balance $77,453 $83,051 | $5,117 $6,057
=================================================
</TABLE>
Pre-Acquisition PVIF represents the remaining value assigned to in force
contracts when Bankers Trust purchased Golden American from Mutual Benefit
Life Insurance Company in Rehabilitation ("Mutual Benefit") on September
30, 1992.
Interest was imputed on the unamortized balance of PVIF at rates of 7.70%
to 7.80% for the period August 14, 1996 through October 24, 1997. The
amortization of PVIF net of imputed interest was charged to expense. PVIF
was also adjusted for the unrealized gains (losses) on available for sale
securities; such changes were included directly in stockholder's equity.
7. INCOME TAXES
The Company will file a consolidated federal income tax return with its wholly
owned life insurance subsidiary. Under the Internal Revenue Code, a newly
acquired insurance company cannot file as part of its parent's consolidated
tax return for 5 years.
At December 31, 1997, Golden American has net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $8,697,000.
Approximately $5,094,000 and $3,603,000 of these NOL carryforwards are
available to offset future taxable income of the Company through the years 2011
and 2012, respectively.
88
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated financial statements
is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
_____________________________________________________________________
For the | For the For the | For the
period | period period | period
October 25, | January 1, August 14, | January 1,
1997 | 1997 1996 | 1996 For the
through | through through | through year ended
December 31, | October 24, December 31, | August 13, December 31,
1997 | 1997 1996 | 1996 1995
_____________| __________________________| __________________________
(Dollars in thousands)
<S> <C> | <C> <C> | <C> <C>
Current -- | $12 -- | -- --
Deferred $146 | (1,349) $220 | ($1,463) --
_____________| __________________________| __________________________
$146 | ($1,337) $220 | ($1,463) --
=====================================================================
</TABLE>
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
_______________________________________________________
For the | For the For the | For the
period | period period | period
October | January August | January
25, 1997 | 1, 1997 14, 1996 | 1, 1996 For the
through | through through | through year ended
December | October December | August December
31, 1997 | 24, 1997 31, 1996 | 13, 1996 31, 1995
___________| ____________________| ____________________
(Dollars in thousands)
<S> <C> | <C> <C> | <C> <C>
Income (loss) | |
before income taxes ($279)| ($608) $570 | $1,736 $3,364
===========| ====================| ====================
Income tax | |
(benefit) at federal | |
statutory rate ($98)| ($213) $200 | $607 $1,177
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards -- | -- -- | (1,214) --
Dividends received | |
deduction -- | -- -- | -- (350)
Goodwill amortization 220 | -- -- | -- --
Compensatory stock | |
option and restricted | |
stock expense -- | (1,011) -- | -- --
Other items 24 | (113) 20 | -- 17
Valuation allowance -- | -- -- | (856) (844)
___________| ____________________| ____________________
Income tax expense | |
(benefit) $146 | ($1,337) $220 | ($1,463) $--
=======================================================
</TABLE>
89
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
___________________________________
December 31 1997 | 1996
____________________________________________________________ | ________________
(Dollars in thousands)
<S> <C> | <C>
Deferred tax assets: |
Future policy benefits $27,399 | $19,102
Deferred policy acquisition costs 4,558 | 1,985
Goodwill 17,620 | 5,918
Net operating loss carryforwards 3,044 | 1,653
Other 1,548 | 235
________________ | ________________
54,169 | 28,893
Deferred tax liabilities: |
Unrealized appreciation (depreciation) |
of securities at fair value (130) | (145)
Fixed maturity securities (1,665) | --
Present value of in force acquired (15,172) | (29,068)
Other (972) | (45)
________________ | ________________
(17,939) | (29,258)
________________ | ________________
Deferred income tax asset (liability) $36,230 | ($365)
===================================
</TABLE>
The Company is required to establish a "valuation allowance" for any portion
of the deferred tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets, and, therefore, no such
valuation allowance has been established.
8. RETIREMENT PLANS
DEFINED BENEFIT PLANS
In 1997, the Company was allocated their share of the pension liability
associated with their employees. The Company's employees are covered by the
employee retirement plan of an affiliate, Equitable Life. The benefits are
based on years of service and the employee's average annual compensation
during the last five years of employment. Further, Equitable Life sponsors a
defined contribution plan that is qualified under Internal Revenue Code Section
401(k). The Company's funding and accounting policies are consistent with the
funding requirements of Federal law and regulations.
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
POST-MERGER
_______________________
December 31, 1997
_______________________
(Dollars in thousands)
<S> <C>
Accumulated benefit obligation $579
=======================
Plan assets at fair value, primarily bonds, common
stocks, mortgage loans and short-term investments --
Projected benefit obligation for service rendered to date $956
_______________________
Pension liability $956
=======================
</TABLE>
90
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
______________________________________
For the period | For the period
October 25, 1997 | January 1, 1997
through | through
December 31, 1997 | October 24, 1997
__________________| __________________
(Dollars in thousands)
<S> <C> | <C>
Service cost-benefits earned |
during the period $114 | $568
Interest cost on projected |
benefit obligation 10 | 15
Net amortization and deferral -- | 1
__________________| __________________
Net periodic pension cost $124 | $584
======================================
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.25% and 5.00%, respectively, at December 31, 1997. The average
expected long term rate of return on plan assets was 9.00% in 1997.
9. RELATED PARTY TRANSACTIONS
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 the Company which as of December 31, 1997 are
sold primarily through six broker/dealer institutions. For the periods
October 25, 1997, through December 31, 1997 and January 1, 1997 through
October 24, 1997, the Company paid commissions to DSI totaling $9,931,000
and $26,419,000, respectively ($9,995,000 for the period August 14, 1996
through December 31, 1996 and $17,070,000 for the period January 1, 1996
through August 13, 1996). For the year ended December 31, 1995 commissions
paid by Golden American to DSI aggregated $8,440,000.
Golden American provides certain managerial and supervisory services to DSI.
Beginning in 1995, this fee was calculated as a percentage of average assets
in the variable separate accounts. For the periods October 25, 1997 through
December 31, 1997 and January 1, 1997 through October 24, 1997, the fee was
$508,000 and $2,262,000, respectively. For the periods August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13, 1996 the
fee was $877,000 and $1,390,000, respectively. This fee was $987,000 for 1995.
The Company has a service agreement with Equitable Investment Services, Inc.
("EISI"), an affiliate, in which EISI provides investment management services.
Payments for these services totaled $200,000, $768,000 and $72,000 for the
periods October 25, 1997 through December 31, 1997, January 1, 1997 through
October 24, 1997 and August 14, 1996 through December 31, 1996, respectively.
Golden American has a guaranty agreement with Equitable Life. In consideration
of an annual fee, payable June 30, Equitable Life guarantees to Golden American
that it will make funds available, if needed, to Golden American to pay the
contractual claims made under the provisions of Golden American's life
insurance and annuity contracts. The agreement is not, and nothing contained
therein or done pursuant thereto by Equitable Life shall be deemed to
constitute, a direct or indirect guaranty by Equitable Life of the payment of
any debt or other obligation, indebtedness or liability, of any kind or
character whatsoever, of Golden American. The agreement does not guarantee the
value of the underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been invested. The
calculation of the annual fee is based on risk based capital. As Golden
American's risk based capital level was above required amounts, no annual fee
was payable.
91
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
Golden American provides certain advisory, computer and other resources and
services to Equitable Life. Revenues for these services which reduced general
expenses incurred by Golden American totaled $1,338,000 and $2,992,000 for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, respectively. No services were provided by Golden
American in 1996.
The Company has a service agreement with Equitable Life in which Equitable Life
provides administrative and financial related services. For the period October
25, 1997 through December 31, 1997 and January 1, 1997 through October 24,
1997, the Company incurred expenses of $13,000 and $16,000, respectively,
under this agreement.
The Company had premiums, net of reinsurance, for variable products from six
significant broker/dealers for the year ended December 31, 1997, that
totaled $445,300,000, or 71% of premiums ($298,000,000 or 67% from two
significant broker/dealers for the year ended December 31, 1996). Included in
these amounts are premiums for 1997 of $26.2 million from LSSI, an affiliate.
SURPLUS NOTE: On December 17, 1996, Golden American issued an 8.25% surplus
note in the amount of $25,000,000 to Equitable. The note matures on December
17, 2026. The note and accrued interest thereon shall be subordinate to
payments due to policyholders, claimant and beneficiary claims, as well as
debts owed to all other classes of debtors of Golden American. Any payment of
principal made shall be subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling $344,000 and
$1,720,000 for the period October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively. On December 17, 1996,
Golden American contributed the $25,000,000 to First Golden acquiring 200,000
shares of common stock (100% of outstanding stock) of First Golden.
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan
agreement with ING America Insurance Holdings, Inc. ("ING America"), a
Delaware corporation, and affiliate of EIC, to facilitate the handling of
unusual and/or unanticipated short-term cash requirements. Under this
agreement, which became effective January 1, 1998 and expires December 31,
2007, Golden American and ING America can borrow up to $65,000,000 from one
another. Interest on any Golden American borrowings is charged at the rate of
ING America's cost of funds for the interest period plus 0.15%. Interest
on any ING America borrowings is charged at a rate based on the prevailing
interest rate of U.S. commercial paper available for purchase with a similar
arrangement.
LINE OF CREDIT: Golden American maintained a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Under this agreement which became effective December 1, 1996
and expired December 31, 1997, Golden American could borrow up to $25,000,000.
Interest on any borrowings was charged at the rate of Equitable's monthly
average aggregate cost of short-term funds plus 1.00%. Under this agreement,
the Company incurred interest expense of $213,000 for the period October 25,
1997 through December 31, 1997, $362,000 for the period January 1, 1997 through
October 24, 1997, and $85,000 for the period August 14, 1996 through December
31, 1996. At December 31, 1997, $24,059,000 was outstanding under this
agreement. The outstanding balance was repaid by a capital contribution.
STOCKHOLDER'S EQUITY: On September 23, 1996, EIC Variable, Inc. contributed
$50,000,000 of Preferred Stock to the Company's additional paid-in capital.
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
10. COMMITMENTS AND CONTINGENCIES
CONTINGENT LIABILITY: In a transaction that closed on September 30, 1992,
Bankers Trust acquired from Mutual Benefit, in accordance with the terms of an
Exchange Agreement, all of the issued and outstanding capital stock of Golden
American and DSI and certain related assets for consideration with an
aggregate value of $13,200,000 and contributed them to BT Variable. The
transaction involved settlement of pre-existing claims of Bankers Trust
against Mutual Benefit. The ultimate value of these claims has not yet been
determined by the Superior Court of New Jersey and, prior to August 13, 1996,
was contingently supported by a $5,000,000 note payable from Golden American
and a $6,000,000 letter of credit from Bankers Trust. Bankers Trust had
estimated that the contingent liability due from Golden American amounted to
$439,000 at August 13, 1996. At August 13, 1996 the balance of the escrow
account established to fund the contingent liability was $4,293,000.
On August 13, 1996, Bankers Trust made a cash payment to Golden American in
an amount equal to the balance of the escrow account less the $439,000
contingent liability discussed above. In exchange, Golden American
irrevocably assigned to Bankers Trust all of Golden American's rights to
receive any amounts to be disbursed from the escrow account in accordance
with the terms of the Exchange Agreement. Bankers Trust also irrevocably
agreed to make all payments becoming due under the Golden American note and
to indemnify Golden American for any liability arising from the note.
REINSURANCE: At December 31, 1997, the Company had reinsurance treaties with
five unaffiliated reinsurers covering a significant portion of the mortality
risks under its variable contracts. The Company remains liable to the extent
its reinsurers do not meet their obligations under the reinsurance agreements.
Reinsurance in force for life mortality risks were $96,686,000 and $58,368,000
at December 31, 1997 and 1996. At December 31, 1997, the Company has a net
payable of $11,000 for reserve credits, reinsurance claims or other receivables
from these reinsurers comprised of $240,000 for claims recoverable from
reinsurers and a payable of $251,000 for reinsurance premiums. Included in the
accompanying financial statements are net considerations to reinsurers of
$326,000, $1,871,000, $875,000, $600,000 and $2,800,000 and net policy benefits
recoveries of $461,000, $1,021,000, $654,000, $1,267,000 and $3,500,000 for the
periods October 25, 1997 through December 31, 1997, January 1, 1997 through
October 24, 1997, August 14, 1996 through December 31, 1996, and January 1,
1996 through August 13, 1996 and the year ended 1995, respectively.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial
statements are presented net of the effects of the treaty which increased
income by $265,000, $335,000, $10,000 and $56,000 for the periods October
25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996 through
August 13, 1996, respectively. In 1995, net income was reduced by $109,000.
GUARANTY FUND ASSESSMENTS: Assessments are levied on the Company by life and
health guaranty associations in most states in which the Company is licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In
some states, these assessments can be partially recovered through a reduction
in future premium taxes. The Company cannot predict whether and to what
extent legislative initiatives may affect the right to offset. Based upon
information currently available from the National Organization of Life and
Health Insurance Guaranty Associations (NOLHGA), the Company believes that
it is probable these insolvencies will result in future assessments which
could be material to the Company's financial statements if the Company's
reserve is not sufficient. The Company regularly reviews its reserve for
these insolvencies and updates its reserve based upon the Company's
interpretation of information from the NOLHGA annual report. The associated
cost for a particular insurance company can vary significantly based upon
its fixed account premium volume by line of business and
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1997
state premium levels
as well as its potential for premium tax offset. Accordingly, the Company
accrued and charged to expense an additional $141,000 for the period October
25, 1997 through December 31, 1997, $446,000 for the period January 1, 1997
through October 24, 1997, $291,000 for the period August 14, 1996 through
December 31, 1996 and $480,000 for the period January 1, 1996 through August
13, 1996. At December 31, 1997, the Company has an undiscounted reserve of
$1,358,000 to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $238,000 for
assessments paid which may be recoverable through future premium tax offsets.
The Company believes this reserve is sufficient to cover expected future
insurance guaranty fund assessments, based upon previous premiums, and known
insolvencies at this time.
LITIGATION: In the ordinary course of business, the Company is engaged in
litigation, none of which management believes is material.
VULNERABILITY FROM CONCENTRATIONS: The Company has various concentrations in
its investment portfolio (see Note 3 for further information). The Company's
asset growth, net investment income and cash flow are primarily generated from
the sale of variable products and associated future policy benefits and
separate account liabilities. A significant portion of the Company's sales is
generated by six broker/dealers. Substantial changes in tax laws that would
make these products less attractive to consumers, extreme fluctuations in
interest rates or stock market returns which may result in higher lapse
experience than assumed, could cause a severe impact to the Company's
financial condition.
OTHER COMMITMENTS: At December 31, 1997, outstanding commitments to fund
mortgage loans on real estate totaled $1,825,000.
YEAR 2000 (UNAUDITED): Based on a study of its computer software and
hardware, the Company has determined its exposure to the Year 2000 change of
the century date issue. Management believes the Company's systems are or
will be substantially compliant by Year 2000 and has engaged external
consultants to validate this assumption. Golden American has spent
approximately $2,000 in 1997 related to the external consultants' analysis.
The projected cost to the Company for the external consultants' analysis is
approximately $130,000 to $170,000. The only system known to be affected by
this issue is a system maintained by an affiliate who will incur the related
costs to make the system compliant. To mitigate the effect of outside
influences and other dependencies relative to the Year 2000, the Company will
be contacting significant customers, suppliers and other third parties. To
the extent these third parties would be unable to transact business in the
Year 2000 and thereafter, the Company's operations could be adversely affected.
94
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock
company domiciled in Wilmington, Delaware
G 3458 GS VLI (Prosp.) 5/98
<PAGE>
