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File Nos. 33-23458, 811-5627
Filed under Rule 497(c)
Prospectus
GOLDENSELECT GENESIS I AND GOLDENSELECT GENESIS FLEX
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
issued by
GOLDEN AMERICAN LIFE INSURANCE COMPANY
AND
SEPARATE ACCOUNT A
YOUR POLICY
o is an individual or group flexible
[left col. boxed] premium variable life insurance policy;
Consider carefully o may be classified as a "life
the policy charges, insurance" contract (usually,
deductions, and Genesis Flex) or as a "modified endowment
refunds beginning contract" (usually, Genesis I) under
on page 30 in federal income tax laws, depending on your
this prospectus. premium payments;
o is available on a single life basis
or a joint and last survivor
You should read ("survivorship") basis;
this prospectus and o is issued by Golden American Life
keep it for future Insurance Company; and
reference. A o is returnable by you during the free
prospectus for each look period if you are not satisfied.
underlying fund
portfolio must YOUR POLICY PREMIUM PAYMENTS
accompany and o are flexible, so the premium amount
should be read and frequency may vary;
together with this o are divided between variable
prospectus. investment divisions and the fixed
account, based on your instructions;
o are invested into shares of the
This policy is not underlying investment portfolios under
available in all each division; and
jurisdictions. o can be invested in up to twenty-two
This policy is not divisions, as well as the fixed account,
offered in any at any time.
jurisdiction where
this type of YOUR INVESTMENT VALUE
offering is not o is the sum of your holdings in the
legal. Depending variable divisions and the fixed
on the state where account;
it is issued, o has no guaranteed minimum cash
policy features may value under the variable divisions.
vary. You should The value varies with the value of
rely only on the the matching mutual fund portfolio;
information o has a minimum guaranteed rate of
contained in this return if you have amounts in the
prospectus. We fixed account; and
have not authorized o is subject to various expenses and
anyone to provide charges, including deferred sales
you with charges;
information that is
different. DEATH PROCEEDS
o are paid if your policy is still in
force at the death of the insured
Replacing your person(s) (second to die for
existing life survivorship policies);
insurance policy(s) o are equal to the death benefit
with this policy minus outstanding policy loans,
may not be accrued loan interest and unpaid
beneficial to you. charges incurred before the death
of the insured person(s);
o for Genesis I policies, are
calculated under your choice of
options;
o Option I- your policy's face amount
o Option II (for Genesis I policies
only)- your policy's face amount
plus the Option II death benefit
adjustment; and
o are generally not federally income
taxed if your policy continues to
meet the federal income tax
definition of life insurance.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED
THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
MAY 1, 1999
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<C> <C>
ISSUED BY: Golden American Life UNDERWRITTEN BY: Directed Services, Inc.
Insurance Company
1475 Dunwoody Drive
West Chester, PA 19380
</TABLE>
THROUGH ITS: Separate Account A
ADMINISTERED BY: Customer Service Center
P.O. Box 2700
West Chester, PA 19380-2700
(800) 366-0066
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TABLE OF CONTENTS
INDEX OF SPECIAL TERMS 1
POLICY SUMMARY 2
YOUR POLICY 2
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY 2
YOUR POLICY PREMIUMS 2
ALLOCATION OF PREMIUMS 2
VARIABLE DIVISIONS 3
POLICY VALUES 3
HOW THE INVESTMENT VALUE VARIES 3
ALLOCATION CHANGES 4
SPECIAL POLICY FEATURES 4
ADDITIONAL BENEFITS 4
DOLLAR COST AVERAGING 4
LOANS 4
PARTIAL WITHDRAWALS 4
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES 4
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY 4
RIGHT TO CONVERT POLICY 4
SURRENDER 4
LAPSE 5
REINSTATEMENT 5
DEATH BENEFITS 5
CHARGES AND DEDUCTIONS 5
CHARGES DEDUCTED FROM YOUR INVESTMENT VALUE 5
TAX CONSIDERATIONS 6
INFORMATION ABOUT GOLDEN AMERICAN, THE VARIABLE ACCOUNT, THE
INVESTMENT OPTIONS AND THE FIXED ACCOUNT 7
GOLDEN AMERICAN LIFE INSURANCE COMPANY 7
YEAR 2000 PREPAREDNESS 7
SEPARATE ACCOUNT A 8
VARIABLE ACCOUNT STRUCTURE 8
ORDER OF VARIABLE ACCOUNT LIABILITIES 8
VARIABLE DIVISIONS 8
INVESTMENT PORTFOLIOS 8
OBJECTIVES OF THE INVESTMENT PORTFOLIOS 9
THE FIXED ACCOUNT 10
MAXIMUM NUMBER OF INVESTMENT DIVISIONS 11
DETAILED INFORMATION ABOUT THE GOLDENSELECT GENESIS I AND GENESIS
FLEX VARIABLE LIFE INSURANCE POLICIES 11
APPLYING FOR A POLICY 11
PREMIUMS 12
ALLOCATION OF PREMIUM PAYMENTS 13
LIFE INSURANCE PREMIUM PAYMENT TEST (GENESIS FLEX) 13
MODIFIED ENDOWMENT CONTRACTS (GENESIS I) 13
MAKING ADDITIONAL PREMIUM PAYMENTS 14
PLANNED PREMIUMS (GENESIS FLEX ONLY) 14
UNPLANNED PREMIUMS 14
ADDITIONAL PREMIUM ALLOCATION 14
PREMIUM PAYMENTS AFFECT YOUR COVERAGE 14
DEATH BENEFITS 15
FACE AMOUNT 15
DEATH BENEFIT OPTIONS 15
VARIABLE INSURANCE AMOUNT 16
CHANGES IN DEATH BENEFIT OPTION (GENESIS I ONLY) 16
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CHANGES IN DEATH BENEFIT AMOUNTS 17
GUARANTEE PERIOD 17
BENEFITS AT MATURITY 18
POLICY VALUES 18
INVESTMENT VALUE 18
CASH SURRENDER VALUE 18
INVESTMENT VALUE IN EACH DIVISION OF ACCOUNT A 18
TABULAR VALUE 19
INDEX OF INVESTMENT EXPERIENCE AND UNIT VALUE 19
HOW WE DETERMINE THE EXPERIENCE FACTOR 19
NET RATE OF RETURN FOR ACCOUNT A 20
ALLOCATION CHANGES 20
EXCESSIVE TRADING 20
FIXED ACCOUNT TRANSFERS 20
DOLLAR COST AVERAGING 21
CHANGING DOLLAR COST AVERAGING 21
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE 21
POLICY LOANS 22
LOAN REPAYMENT 22
LOANS AND YOUR BENEFITS 23
PARTIAL WITHDRAWALS 23
PARTIAL WITHDRAWAL MECHANICS 23
ACCELERATED RECOVERY OF DEFERRED CHARGES 23
EFFECT OF A PARTIAL WITHDRAWAL ON THE INVESTMENT VALUE AND
DEATH BENEFIT 24
EFFECT OF A PARTIAL WITHDRAWAL ON GUARANTEED BENEFITS 24
RIGHT TO CONVERT POLICY 24
LAPSE 25
IF THE GUARANTEE PERIOD IS NOT IN EFFECT 25
IF THE GUARANTEE PERIOD IS IN EFFECT 25
GRACE PERIOD 25
REINSTATEMENT 26
SURRENDER 26
GENERAL POLICY PROVISIONS 26
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY 26
YOUR POLICY 27
ATTAINED AGE 27
OWNERSHIP 27
BENEFICIARY 27
COLLATERAL ASSIGNMENT 27
INCONTESTABILITY 27
MISSTATEMENTS OF AGE OR GENDER 28
SUICIDE 28
ESTABLISHING SURVIVORSHIP -- SURVIVORSHIP POLICIES ONLY 29
PAYMENT 29
NOTIFICATION AND CLAIMS PROCEDURES 29
NON-PARTICIPATING 29
DISTRIBUTION OF THE POLICIES 29
SETTLEMENT PROVISIONS 30
PAYMENT WHEN NAMED PERSON DIES 30
ADMINISTRATIVE INFORMATION ABOUT THE POLICY 31
VOTING PRIVILEGES 31
MATERIAL CONFLICTS 31
RIGHT TO CHANGE OPERATIONS 32
REPORTS TO OWNERS 32
CHARGES, DEDUCTIONS AND REFUNDS 32
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DEDUCTIONS FROM INVESTMENT VALUE 30
SALES CHARGE 30
TAX CHARGES 30
CORPORATE TAX CHARGE 31
ISSUE CHARGES 31
DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT 32
MORTALITY AND EXPENSE RISK CHARGE 32
GUARANTEED ISSUE 32
CHARGES FOR ADDITIONAL BENEFITS 32
CHANGES IN MONTHLY CHARGES 32
POLICY TRANSACTION FEES 32
PARTIAL WITHDRAWAL 33
ALLOCATION CHANGES 33
FEES AND EXPENSES OF THE PORTFOLIOS 33
PORTFOLIO ANNUAL EXPENSES 34
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS 35
OTHER CHARGES 35
TAX CONSIDERATIONS 36
GENESIS FLEX AND GENESIS I 36
TAX STATUS OF THE POLICY 36
DIVERSIFICATION REQUIREMENTS 36
TAX TREATMENT OF POLICY BENEFITS 37
MODIFIED ENDOWMENT CONTRACTS 37
MULTIPLE POLICIES 37
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS 37
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE
NOT MODIFIED ENDOWMENT CONTRACTS 37
INVESTMENT IN THE POLICY 38
POLICY LOANS 38
SECTION 1035 EXCHANGES 38
TAX-EXEMPT POLICY OWNERS 38
CHANGES TO COMPLY WITH THE LAW 38
OTHER 38
POSSIBLE TAX LAW CHANGES 39
OUR INCOME TAXES 39
ILLUSTRATIONS 39
ADDITIONAL INFORMATION 47
DIRECTORS AND OFFICERS 47
REINSURANCE 48
ADDITIONAL INFORMATION 48
STATE REGULATION 48
LEGAL MATTERS 48
LEGAL PROCEEDINGS 48
EXPERTS 49
REGISTRATION STATEMENT 49
FINANCIAL STATEMENTS 50
APPENDIX A A-1
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INDEX OF SPECIAL TERMS
The following special terms are used in this prospectus. We
explain each term on the page(s) listed in the body of this
prospectus and in the summary, if applicable:
Account A................................... 7
Attained Age................................ 25
Cash Surrender Value........................ 16
Customer Service Center..................... Cover
Debt........................................ 20
Face Amount................................. 13
Free Look Period............................ 24
Guarantee Period............................ 15
Insured..................................... 4, 15, 24
Investment Date............................. 10
Investment Results.......................... 15, 16, 32
Investment Value............................ Cover, 3, 16
Issue Age................................... 11
Issue Date.................................. 19, 26, 31
Joint Insured............................... 26
Life Insurance Premium Payment Test......... 12, 36
Maturity Date............................... 13, 16
Net Amount at Risk.......................... 31
Net Rate of Return.......................... 17, 18
Net Single Premium Factor................... A-1
Option I Death Benefit...................... 13, 14, 15
Option II Death Benefit..................... 14, 15
Option II Death Benefit Adjustment.......... 14, 15
Option II Guaranteed Death Benefit.......... 14, 15
Policy Anniversary.......................... 14, 16, 18, 21, 27, 32, 33
Policy Date................................. 11
Policyowner................................. 18, 26
Processing Dates............................ 11
Processing Period........................... 31
Tabular Net Amount at Risk.................. 5, 32
Tabular Value............................... 17
Valuation Date.............................. 10
Valuation Period............................ 14, 16
Variable Insurance Amount................... 12, 14, 17, 22
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POLICY SUMMARY
[two-column format]
THIS SUMMARY HIGHLIGHTS SOME OF THE IMPORTANT POINTS ABOUT YOUR
POLICY. THE POLICY IS MORE FULLY DESCRIBED IN THE ATTACHED,
COMPLETE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
"WE," "US," "OUR," "GOLDEN AMERICAN" AND THE "COMPANY" REFER TO
GOLDEN AMERICAN LIFE INSURANCE COMPANY. "YOU" AND "YOUR" REFER
TO THE POLICY OWNER. THE OWNER IS THE INDIVIDUAL, ENTITY,
PARTNERSHIP, REPRESENTATIVE OR PARTY WHO MAY EXERCISE ALL RIGHTS
OVER THE POLICY AND RECEIVE THE POLICY BENEFITS DURING THE LIFE
OF THE INSURED PERSON(S).
ANY STATE VARIATIONS ARE COVERED IN A SPECIAL POLICY FORM FOR USE
IN THAT STATE. THIS PROSPECTUS PROVIDES A GENERAL DESCRIPTION OF
THE POLICY. YOUR ACTUAL POLICY AND ANY RIDERS ARE THE
CONTROLLING DOCUMENTS. IF YOU WOULD LIKE TO REVIEW A COPY OF THE
POLICY AND RIDERS, CONTACT OUR CUSTOMER SERVICE CENTER.
YOUR POLICY
Your policy provides life insurance protection on the insured
person(s). The policy includes the basic policy, any
applications, and any riders or endorsements. As long as the
policy remains in force, we pay a death benefit on the death of
the insured person (under a survivorship policy, the second
insured to die). While your policy is in force, you may access
your policy value by taking loans or partial withdrawals. You
may also surrender your value for its cash surrender value. When
the insured person (or, for a survivorship policy, the younger
insured person) turns age 100, we will pay you the cash surrender
value of the policy, and coverage will end. SEE BENEFITS AT
MATURITY, PAGE 16.
Life insurance is not a short-term investment. You should
evaluate your need for life insurance coverage and the policy's
long-term investment potential and risks before purchasing a
policy.
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY
You have the right to examine your policy and return it for a
refund of premiums paid if you are not satisfied for any reason.
The policy is then void. SEE FREE LOOK PERIOD OR RIGHT TO
EXAMINE POLICY, PAGE 24.
YOUR POLICY PREMIUMS
The policies are flexible premium policies because the amount and
frequency of the payments you make (premiums) may vary, within
limits. You must make premium payments:
o necessary to keep your policy in force;
o necessary to continue certain benefits; and
o for us to issue your policy.
The minimum premium under Genesis I is $25,000 ($15,000 for 1035
exchanges). The minimum planned annual premium for Genesis Flex
is $5,000. Depending on your choices, it may not be enough to
maintain your guarantee period, or to keep your policy in force.
The amount of premium you pay affects the length of time your
policy stays in force. SEE PREMIUMS, PAGE 11.
ALLOCATION OF PREMIUMS
During the free look period, we allocate your premium payments to
the Liquid Asset Division. Thereafter, we allocate your
investment value based on your investment instructions. You may
allocate the premiums among one or more variable divisions, the
fixed account, or both. We allocate your initial premium for you
after we:
o receive your initial premium;
o approve your policy application; and
o have the information we require.
You may not invest in more than twenty-two investment divisions,
and the fixed account, at any time.
You need to divide your investment choices so that the
percentages are in whole numbers equaling 100%. SEE ALLOCATION
OF PREMIUM PAYMENTS, PAGE 12.
VARIABLE DIVISIONS
Keep in mind that any amount you direct into the fixed account
earns a minimum fixed interest rate set by us. But if you direct
an amount into any variable division, it will be invested in one
or more of the following investment portfolios, and depending on
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market conditions, you may make or lose money. The investment
portfolios of the variable divisions are described in the
prospectuses for the underlying investment portfolios. SEE
OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 8.
The All-Growth and the Growth Opportunities Series are closed to
premium payments and transfer allocations on and after May 1,
1999.
Each investment portfolio has its own investment objective.
GCG TRUST
Liquid Asset Series
Limited Maturity Bond Series
Global Fixed Income Series
Total Return Series
Equity Income Series
Fully Managed Series
Rising Dividends Series
Growth & Income Series
Growth Series
Value Equity Series
Research Series
Mid-Cap Growth Series
All-Growth Series
Growth Opportunities Series
Strategic Equity Series
Capital Appreciation Series
Small Cap Series
Real Estate Series
Hard Assets Series
Managed Global Series
Developing World Series
Emerging Markets Series
PIMCO TRUST
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income
Portfolio
SEE OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 8.
GOLDEN AMERICAN FIXED ACCOUNT
POLICY VALUES
Your investment value is the amount you have in the fixed account
and the amount you have in the variable divisions. Your
investment value reflects:
o premiums;
o deductions for charges;
o the investment performance of the amounts you have in the
variable divisions;
o interest earned on amounts you have in the fixed account;
and
o interest earned and charged on amounts you have in the
general account as security for policy loans.
We subtract charges and partial withdrawals you take from your
investment value. You make a partial withdrawal when you
withdraw part of your cash surrender value. Partial withdrawals
may trigger immediate assessment of remaining deferred sales
charges.
Your cash surrender value is equal to your investment value minus
any unrecovered deferred sales charges and any policy charges
incurred but not yet deducted, plus any accrued general account
loan interest credited.
HOW THE INVESTMENT VALUE VARIES
Your policy's investment value varies each day based on its
investment results. You bear the risk of poor investment
performance and you receive the benefits from favorable
investment performance. SEE OBJECTIVES OF THE INVESTMENT
PORTFOLIOS, PAGE 8.
ALLOCATION CHANGES
After the free look period, you may make up to twelve free
transfers among the variable divisions or to the fixed account
per policy year.
We reserve the right to charge $25 for each transfer over twelve
you make in a policy year. This charge does not apply to any
dollar cost averaging transfers-they are free. There are
restrictions on transfers to or from the fixed account. SEE
ALLOCATION CHANGES, PAGE 18.
SPECIAL POLICY FEATURES
ADDITIONAL BENEFITS
You may attach additional benefits to your policy by rider. A
rider adds benefits to your policy. We deduct a monthly charge
from your investment value for these benefits.
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DOLLAR COST AVERAGING
You may choose to have dollar cost averaging on your policy.
Dollar cost averaging is a systematic plan of transferring
investment values to selected investment divisions. It is
intended to protect your policy's value from short-term price
fluctuations. However, dollar cost averaging does not assure a
profit, nor does it protect against a loss in a declining market.
Dollar cost averaging is free. SEE DOLLAR COST AVERAGING, PAGE 19.
LOANS
You may take loans against 90% of your policy's cash surrender
value. The cash surrender value is your investment value minus
any unrecovered deferred sales charges, plus any accrued general
account loan interest credited, minus any policy charges incurred
but not yet deducted. We charge an annual loan interest rate of
5%. We credit a guaranteed annual interest rate of at least 4.0%
on amounts held in the general account, or 5% on values securing
preferred loans. SEE POLICY LOANS, PAGE 20.
PARTIAL WITHDRAWALS
You may withdraw part of your investment value any time after
your first policy year. You may make up to four partial
withdrawals per policy year without charge. Partial withdrawals
may reduce the death benefit, and above a certain amount, may be
subject to accelerated recovery of deferred loading. SEE PARTIAL
WITHDRAWALS, PAGE 21.
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY
You have the right to examine your policy and return it for a
refund if you are not satisfied for any reason during the free
look period. SEE FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY,
PAGE 24.
RIGHT TO CONVERT POLICY
For 24 months after the policy date you can convert your policy
to a guaranteed policy, unless state law requires differently.
SEE RIGHT TO CONVERT POLICY, PAGE 22.
SURRENDER
You may surrender your policy for its cash surrender value at any
time while the insured person(s) is/are living.
We calculate your cash surrender value on the valuation date we
receive your request and policy at our customer service center.
All insurance coverage ends on that date. SEE SURRENDER, PAGE 24.
LAPSE
In general, insurance coverage continues as long as your policy's
cash surrender value is enough to pay the monthly deductions. We
guarantee that your policy will not lapse during the guarantee
period, if you meet the conditions to maintain the guarantee
period. SEE LAPSE, PAGE 22.
REINSTATEMENT
You may reinstate your policy and its riders within three years
of its lapse if you have not surrendered the policy and the
insured person(s) is/are still living.
You will need to give proof that the insured person(s)
continue(s) to be insurable. You will need to pay required
reinstatement premiums.
We will reinstate any policy loans existing when coverage ended,
with accrued loan interest to the date of the lapse. SEE
REINSTATEMENT, PAGE 23.
DEATH BENEFITS
At the death of the insured person (under survivorship policies,
the second insured to die), we pay death proceeds to the
beneficiary if your policy is still in force. The
beneficiary(ies) is (are) the person or people you name to
receive the death proceeds. The death proceeds equal the death
benefit payable under your death benefit option, minus the amount
of your outstanding policy loans and accrued loan interest, and
any accrued but unpaid policy charges. SEE DEATH BENEFITS, PAGE
13.
Under Genesis I, after your first policy year, you may change
your death benefit option once every three policy years. You may
change your face amount while your policy is in force, subject to
certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE
15.
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CHARGES AND DEDUCTIONS
CHARGES DEDUCTED FROM YOUR INVESTMENT VALUE
We periodically deduct charges from your investment value to
cover the services provided, expenses incurred and risks assumed
in connection with the policies.
Deferred Loading. We deduct a sales load equal to 6.0% of each
premium. We deduct this sales load in equal installments over a
six-year period (a deduction of 1.0% of premium per year).
Insurance Based Charges
Premium Taxes. Your premium incurs a charge for premium or other
state and local taxes when we receive it. For Genesis I policies
we deduct a premium tax charge equal to 2.40% of premium. This
premium tax charge is designed to approximate the average premium
tax that we expect to pay. Currently, the premium tax charge is
deferred and will be deducted in equal annual installments over a
six year period (a deduction of 0.40% per year). For Genesis
Flex Policies, the amounts we deduct depend on the state of
residence of the insured(s). These charges are expressed as a
percentage of premium and can range from 2.0% to 4.0%. SEE
CHARGES, DEDUCTIONS AND REFUNDS, PAGE 30.
Corporate Tax Charge. We reserve the right to deduct a corporate
tax charge equal to 1.38% of each premium payment. When assessed,
the charge will be deducted in equal installments over a six year
period from the date we receive and accept each premium payment.
Issue Charges
Per Policy Charge. We charge $200 for policies written on a
single life basis and $300 for policies written on a survivorship
basis. We currently waive this charge 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 attained age and sex of the insured (the
younger insured for survivorship policies) and the policy chosen
and will never exceed a maximum of $12 per $1,000 of face amount.
A portion of this charge will be considered to be an additional
sales load.
Mortality Charges
Mortality Cost. We deduct an amount per $1,000 of net amount at
risk. The amount is based on each insured's sex, attained age
and underwriting class.
Minimum Death Benefit Guarantee Charge. We deduct an amount per
$1,000 of tabular net amount at risk. The amount is based on the
attained age of the insured (the younger insured for survivorship
policies). The charge will never exceed $0.15 per $1,000 of face
amount per quarter.
Transaction and Other Charges
Annual Administrative Charge. Currently we impose an annual
administrative charge of $40. We guarantee the charge will never
exceed $80 per policy year. If total premiums paid equal
$100,000 or more, or if the investment value is at least $100,000
at the time the charge is due, the charge will be zero.
Loan Interest Charge. On each policy anniversary, we calculate
the loan interest charge and deduct it from the investment value.
This charge is 5.0% annually (accrued daily) of the outstanding
loans.
Excess Allocation Charge. We currently allow unlimited
allocation changes without charge but reserve the right to charge
$25 for each allocation change in excess of twelve in a policy
year. We also reserve the right to limit allocation changes.
Partial Withdrawal Charge. If you take more than four partial
withdrawals per policy year, we may impose a charge of the lesser
of $25 and 2.0% of the amount withdrawn for each additional
partial withdrawal. We do not currently impose this charge.
Deductions from Divisions of Account A
Mortality and Expense Risk Charge. We deduct from each division
of Account A, a daily asset based charge equivalent to an annual
rate of 0.90%.
Asset Based Administrative Charge. We deduct from each division
of Account A, a daily asset based charge equivalent to an annual
rate of 0.10%.
Portfolio Expenses
There are fees and expenses deducted from each portfolio. SEE
FEES AND EXPENSES OF THE PORTFOLIOS, PAGE 33. The investment
performance of the
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portfolios and expenses and deductions of
certain charges from the GCG Trust and the PIMCO Trust will
affect your investment value. Please read the Trusts'
prospectuses for details. SEE FEES AND EXPENSES FROM THE
PORTFOLIOS, PAGE 33.
TAX CONSIDERATIONS
Under current federal income tax law, death benefits of life
insurance policies generally are not subject to income tax. In
order for this treatment to apply, the policy must qualify as a
life insurance contract as defined in the Internal Revenue Code.
We believe the policies will qualify as life insurance contracts.
However, there is some uncertainty as to policies insuring two
individuals, and policies issued on a substandard basis. SEE TAX
STATUS OF THE POLICY, PAGE 36.
Assuming the policies qualify as life insurance contracts, under
current federal income tax law, your investment value earnings
are generally not subject to income tax as long as they remain
within your policy. However, depending on circumstances, the
following events may cause taxable consequences for you:
o partial withdrawals;
o surrender;
o lapse; or
o an exchange of insured person.
In addition to the events listed above, if your policy is a
modified endowment contract (usually, Genesis I), loans against
or secured by the policy may cause a tax. A 10% penalty tax may
be imposed on any distribution from a modified endowment
contract, as well. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 12.
INFORMATION ABOUT GOLDEN AMERICAN, THE VARIABLE ACCOUNT, THE
INVESTMENT OPTIONS AND THE FIXED ACCOUNT
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a Delaware stock life
insurance company, which was originally incorporated in Minnesota
on January 2, 1973. Golden American is a wholly owned subsidiary
of Equitable of Iowa Companies, Inc. ("Equitable of Iowa").
Equitable of Iowa is a wholly owned subsidiary of ING Groep N.V.
("ING"), a global financial services holding company with
approximately $461.8 billion in assets as of December 31, 1998.
Golden American is authorized to sell insurance and annuities in
all states, except New York, and the District of Columbia. In
May 1996, Golden American established a subsidiary, First Golden
American Life Insurance Company of New York ("First Golden"),
which is authorized 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, at the address shown on the cover.
Golden American's consolidated financial statements appear in
this prospectus.
Equitable of Iowa is the holding company for Equitable Life
Insurance Company of Iowa ("Equitable Life"), USG Annuity & Life
Company, Locust Street Securities, Inc., Equitable American
Insurance Company, Directed Services, Inc. ("DSI"), and Golden
American. On October 24, 1997, ING acquired all interest in
Equitable of Iowa and its subsidiaries including Golden American.
DSI is the investment manager of the GCG Trust and the
distributor of the Contracts, and other interests. Equitable of
Iowa and another ING affiliate own ING Investment Management,
LLC, an investment advisory firm who serves as portfolio manager
to some Series of the GCG Trust. ING also owns Baring
International Investment Limited, another portfolio manager of
the GCG Trust.
YEAR 2000 PREPAREDNESS
Like other business organizations and individuals around the
world, Golden American and its Separate Account A could be
adversely affected if the computer systems doing the accounts
processing or on which Golden American and/or Separate Account A
relies do not properly process and calculate date-related
information related to the end of the year 1999. This is
commonly known as the Year 2000 (or Y2K) Problem. Golden
American's operations could be adversely affected if significant
customers, suppliers and other third parties, including
underlying mutual funds, would be unable to transact business in
the Year 2000 and thereafter as a result of the Year 2000 issue.
Golden American has developed a plan to address the Year 2000
issue in a timely manner and is taking steps that it believes are
reasonably designed
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to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by its and
Separate Account A's major service providers. Management
believes Golden American's systems are or will be substantially
compliant by Year 2000. To mitigate the effect of outside
influences and other dependencies relative to the Year 2000,
Golden American has identified and contacted these third parties
to obtain assurances that necessary steps are being taken to
prepare for the Year 2000. Golden American will continue these
communications and establish compliance checkpoints through the
Year 2000 transition. Golden American is currently developing a
contingency plan to address the content of third party compliance
statements and any systems that may malfunction despite the
testing being performed. The contingency plan is anticipated to
be completed by June 30, 1999. At this time, however, we cannot
guarantee that these steps will be sufficient to avoid any
adverse impact on Golden American and Account A.
SEPARATE ACCOUNT A
VARIABLE ACCOUNT STRUCTURE
We established Separate Account A (the "variable account") on
July 14, 1988 under Minnesota's insurance law. It now operates
under Delaware law. It is a unit investment trust, registered
with the SEC under the Investment Company Act of 1940. The SEC
does not supervise our management of the variable account or
Golden American.
All obligations of Account A under a policy are general
obligations of Golden American. The variable account is a
separate investment account. It is used to support our variable
life insurance policies, and for other purposes allowed by law
and regulation. We keep the variable account assets separate
from our general account and other separate accounts. We may
offer other variable life insurance contracts that invest in the
variable account. We do not discuss these contracts in this
prospectus. The variable account may invest in other securities
not available for the policy described in this prospectus. The
general account has all of our assets other than those held in
the variable account (variable divisions) or any other separate
accounts.
Golden American owns all the assets in the variable account. We
credit gains to or charge losses against the variable account
without regard to performance of other investment accounts.
ORDER OF VARIABLE ACCOUNT LIABILITIES
State law provides that we may not charge general account
liabilities against variable account assets equal to its reserves
and other liabilities.
The variable account may have liabilities from assets credited to
other variable life policies offered by the variable account. If
the assets of variable account are greater than the required
reserves and policy liabilities, we may transfer the excess to
our general account.
VARIABLE DIVISIONS
The variable account has several divisions. Each division
invests in shares of a matching investment portfolio. This means
that the investment performance of a policy depends on the
performance of the investment portfolios you choose. Each
investment portfolio has an investment objective. These
investment portfolios are not available directly to individual
investors. They are only available as the underlying investments
for variable annuity and variable life insurance contracts and
certain pension accounts.
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-
end management investment company. Currently, each division of
Account A invests in a Series of the GCG Trust or the PIMCO
Trust. DSI serves as the Manager to each Series of the GCG
Trust, and Pacific Investment Management Company ("PIMCO") serves
as Manager to each Series of the PIMCO Trust. The GCG Trust and
DSI have retained several portfolio managers to manage the assets
of each Series of the GCG Trust. PIMCO manages the assets of
each Series of the PIMCO Trust.
The investment portfolios sell shares to separate accounts of
insurance companies. These insurance companies may or may not be
affiliated with us. This is known as "shared funding."
Investment portfolios may sell shares as the underlying
investment for both variable annuity and variable life insurance
contracts. This process is known as "mixed funding."
The investment portfolios may sell shares to certain qualified
pension and retirement plans that qualify under Section 401 of
the Internal Revenue Code ("IRC"). As a result, a material
conflict of interest may arise between insurance companies,
owners of
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different types of contracts and retirement plans or
their participants.
If there is a material conflict, the company will consider what
should be done, including removing the investment portfolio from
the variable account. There are certain risks with mixed and
shared funding, and with selling shares to qualified pension and
retirement plans. See the investment portfolios' prospectuses.
OBJECTIVES OF THE INVESTMENT PORTFOLIOS
Each investment portfolio has a different investment objective
that it tries to achieve by following its investment strategy.
The objectives and policies of each investment portfolio affect
its return and its risks. With this prospectus, you must receive
the current prospectus for each investment portfolio. We
summarize the investment objectives for each investment portfolio
here. You should read each investment portfolio prospectus.
Some investment portfolio advisers (or their affiliates) may pay
us compensation for administration, distribution or other
expenses. Currently, these advisers include Pacific Investment
Management Company ("PIMCO"). The amount of compensation is
usually based on assets of the investment portfolio from
contracts that we issue (or administer).
The All-Growth and the Growth Opportunities Series are closed to
premium payments and transfer allocations on and after May 1,
1999.
GCG TRUST
The GCG Trust is an open-end management investment company, more
commonly called a mutual fund.
Trust Consolidation. Shares of Equi-Select Series Trust, an open-
end management investment company, were formerly available for
investment through the variable account divisions. Pursuant to
an order which Golden American, First Golden and Equitable Life
requested, and which the SEC granted, Golden American substituted
shares of investment portfolios of the GCG Trust for shares of
investment portfolios of the Equi-Select Series Trust. The Equi-
Select Series Trust no longer exists, and its investment
portfolios are no longer available for investment through the
variable account divisions.
The following Divisions invest in designated Series of the GCG
Trust:
Liquid Asset Series-Seeks high level of current income consistent
with the preservation of capital and liquidity. Invests
primarily in obligations of the U.S. Government and its agencies
and instrumentali-ties, bank obligations, commercial paper and
short-term corporate debt securities. All securities will mature
in less than one year.
Limited Maturity Bond Series-Seeks highest current income
consistent with low risk to principal and liquidity. Also seeks
to enhance its total return through capital appreciation when
market factors, such as falling interest rates and rising bond
prices, indicate that capital appreciation may be available
without significant risk to principal. Invests primarily in
diversified limited maturity debt securities with average
maturity dates of five years or shorter and in no cases more than
seven years.
Global Fixed Income Series-Seeks high total return. Invests
primarily in high-grade fixed income securities, both foreign and
domestic.
Total Return Series-Seeks above-average income (compared to a
portfolio entirely invested in equity securities) consistent with
the prudent employment of capital. Invests primarily in a
combination of equity and fixed income securities.
Equity Income Series (formerly Multiple Allocation Series)-Seeks
substantial dividend income as well as long-term growth of
capital. Invests primarily in common stocks of well-established
companies paying above-average dividends.
Fully Managed Series-Seeks, over the long term, a high total
investment return consistent with the preservation of capital and
with prudent investment risk. Invests primarily in the common
stocks of established companies believed by the portfolio manager
to have above-average potential for capital growth.
Rising Dividends Series-Seeks capital appreciation. A secondary
objective is dividend income. Invests in equity securities that
meet the following quality criteria: regular dividend increases;
35% of earnings reinvested annually; and a credit rating of "A"
to "AAA".
Growth & Income Series-Seeks long-term total return. Invests
primarily in common stocks of companies where the potential for
change (earnings acceleration) is significant.
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Growth Series (formerly Value + Growth Series)-Seeks capital
appreciation. Invests primarily in common stocks of growth
companies that have favorable relationships between
price/earnings ratios and growth rates in sectors offering the
potential for above-average returns.
Value Equity Series-Seeks capital appreciation. Dividend income
is a secondary objective. Invests primarily in common stocks of
domestic and foreign issuers which meet quantitative standards
relating to financial soundness and high intrinsic value relative
to price.
Research Series-Seeks long-term growth of capital and future
income. Invests primarily in common stocks or securities
convertible into common stocks of companies believed to have
better than average prospects for long-term growth.
Mid-Cap Growth Series-Seeks long-term growth of capital. Invests
primarily in equity securities of companies with medium market
capitalization which the portfolio manager believes have above-
average growth potential.
All-Growth Series-Seeks capital appreciation. Invests primarily
in growth securities of middle-range capitalization companies.
Growth Opportunities Series-Seeks capital appreciation. Invests
primarily in equity securities of domestic companies emphasizing
companies with market capitalizations of $1 billion or more.
Strategic Equity Series-Seeks capital appreciation. Invests
primarily in common stocks of medium- and small-sized companies.
Capital Appreciation Series-Seeks long-term capital growth.
Invests primarily in equity securities believed by the portfolio
manager to be undervalued.
Small Cap Series-Seeks long-term capital appreciation. Invests
primarily in equity securities of companies that have a total
market capitalization within the range of companies in the
Russell 2000 Growth Index or the Standard & Poor's Small-Cap 600
Index.
Real Estate Series-Seeks capital appreciation. Current income is
a secondary objective.
Invests primarily in publicly-traded real estate equity
securities.
Hard Assets Series-Seeks long-term capital appreciation. Invests
primarily in hard asset securities. Hard asset companies produce
a commodity which the portfolio manager is able to price on a
daily or weekly basis.
Managed Global Series-Seeks capital appreciation. Current income
is only an incidental consideration. Invests primarily in common
stocks traded in securities markets throughout the world.
Developing World Series-Seeks capital appreciation. Invests
primarily in equity securities of companies in developing or
emerging countries.
Emerging Markets Series-Seeks long-term capital appreciation.
Invests primarily in equity securities of companies in at least
six different emerging market countries.
PIMCO VARIABLE INSURANCE TRUST
The PIMCO Trust is also a mutual fund. The following Divisions
invest in designated Series of the PIMCO Trust:
PIMCO High Yield Bond Portfolio-Seeks to maximize total return,
consistent with preservation of capital and prudent investment
management. Invests in at least 65% of its assets in a
diversified portfolio of junk bonds rated at least B by Moody's
Investor Services, Inc. or Standard & Poor's or, if unrated,
determined by the portfolio manager to be of comparable quality.
PIMCO StocksPLUS Growth and Income Portfolio-Seeks to achieve a
total return which exceeds the total return performance of the
S&P 500. Invests primarily in common stocks, options, futures,
options on futures and swaps.
THE FIXED ACCOUNT
You may allocate all or a part of the premiums and transfers of
your investment value into the fixed account. The fixed account
is part of our general account which guarantees principal. It
pays interest at rates we declare.
The general account supports our non-variable insurance and
annuity obligations. We have not registered interests in the
fixed account under the Securities Act of 1933. Also, we have
not registered the fixed account or the general account as an
investment company under the Investment Company Act of 1940
(because of exemptive and exclusionary provisions). This means
that the general account, the fixed account and its interests are
generally not subject to regulation under these Acts.
The SEC staff has not reviewed the disclosures included in this
prospectus relating to the general account and the fixed account.
These disclosures,
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however, may be subject to certain
requirements of the federal securities law regarding accuracy and
completeness of statements made in this prospectus. For more
details regarding the general account, see your policy.
The amount you have in the fixed account is the sum of premiums
you allocate to that division, plus transfers you made to the
fixed account, plus interest earned.
Amounts you transfer out of or withdraw from the fixed account
reduce this amount. It is also reduced by deductions for charges
from your investment value allocated to the fixed account.
We declare the interests rate that apply to all amounts in the
fixed account. These rates 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").
Interest compounds daily at an effective annual rate that equals
the declared rate. We credit interest as of each valuation date.
We pay interest regardless of the actual investment performance
of our account. We carry all the investment risk for the fixed
account.
MAXIMUM NUMBER OF INVESTMENT DIVISIONS
You may invest in a total of twenty-two divisions, as well as the
fixed account, at any time.
DETAILED INFORMATION ABOUT THE GOLDENSELECT GENESIS I AND GENESIS
FLEX VARIABLE LIFE INSURANCE POLICIES
This prospectus describes our standard GoldenSelect Genesis Flex
and Genesis I variable life insurance policies. There may be
differences in your policy because of state requirements where we
issue your policy. We will describe any such differences in your
policy.
The illustrations beginning on page 39 are to show how the
GoldenSelect policies work.
APPLYING FOR A POLICY
You purchase a GoldenSelect policy by submitting an application
to us. On the policy date, the insured person must be no older
than age 75. For a survivorship policy, both insured persons
must be age 75 or under, and at least one insured person must be
age 20 or over. We reserve the right to consider applications
for an insured person (or persons) up to age 80. The insured
person is the person on whose life we issue a policy and upon
whose death we pay death proceeds. For survivorship policies, we
pay death proceeds on the death of the last surviving insured.
Age is the insured person's age on the birthday nearest your
policy date, plus the number of completed policy years since the
policy date.
Before we issue a policy or apply your premium to the investment
divisions, we require satisfactory evidence of insurability of
the insured person and payment of your initial premium. We will
apply any money that you submit before we issue your policy to
our general account. At issue, we will allocate the initial
premium to the Liquid Asset Division.
Insured persons must also meet our underwriting requirements in
order for us to accept either initial or unplanned premium
payments. We assign each insured person to an underwriting class
according to the method of underwriting we use, the smoking
status of the insured person and the classification of the
mortality risk of the insured person. 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 attained age, sex, and
smoking status of the insured person(s) determine the mortality
rates we will use in calculating mortality cost deductions, net
single premium factors and guarantee periods.
The investment date is the date we apply your initial premium to
the policy. It is the valuation date when we have received your
initial premium, your policy is issued, and all issue
requirements are met. Your initial premium is the premium we
must receive
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before coverage can begin. The minimum initial
Genesis I premium is $25,000 ($15,000 if under a 1035 exchange).
The minimum planned annual premium under Genesis Flex will never
be more than $5,000. We may reduce the minimum initial premium
for group or sponsored arrangements or corporate purchasers. Our
underwriting and reinsurance procedures in effect at the time you
apply limit the maximum face amount.
The policy date is when your policy is effective. The policy
date determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
It is not affected by when you receive the policy. In the case
of certain payroll deduction plans or other automatic investment
plans, the policy date may be different from the date we receive
the first premium payment. If the policy date is earlier, we
charge monthly deductions from the policy date. This applies
even if the policy date is before the investment date. Under
certain circumstances, we may back date your policy up to a
maximum of six months from the date we approve your application.
PREMIUMS
You may choose the amount and frequency of premium payments,
within limits.
You purchase an initial death benefit, which is the face amount
under the Option I Death Benefit, with an initial premium
payment. The minimum initial Genesis I premium is $25,000
($15,000 if under a 1035 exchange). The minimum planned annual
premium under Genesis Flex will never be more than $5,000.
We may refuse a premium payment if such payment would cause the
net amount at risk under the policy to exceed $2,500,000.
A table of illustrative premiums for a specified face amount is
shown below. This table shows actual premiums for $250,000 of
coverage at each issue age for males and females. We may accept
lower premium payments in the case of Genesis I.
For certain group or sponsored arrangements, we may reduce the
minimum premium requirements. We may offer planned premium
payment periods of durations other than 10 years. Such durations
would cause the illustrative premiums for a specified face amount
as shown below to change. We may also reduce the charges in a
policy where the initial or total premium payments exceed amounts
we specify in our published rules. However, any reductions will
reflect differences in costs or services and will not
discriminate unfairly against any person.
GENESIS I
TABLE OF ILLUSTRATIVE PREMIUMS WITH A
FACE AMOUNT OF $250,000
SINGLE LIFE, NON-SMOKER
PREMIUM
-------
ISSUE
AGE MALE FEMALE
- --- ---- ------
50 $ 95,484 $ 84,669
60 128,696 114,574
70 165,233 151,151
SURVIVORSHIP, NON-SMOKERS
ISSUE AGE
---------
MALE FEMALE PREMIUM
- ---- ------ -------
55 45 $63,990
60 55 86,763
70 65 120,989
GENESIS FLEX
TABLE OF ILLUSTRATIVE PREMIUMS WITH A
FACE AMOUNT OF $250,000
SINGLE LIFE, NON-SMOKER
PREMIUM
-------
ISSUE
AGE MALE FEMALE
- --- ---- ------
50 $ 11,623 $ 10,255
60 16,354 14,212
70 23,632 20,170
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SURVIVORSHIP, NON-SMOKERS
ISSUE AGE
---------
MALE FEMALE PREMIUM
- ---- ------ -------
55 45 $ 7,594
60 55 10,319
70 65 14,615
ALLOCATION OF PREMIUM PAYMENTS
Before the end of the free look period, we will allocate your
initial premium to the Liquid Asset Division.
At the end of the free look period, we will allocate your
investment value 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
before the end of the free look period.
LIFE INSURANCE PREMIUM PAYMENT TEST (GENESIS FLEX)
We designed Genesis Flex to comply with the Life Insurance
Premium Payment Test. As such, certain distributions under a
policy, such as loans, should receive favorable tax treatment
afforded life insurance policies under Federal tax law.
MODIFIED ENDOWMENT CONTRACTS (GENESIS I)
Genesis I is generally a "modified endowment contract." As such,
the amount of certain distributions made during the insured's
lifetime, such as policy loans, partial withdrawals or
surrenders, will be includible in your gross income to the extent
of any income in the policy ("income-first basis"), and a 10%
penalty tax may be imposed on such income distributed before you
attain age 59 1/2.
For more information on "modified endowment contracts," and the
Life Insurance Premium Payment Test, SEE TAX CONSIDERATIONS, PAGE
36.
MAKING ADDITIONAL PREMIUM PAYMENTS
PLANNED PREMIUMS (GENESIS FLEX ONLY)
You can make premium payments on a planned basis during the first
ten policy years following issue of the policy or increase in
face amount subject to our minimum premium requirements. Subject
to our rules, we may offer planned premium payment periods of
other than 10 years. We will send reminder notices for planned
premiums that are not paid as part of an automatic withdrawal
program. Any change in the amount, period and frequency of
planned premiums will be subject to our rules at the time of the
request. We will treat any premium we receive more than 30 days
after a planned premium payment date as an unplanned premium. In
addition, we will treat any premium we receive above the planned
premium as an unplanned premium.
UNPLANNED PREMIUMS
You can make unplanned premium payments while coverage is in
effect, provided the insured party is age 80 or under. Under
survivorship policies, both insured parties must be alive and
also age 80 or under. Subject to our rules, the minimum
unplanned premium is $5,000 under a Genesis I policy and $500
under a Genesis Flex policy. We may require evidence of
insurability based on our underwriting rules if the unplanned
premium would cause the death benefit to increase. Unless
otherwise specified, if there is any debt, we will use any
unplanned premium as a loan repayment with any excess applied as
an additional premium payment. SEE TAX STATUS OF THE POLICY,
PAGE 36.
On the date we receive and accept your additional premium
payment, the following will occur:
(1) Your variable insurance amount will increase.
(2) Your investment value will increase. SEE INVESTMENT VALUE,
PAGE 16.
(3) Your tabular value will increase. SEE TABULAR VALUE, PAGE 17.
On the processing date on or next following the date we receive
and accept the additional premium payment, your guaranteed
benefits will increase as follows:
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(1) If your guarantee period before the premium payment ends
before the maturity date, we will use your tabular value as of
the processing date to calculate your new guarantee period,
subject to any maximum guarantee period shown in your policy
Schedule. We will apply any excess as indicated in (2).
(2) If your guarantee period ends on the maturity date, we will
apply your tabular value or the excess from (1) 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, or any maximum shown in the policy schedule.
ADDITIONAL PREMIUM ALLOCATION
We will allocate any additional premiums to the Liquid Asset
Division until we accept them according to our rules. Unless
you specify otherwise, we will allocate additional premium
payments among the divisions of Account A and the Fixed Account
in proportion to the investment value in each division of Account
A and the Fixed Account on the date we accept the premium. If
there is no investment value attributable to Account A, we will
allocate the additional premium payments to the Fixed Account.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
If you stop making premium payments or you make insufficient
premium payments, your policy continues in effect only until your
cash surrender value no longer covers the monthly deductions for
your benefits. If this happens, your policy may lapse. SEE
LAPSE, PAGE 22.
If you do not take out a policy loan, we guarantee that your
policy will not lapse during the guarantee period, regardless of
your cash surrender value. However, if the cash surrender value
of your policy drops below zero because of policy debt, we can
terminate your policy, even during the guarantee period. SEE
LAPSE, PAGE 22.
DEATH BENEFITS
You can decide the amount of insurance you need, now and in the
future. When we issue your policy, we base the initial insurance
coverage on the instructions in your application.
FACE AMOUNT
Your face amount can change as a result of:
o your choice of death benefit option;
o increases to satisfy the federal income tax law definition
of life insurance;
o a change in your death benefit option;
o partial withdrawals;
o requested increases or decreases in the face amount; or
o a transaction which causes the face amount to change.
As long as your policy is in force, we will pay the death
proceeds to your beneficiary(ies) when the insured person dies
under a single life policy, or on the death of the last surviving
insured under a survivorship policy. The beneficiary(ies)
is(are) the person (people) you name to receive the death
proceeds from your policy. The death proceeds are:
o your face amount; plus
o any appropriate adjustments for your death benefit option;
minus
o your outstanding policy loans with accrued loan interest;
minus
o outstanding policy charges owing before the insured person's
date of death.
There could be outstanding policy charges if the insured dies
while your policy is in the grace period.
DEATH BENEFIT OPTIONS
If you buy a Genesis I policy, you have a choice of two death
benefit options: Option I or Option II. Currently, we do not
offer death benefit Option II for Genesis Flex policies.
All Genesis I 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. You may change your death
benefit option on any policy anniversary, but no more frequently
than once every three policy years. SEE CHANGES IN DEATH BENEFIT
OPTION, PAGE 15.
Under death benefit Option I, your death benefit is the greater
of:
1. your face amount as of the most recent processing date (the
date each quarter when we deduct charges from the divisions
and the fixed account), plus any premiums you have paid and
minus any partial withdrawals you have made since that
processing date; or
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2.your variable insurance amount. SEE VARIABLE INSURANCE
AMOUNT, PAGE 14.
Under death benefit Option II, your death benefit is the greater
of:
1. your face amount plus the Option II death benefit
adjustment, as of the date of death of the insured
person(s); or
2.your variable insurance amount. SEE VARIABLE INSURANCE
AMOUNT, PAGE 14.
The Option II death benefit adjustment is the greater of (i) the
Option II guaranteed death benefit or (ii) your investment value
plus debt.
When we issue your policy, the Option II guaranteed death benefit
equals the premiums you have paid. On each valuation date during
the guarantee period, we calculate the Option II guaranteed death
benefit as follows:
(1) We take the Option II guaranteed death benefit from the
prior valuation date;
(2) We add interest at the Option II guaranteed death benefit
interest rate (as defined below);
(3) We add any premiums you paid during the current valuation
period; and
(4) We subtract any partial withdrawals you have made during the
current valuation period.
In no event will the Option II guaranteed death benefit be
greater than two times the sum of each premium you paid, minus
any partial withdrawals associated with each premium paid. After
your guarantee period ends, the Option II guaranteed death
benefit is zero.
The Option II guaranteed death benefit interest rate equals 7%;
however, (i) for the Liquid Asset Division it equals the net rate
of return during the current valuation period, if less than an
annualized rate of 7%; (ii) for the fixed account it equals 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 equals the rate of interest
credited to such amounts during the current valuation period, if
less than an annualized rate of 7%.
VARIABLE INSURANCE AMOUNT
Federal income tax law requires that your death benefit be at
least as much as your investment value plus policy debt
multiplied by a factor defined by law. This factor is based on:
o the insured person's age;
o the insured person's gender; and
o underwriting class.
We will adjust your policy to continue to qualify as life
insurance under the federal income tax laws in existence at the
time the policy was issued.
Accordingly, 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.
CHANGES IN DEATH BENEFIT OPTION (GENESIS I ONLY)
Starting one year after your policy date, you may request a
change in your death benefit option once every three policy
years. The change will take effect on the processing date on or
next following the date that we approve it the change.
After we approve your request, we send a new policy schedule page
to you. You should attach it to your policy. We may ask you to
return your policy to our customer service center so that we can
note the change in your schedule. A death benefit option change
applies to your entire face amount.
For you to change from death benefit Option I to Option II, you
must provide to us proof that the insured person(s) is (are)
insurable under our normal rules of underwriting for your policy
class, except in Florida.
On the effective date of your option change (the next processing
date after our approval), your face amount is changed as follows:
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Change Change Face Amount
From To Following Change:
---- -- -----------------
Option I Option II your face amount before the
change minus the Option II death
benefit adjustment as of the effective
date of the change.
Option I Option II your face amount before the
change plus the Option II death
benefit adjustment as of the effective
date of the change.
We increase or decrease your face amount to keep the amount of
your death benefit the same as on the date you changed your death
benefit option. When your death benefit remains the same, there
is no immediate change in the net amount at risk so your cost of
insurance charges are the same. SEE CHARGES, DEDUCTIONS AND
REFUNDS, PAGE 30.
You may incur tax consequences due to a change in your death
benefit option. SEE TAX STATUS OF THE POLICY, PAGE 36, AND
MODIFIED ENDOWMENT CONTRACTS, PAGE 12. You should consult a tax
advisor before changing your death benefit option.
CHANGES IN DEATH BENEFIT AMOUNTS
Contact our customer service center to request an increase or
decrease in your policy death benefit. The request is effective
as of the next processing date on or next following the date we
receive your request and approve it, unless there are
underwriting or other requirements.
You may want to increase the face amount under your policy. You
may do this while your policy is in force. You may request a
decrease in the face amount. You must provide evidence that the
insured person(s) is (are) still insurable in order to increase
your death benefit. You may request a change in the face amount
only after your first policy anniversary.
The increase must at least equal the minimum increase we then
allow. Any decrease in the face amount must at least equal the
minimum decrease we then allow. If there have been any prior
increases in your face amount, we will apply the decrease first
against the prior increases in the reverse order of their
effective dates. Decreases in the 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" or have other adverse tax
consequences. SEE TAX CONSIDERATIONS, PAGE 36.
After we approve your request, we send you a new schedule page
for your policy which includes the:
o face amount;
o benefit under any applicable riders;
o guaranteed cost of insurance rates; and
o annual premium.
Keep this new schedule with your policy. We may ask you to send
your policy to us so that we can note the change in your
schedule.
In some instances, we do not approve a requested change because
it would disqualify your policy as life insurance under the
applicable federal income tax law. If we disapprove a change, we
provide you with a notice of our decision. SEE TAX
CONSIDERATIONS, PAGE 36.
If you change your death benefit amount, the tabular value will
be used to calculate a new guarantee period. Any part of the
tabular value in excess of the amount required to increase the
guarantee period to life will be applied as a net single premium
for life to increase the face amount.
You may incur tax consequences due to an increase or decrease in
your death benefit. SEE TAX STATUS OF THE POLICY, PAGE 36 AND
MODIFIED ENDOWMENT CONTRACTS, PAGE 12. You should consult a tax
advisor before changing your death benefit amount.
GUARANTEE PERIOD
The death benefit under your policy is subject to a guaranteed
minimum amount for a guaranteed minimum period of time regardless
of investment results. The guaranteed minimum amount is your
policy's face amount and the policy's guarantee period is the
minimum period of time we guarantee that your policy will remain
in force regardless of its investment results. However, if you
take out policy loans, 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 POLICY LOANS, PAGE
20.
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
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face amount
of your policy. For Genesis Flex, each planned premium extends
the guarantee period, and if you pay all planned premiums as
planned and the insured(s) is (are) in a standard or better
underwriting class, the guarantee period will last until the
maturity date of your policy. For Genesis I, if you elect the
minimum face amount we allow for a given single premium and the
insured(s) is (are) in a standard or better underwriting class,
the guarantee period will last until the maturity date of your
policy; however, if you elect a face amount greater than such
minimum, your guarantee period will end before the maturity date.
We will calculate the guarantee period using (1) rates no greater
than the guaranteed maximum cost of insurance rates shown in the
policy and (2) a 4.0% interest assumption. For a given premium
payment and face amount, the guarantee period will differ
depending on the age, sex and underwriting class of the
insured(s). For example under a single life policy, for the same
premium and face amount, an older insured will have a shorter
guarantee period than a younger insured of the same sex and in
the same underwriting class.
Lifetime Guarantee Option
Subject to our rules, you may be able to purchase 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 GUARANTEE PERIOD, PAGE 15.
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, DEDUCTIONS AND
REFUNDS, PAGE 30.
BENEFITS AT MATURITY
If the insured person reaches age 100 (for survivorship policies,
if the younger insured person reaches age 100), coverage under
the policy will end, and we will pay you the cash surrender value
of the policy. Your cash surrender value is your investment
value minus any unrecovered deferred charges, plus any accrued
general account loan interest credited, minus any policy charges
incurred but not yet deducted. Some part of this payment may be
taxable. You should consult your tax adviser.
POLICY VALUES
INVESTMENT VALUE
Your investment value is the total amount you have in the fixed
account and the variable divisions. Your investment value thus
reflects:
o all premiums paid;
o all fees and charges;
o your policy loans;
o partial withdrawals;
o the variable divisions' investment performance; and
o interest accrued in the fixed account, and in the general
account on amounts held as collateral for loans.
CASH SURRENDER VALUE
Your policy's cash surrender value fluctuates daily with the
investment results. With respect to premiums allocated to
Account A, we do not guarantee any minimum cash surrender value.
On any date, the cash surrender value equals the investment value
minus any deferred charges not yet deducted, plus any accrued
general account loan interest credited, minus any charges
incurred and not yet deducted.
INVESTMENT VALUE IN EACH DIVISION OF ACCOUNT A
On each valuation date, the amount of investment value in each
division of Account A will be calculated as follows:
(1) We take the amount of investment value in the division at the
end of the preceding valuation period.
(2) We multiply (1) by the division's net rate of return for the
current valuation period.
(3) We add (1) and (2) together.
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(4) We add to (3) any additional premium payments allocated to
the division during the current valuation period.
(5) We add or subtract reallocations to or from the division
during the current valuation period.
(6) We subtract from (5) any partial withdrawal and any
associated charges allocated to the division during the current
valuation period.
(7) We add to (6) any loan repayments or loan interest payments
received and subtract any loans which are allocated to the
division during the current valuation period.
(8) If the policy anniversary occurs during the current valuation
period, we add to (7) the amount allocated to the division for
any general account loan interest credited.
(9) If a processing date occurs during the current valuation
period, we subtract from (8) the amounts allocated to the
applicable division for deferred loading, insurance based charges
and transaction and other charges.
If the processing date is also the policy anniversary, any loan
interest charge will be deducted from the investment value. SEE
CHARGES AND DEDUCTIONS, PAGE 30. 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
Before the investment date, your tabular value is zero. Your
tabular value on the investment date equals the investment value
on that date. Thereafter, we calculate your tabular value in the
same manner as your cash surrender value except that: (i) the
mortality cost will be based on rates no greater than the
guaranteed maximum cost of insurance rates; (ii) currently other
charges are not reflected in our computations; and (iii) the net
rate of return will be based on the interest rate used in our
computations, which is currently 4% per year. The tabular value
calculations do not reflect loans, repayments, or loan interest
payments. We calculate the variable insurance amount used in
computing the tabular value 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
We determine the investment experience of Account A 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
Opportunities, Developing World, OTC, Research, Total Return,
Growth & Income, 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 experience for that date.
HOW WE DETERMINE THE EXPERIENCE FACTOR
For divisions of Account A, the experience factor reflects the
investment experience of the portfolio in which the division
invests as well as the charges assessed against the division for
a valuation period. The factor is calculated as follows:
(1) We take the net asset value of the portfolio in which a
division invests as of the end of the current valuation period.
(2) We add to (1) the amount of any dividend or capital gains
distribution declared during the current valuation period for
such portfolio and reinvested in the portfolio. We subtract from
that amount a charge for our taxes, if any.
(3) We divide (2) by the net asset value of the portfolio at the
end of the preceding valuation period.
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(4) We subtract the daily mortality and expense risk charge.
SEE MORTALITY AND EXPENSE RISK CHARGE, PAGE 32.
(5) We subtract the daily asset based administrative charge.
SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 30.
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 INDEX OF INVESTMENT EXPERIENCE AND UNIT
VALUE, PAGE 17.
The value of amounts allocated to the variable divisions goes up
or down depending on investment performance.
FOR AMOUNTS IN THE VARIABLE DIVISIONS, THERE IS NO GUARANTEED
MINIMUM CASH VALUE.
ALLOCATION CHANGES
After your free look period ends, you may make up to twelve free
transfers among the variable divisions, or to the fixed account,
in each policy year. We do not limit your number of transfers,
but we charge a $25 fee for each transfer that you make after the
first twelve. We also reserve the right to limit, upon notice,
the maximum number of transfers you may make within a contract
year. Special limits apply to transfers to and from the fixed
account. See below.
You may make transfer requests in writing to our customer service
center. Your transfer takes effect on the valuation date we
receive your request. The minimum amount we allow you to
transfer on one day is $250. However, if the amount remaining in
a variable division is less than $250 when you make a transfer
request, we transfer the entire amount out of that division.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio
management strategies and increase portfolio expenses. Thus, we
may limit excessive transfer activity.
Excessive transfers may cause:
o increased trading and transaction costs;
o disruption of planned investment strategies;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o the investment portfolios to have large asset swings that
decrease their ability to provide maximum investment return
to all policyowners.
In response to excessive trading, we may refuse to place, or
accept restrictions on, transfers made by third-party agents
acting on behalf of owners. We may do the same for transfers
made by a market timing service. We will make refusals or place
restrictions when we determine, in our sole discretion, that
transfers are harmful to the investment portfolios, or
policyowners as a whole.
FIXED ACCOUNT TRANSFERS
We consider any allocation of premium or transfer of investment
value to the fixed account to be a separate fixed account
allocation. We currently permit transfers from an allocation of
the fixed account only once a year on or within 30 days of the
Expiry Date of the guaranteed interest rate. SEE THE FIXED
ACCOUNT, PAGE 9.
Each year, you may transfer out of an allocation a maximum of:
(a) 33% of the amount of such allocation, or (b) $2,000,
whichever is greater. If we receive your transfer request up to
30 days before the Expiry Date, we will make the transfer on the
Expiry Date. If we receive your request on or within 30 days
after the Expiry Date, we will make the transfer at the end of
the valuation period in which we receive a satisfactory transfer
request at our Service Center.
The minimum transfer amount is $250 or the entire remaining
amount of the allocation on the transfer date, whichever is less.
Unless you specify otherwise, we will transfer amounts from
allocations within the Fixed Account from the fixed allocations
closest to their respective rate Expiry Date. These rules are
subject to change in the future.
We reserve the right to establish an interest rate for transfers
to the Fixed Account that may differ from the rate that we
establish for allocations of planned and unplanned premiums to
the Fixed Account. Transfers to the fixed account are not
otherwise restricted. 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.
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DOLLAR COST AVERAGING
If your policy has at least $10,000 of investment value invested
in the fixed account, the Limited Maturity Bond Division or the
Liquid Asset Division, you can elect dollar cost averaging. The
main goal of dollar cost averaging is to protect your policy
values from short-term price changes.
You may add dollar cost averaging to your policy at any time.
With dollar cost averaging, you designate for automatic transfer
either a dollar amount, or a percentage of your investment value,
from the fixed account, or the division investing in the Limited
Maturity Bond Division or the Liquid Asset Division. We
automatically transfer the amount you select for dollar cost
averaging each period from your chosen division to one or more
other variable divisions. You may not make transfers to the
fixed account under dollar cost averaging.
This systematic plan of transferring investment values is
intended to reduce the risk of investing too much when the price
of an investment portfolio's shares is high. It also reduces the
risk of investing too little when the price of an investment
portfolio's shares is low.
Since you transfer the same dollar amount to other divisions each
period, you purchase more units in a division if the value per
unit is low, and you purchase fewer units if the value per unit
is high.
Dollar cost averaging does not assure a profit nor does it
protect you against a loss in a declining market.
The minimum amount that you may transfer each month is $250. The
maximum amount that you may transfer is the investment value in
the Fixed Account, the Limited Maturity Bond Division or the
Liquid Asset Division divided by 12. Under this program, dollar
cost averaging will commence on the later of 20 days after the
issue date and the end of the free look period.
The first dollar cost averaging date must be at least five days
after we receive your dollar cost averaging request. Dollar cost
averaging cannot begin before the end of your free look period.
Dollar cost averaging automatically takes place monthly, on the
same calendar day each month as the policy date.
We do not count dollar cost averaging transfers toward your
twelve free transfer limit per policy year. There is no charge
for this feature.
The dollar amount will be allocated to the divisions in which you
are invested in proportion to your investment value in each
division unless you specify otherwise. If, on any transfer date,
the investment value in the specified division or Fixed Account
equals or is less than the amount you have elected to have
transferred, we will transfer the entire amount and the program
will end.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program one time per
policy year, or cancel this program by sending satisfactory
notice to our customer service center at least seven days before
the next transfer date.
WHAT HAPPENS IF A DIVISION IS NOT AVAILABLE
When a distribution is made from an investment portfolio
supporting a variable division in which reinvestment is not
available, we will allocate the distribution, unless you specify
otherwise, to the Liquid Asset Division.
Such a distribution can occur when (a) an investment portfolio
matures, or (b) a distribution from a portfolio cannot be
reinvested in the portfolio due to the unavailability of
securities for acquisition. When an investment portfolio
matures, we will notify you 30 days in advance of that date. To
elect an allocation to other than the Liquid Asset Division, you
must provide satisfactory notice to us at least seven days prior
to the date the portfolio matures. We will not count such a
transfer toward your twelve free transfer limit per policy year.
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 to
the Liquid Asset Division has occurred. If within 30 days you
allocate the investment value from the Liquid Asset Division to
other divisions of your choice, such allocations will not be
included in determining if the excess allocation charge will
apply.
POLICY LOANS
You may borrow against your policy any time after the free look
period, or as required by law, by using
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your policy as security for a loan. The amount you borrow is
called a policy loan. Your policy debt is:
1. the total amount you borrow from your policy, plus
2. any policy loan interest that is capitalized when due, minus
3. any policy loan repayments you make.
Unless state law requires differently, any new policy loan you
take must be at least $500. The maximum amount you can borrow on
any valuation date, unless required differently by state law, is
90% of the sum of your cash surrender value plus any outstanding
policy loans and interest. The minimum and maximum amounts will
be shown in your policy.
If you request an additional loan, we add the amount you request
to your existing outstanding policy loan. This way, there is
only one loan outstanding on any one policy at any time.
Your request for a policy loan must be directed to our customer
service center.
Based on our administrative system, we may have other rules for
policy loans. For example, we may require that your loan request
be for a dollar amount rather than a percentage to be taken from
a specific division.
For Genesis I policies, you may have to pay a 10% penalty tax on
loans. For information on the tax treatment of loans from
policies that are "modified endowment contracts," SEE MODIFIED
ENDOWMENT CONTRACTS, PAGE 12.
Loan interest charges on your policy loan accrue daily at an
annual interest rate of 5.0%. Interest is due in arrears on each
policy anniversary. If you do not pay your interest when it is
due, we add it to your policy loan on your policy anniversary.
You may repay all or part of your policy loan at any time while
your policy is in force. We assume that any payments you make,
other than your scheduled premiums, are policy loan repayments.
You must tell us otherwise if you want us to consider additional
payments as premiums. Each loan repayment must be $500 or the
amount of the loan, whichever is less.
When you take a policy loan, we transfer an amount equal to your
policy loan amount from the variable divisions and the fixed
account to our general account as collateral for your loan. We
follow this same process for loan interest in the amount due at
your policy anniversary. We credit loan collateral with interest
at an annual rate of at least 4% (and, on a current basis, 5% for
"preferred loans").
With respect to Genesis I policies, loans where the amount of the
collateral equals the investment value minus 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 insured person (youngest insured person in the
case of survivorship policies) turns age 60 or after the tenth
policy anniversary are considered "Preferred Loans." The tax
consequences of Preferred Loans are uncertain. You should
consult a tax advisor as to these consequences.
Unless you tell us otherwise, we deduct the amount transferred
from each division in the same proportion that your investment
value in that division has to your net investment value
immediately before the loan transaction. We determine the
amounts in each division as of the valuation date when we receive
your loan request.
Any policy loans you take may have tax consequences. SEE
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS, PAGE 37, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS
FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 37.
LOAN REPAYMENT
We transfer the amount of interest credited to you for a policy
year from the general account on your policy anniversaries. When
you make a loan repayment, we transfer an amount equal to your
repayment from the general account. Unless you tell us
otherwise, we allocate these transfer amounts among the variable
divisions and the fixed account in the same proportion as your
current premium allocation.
LOANS AND YOUR BENEFITS
Even if you repay your loan, it is important for you to know that
any loan against your policy has a permanent effect on your
investment value. This means that the benefits under your policy
may also be affected.
The loan is a first lien on your policy. This means we deduct
your policy loan and accrued loan interest
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from the death proceeds payable and the cash surrender value payable
on surrender.
Failure to repay your loan may affect the guaranteed premium,
minimum death benefit and the length of time your policy remains
in force. The policy lapses (even during the guarantee period)
when the cash surrender value minus policy loans and accrued loan
interest is not enough to cover your monthly deductions. Loans
increase the risk that your policy may lapse. If your policy
lapses with a loan outstanding, you may have adverse tax
consequences. SEE TAX CONSIDERATIONS, PAGE 36.
If you do not repay your policy loan, we deduct your outstanding
policy loan amount and accrued loan interest from the death
proceeds payable and the cash surrender value payable on
surrender.
PARTIAL WITHDRAWALS
You may request a partial withdrawal after the free look period
by contacting our customer service center. The effective date of
the partial withdrawal will be the date that we receive your
written request at our customer service center.
You may make up to four partial withdrawals per policy year
without charge. If you make more than four partial withdrawals
in a policy year, we can charge $25 or 2% of the amount
withdrawn, whichever is less, for each additional withdrawal. If
you purchased your policy in connection with a Section 1035
exchange, you may not make partial withdrawals for the first
seven policy years. We may set rules on partial withdrawals,
based on our administrative system. For example, we may require
that you specify a dollar amount rather than a percentage to be
taken from a specific division.
The minimum partial withdrawal you may make is $1,000. The
maximum partial withdrawal you may make during any policy year,
without accelerating recovery of the deferred loading, is 15% of
your investment value. In no event may a partial withdrawal be
more than 90% of your investment value, less any applicable
unrecovered deferred loading. If you request a withdrawal of
more than this maximum, we may require you to surrender your
policy. When you take a partial withdrawal, we deduct your
withdrawal amount plus any applicable fees from your investment
value. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 30.
Partial withdrawals may have adverse tax consequences. SEE TAX
CONSIDERATIONS, PAGE 36.
PARTIAL WITHDRAWAL MECHANICS
Unless you tell us otherwise, we will make a partial withdrawal
from the variable divisions in the same proportion that each
division has to your investment value immediately before your
withdrawal. If there is insufficient investment value in the
divisions, we will deduct the remaining reduction from your
allocations to the fixed account.
We will send a new schedule showing the effect of your withdrawal
if there is any change to your face amount.
To make this change, we may ask that you return the policy to our
customer service center. Your withdrawal and any reductions in
the death benefits are effective as of the valuation date on
which we receive your request. SEE DISTRIBUTIONS OTHER THAN
DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 37, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE
NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 37.
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. We will consider an excess partial
withdrawal to be a partial surrender of the policy and we will
recover a pro rata portion of the unrecovered deferred charges.
We will deduct this amount in proportion to the investment value
in each division or the Fixed Account from which the excess
partial withdrawal was taken.
Collection of a portion of the deferred loading for an excess
partial withdrawal may shorten the period during which the
deferred loading is recovered, or the last installment amount may
be reduced.
EFFECT OF A PARTIAL WITHDRAWAL ON THE INVESTMENT VALUE AND DEATH
BENEFIT
As of the effective date of a partial withdrawal:
(1) We reduce the investment value of the policy by the partial
withdrawal and any associated charges.
(2) Unless you specify otherwise, the reduction in investment
value will be in proportion to the investment value in each
division in which you are invested as of the effective date of
the partial
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withdrawal. If there is insufficient investment value in the
divisions, we will deduct the remaining reduction from your
allocations to the fixed account.
(3) We will reduce any amounts paid in accordance with the
suicide provision of the policy by the amount of any partial
withdrawals and any associated charges.
(4) The variable insurance amount will reflect the partial
withdrawal and any associated charges.
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) Before effecting the partial withdrawal, we calculate the
death benefit as of the date of the partial withdrawal.
(2) We subtract from (1) the amount of the partial withdrawal and
any associated charges.
(3) If the amount determined in (2) is less than the face amount,
we reduce the face amount to the amount determined in (2).
Decreases in the face amount could result in your policy becoming
a "modified endowment contract" or have other adverse tax
consequences. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 12.
(4) We will use the tabular value as of such processing date and
the face amount to calculate a new guarantee period. The
guarantee period ends on the earlier of the date so determined
and any maximum shown in the policy. In no event will we allow a
partial withdrawal that will reduce the guarantee period below
the minimum shown in the policy, or that will reduce the face
amount below the amount we would then allow.
If the death benefit becomes payable before the processing date
on or next following the effective date of a partial withdrawal,
we will deduct the amount of the partial withdrawal from the
death benefit proceeds payable, if the death benefit is
determined to be the face amount.
RIGHT TO CONVERT POLICY
During the first 24 months after your policy date, you have the
right to convert your policy to a guaranteed policy, unless state
law requires differently. To do this, we transfer the entire
amount you have in the variable divisions to the fixed account.
We allocate all of your future premiums only to the fixed
account. WE DO NOT ALLOW ANY FUTURE PAYMENTS OR TRANSFERS TO THE
VARIABLE DIVISIONS WHEN YOU EXERCISE THIS RIGHT.
We will not charge you for the transfer to make this exchange.
SEE THE FIXED ACCOUNT, PAGE 9.
We will also offer this right of conversion 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.
LAPSE
Your insurance coverage continues as long as your policy cash
surrender value is enough to pay all deductions each month. We
guarantee your policy not to lapse during the guarantee period,
unless there is debt and the cash surrender value is negative.
If there is an outstanding policy loan on which interest is
accruing, your policy will lapse if the accrued interest owed on
the loan is more than the cash surrender value.
IF THE GUARANTEE PERIOD IS NOT IN EFFECT
Your policy, including all of its attached riders, lapses
entirely on any monthly processing date where your cash surrender
value is not enough to pay all of the monthly deductions from
your investment value.
You have a 61-day grace period beginning on that monthly
processing date to avoid lapse of your policy. SEE GRACE PERIOD,
PAGE 23. It is important that you pay the full amount we
request within the 61-day grace period. If you do not, your
policy and all of its riders lapse without value. We then
withdraw your remaining account balance from the variable
divisions and the fixed account. We deduct amounts which you owe
us, including any deferred
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sales charge, and inform you that the policy has ended.
If the insured person(s) die(s) during the grace period, we pay
death proceeds to your beneficiary with reductions for policy
loans, accrued loan interest, and monthly deductions owed.
IF THE GUARANTEE PERIOD IS IN EFFECT
If the guarantee period is in effect, your policy's face amount
will not lapse during the guarantee period, so long as there is
no policy debt. This is true even if your cash surrender value
is not enough to cover all of the deductions from your investment
value on any monthly processing date. SEE GUARANTEE PERIOD, PAGE
15.
The guarantee period does not protect benefits you may have under
riders attached to your policy. These benefits lapse if on any
monthly processing date your policy cash surrender value is not
enough to pay all monthly deductions from your investment value.
While the guarantee period applies, we reduce your investment
value by monthly deductions, but not below zero. We permanently
waive monthly deductions which occur during the guarantee period
which would reduce your investment value below zero. Deductions
resume when there is positive investment value.
|------------------------------|
| LAPSE SUMMARY |
|------------------------------|
| If the | If the |
| guarantee | guarantee |
| period is in | period is |
| effect | not in |
| | effect |
|---------------|--------------|
|Your policy | Your policy |
|does not lapse | enters the |
|if you do not | grace period |
|have enough | if your cash |
|cash surrender | surrender |
|value to pay | value is not |
|the monthly | enough to |
|deductions. | pay the |
|However, if | monthly |
|you have any | charges. If |
|riders, they | you do not |
|lapse and only | pay enough |
|your base | premium to |
|coverage | cover the |
|remains in | past due |
|force. | monthly |
|Charges for | charges, |
|your coverage | plus the |
|are deducted | monthly |
|each month | charges |
|until your | through the |
|remaining | following |
|investment | two months, |
|value is not | your policy |
|enough to pay | lapses. |
|these charges. | |
|At this point, | |
|we waive the | |
|monthly | |
|charges for | |
|the rest of | |
|the guarantee | |
|period. | |
|-------------------------------
GRACE PERIOD
Your policy enters the 61-day grace period if, as of a monthly
processing date:
1. your cash surrender value is negative; and
2. your guarantee period has expired or terminated.
We notify you that the policy is in a grace period at least 30
days before the grace period ends. We provide this notice to
you, or a person to whom you have assigned your policy, at the
last address you have listed in our records. We also notify you
of the required premium payment amount necessary to reinstate
your policy. This amount is generally the amount of past due
charges, plus the amount that covers your estimated monthly
policy deductions and all riders attached to your policy for the
next two months.
If we receive your payment of the required amount before the end
of the grace period, we use it to make the overdue deductions.
If there is a remaining balance, we apply it to your investment
value in the same manner as your other premium payments.
REINSTATEMENT
If you do not pay enough in premium before the end of the grace
period, you may still reinstate your policy and its riders within
three years after the grace period.
Unless state law requires differently, we will reinstate your
policy and riders if:
1. you have not surrendered your policy for its cash surrender
value;
2. you provide satisfactory evidence to us that the insured
person (and any people insured under your riders) is still
insurable according to our normal rules of underwriting for
your type of policy; and
3. You pay us at least the reinstatement cost, which is the
minimum payment for which we would then issue the policy
based on the attained age and underwriting class of the
insured(s) as of the effective date of the reinstatement.
Reinstatement is effective as of the processing date following
our approval of your reinstatement
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application. If you had any policy loans when coverage ended, we
reinstate them with accrued loan interest to the date of lapse.
We apply the premiums received after reinstatement according to
the premium allocation instructions in effect at the start of the
grace period, unless you tell us otherwise.
SURRENDER
You may surrender your policy for its cash surrender value any
time while the insured person(s) is/are living. You do this by
sending a written request and your policy to 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
SETTLEMENT PROVISIONS, PAGE 27.
Your cash surrender value is your investment value, minus any
unrecovered deferred charges, plus any accrued general account
loan interest credited, minus any policy charges incurred but not
yet deducted.
We deduct costs and expenses from your net investment value on
the monthly processing date before you surrender your policy. We
do not add or pro-rate them at surrender.
We compute your cash surrender value as of the valuation date we
receive your surrender request and policy at our customer service
center. All insurance coverage ends on that date.
A surrender of your policy may have adverse tax consequences.
SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED
ENDOWMENT CONTRACTS, PAGE 37, AND DISTRIBUTIONS OTHER THAN DEATH
BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS,
PAGE 37.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY
You may cancel your policy within the free look period and we
will refund any premiums paid without interest. Generally under
a Genesis I policy, this period ends 10 days from the date you
receive the policy. For purposes of administering our allocation
rules, we deem this period as ending 15 days after a policy is
mailed from our customer service center. Some states may require
a longer free look period.
Under a Genesis Flex policy, the free look period generally ends
on the latest of (i) 10 days after you receive your policy, (ii)
45 days from the date you complete part I of the application or
enrollment form, or (iii) 10 days from the mailing of the notice
of cancellation right.
If you cancel the policy, we will require that you wait six
months before applying to us again.
If you cancel your policy during this free look period, you will
receive a refund of all premium paid. When you send your
cancellation request, your insurance coverage ends.
YOUR POLICY
The entire contract between you and us is the combination of:
o your policy;
o a copy of your original application and any applications for
an increase or a decrease;
o all of your riders;
o endorsements;
o schedule page for policy changes; and
o any reinstatement applications.
If you make a change to your coverage, we give you a copy of your
application and new schedules. If you sent us your policy, we
attach these items to your policy. Otherwise, you need to attach
the new application and schedule to your policy. Unless there is
fraud, we consider all statements made in an your application to
be representations and not guarantees. We use no statement to
deny a claim, unless it is in an application.
A president or an officer of our company and our secretary or
assistant secretary must sign all changes or amendments we make
to your policy. No other person may change the terms or
conditions of your policy.
ATTAINED AGE
We issue your policy at the age of the insured person(s) stated
in your policy schedule. This is based on the age of the insured
person(s) as of the nearest birthday to the policy date. We
determine an insured person's attained age at any given time by
adding the number of completed policy years to the age shown in
the schedule.
OWNERSHIP
The original owner is the person named in the policy application.
If you are so named on your policy
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application, then you are considered the owner. As owner, you
can exercise all rights and receive the benefits during the life
of the insured person(s). This includes the right to change the
owner, beneficiaries, or method to pay proceeds.
All rights of ownership are limited by the rights of any person
who has been assigned rights under the policy, and any
irrevocable beneficiary.
You may name a new owner by giving us written notice. The
effective date of the change to the new owner is the date the old
owner signs the notice. Until we record this change at our
customer service center, we will not change any of our actions.
A change in ownership may cause the old owner to recognize
taxable income on gain.
BENEFICIARY
You, as owner, name the beneficiary when you apply for your
policy. The primary beneficiary who survives the insured person
receives the death proceeds payable. Other surviving
beneficiaries receive death proceeds only if there is no primary
beneficiary who has survived the insured person. If more than
one beneficiary survives the insured person, they share the death
proceeds equally, unless you have told us otherwise. If none of
your policy beneficiaries has survived the insured person, we pay
the death proceeds to you as owner, or to your estate.
Once you tell us who you want as beneficiary, we keep this on
file. You may name a new beneficiary during the insured person's
lifetime. We pay the death proceeds to the most recent
beneficiary on file whom you have named.
COLLATERAL ASSIGNMENT
You may assign your policy as security by sending written notice
to us. After we record the assignment, your rights as owner and
the beneficiary's rights (unless the beneficiary was made a
permanent beneficiary under an earlier assignment) are subject to
the assignment. It is the owner's responsibility to make sure
the assignment is valid. If your policy is a modified endowment
contract (usually, Genesis I), a collateral assignment of your
policy will be treated as a taxable distribution and may be
subject to a 10% penalty tax.
INCONTESTABILITY
We can question the validity of your insurance policy if there
have been material misstatements in your application. There are
limits on how and when we can question your policy.
o We will not question the statements in your application,
attached at issue, if your policy has been in effect for two
years from your policy date (during the lifetime of the
insured person(s)) or the date specified by state law.
o We will not question statements in your application for any
reinstatement, after the reinstatement has been in effect
(during the lifetime of the insured person(s)) for two years
from the effective date of any reinstatement.
o We will not question the statements in your application for
any coverage change that increases any benefit regarding the
insured person (during the lifetime of the insured
person(s)) after two years from the effective date of the
new increase.
We may revoke this policy if we issued or reinstated your policy
based on a false or misleading statement in an application. This
includes any reinstatement application.
For survivorship policies, after the second policy anniversary we
will send you by certified mail a request for notification of the
death of either insured. If the death of either insured has
occurred and you fail to reply to such request and provide proof
of death of either insured, if applicable, we may contest the
validity of coverage under the policy. If their policy is
reinstated, this provision will be measured from the effective
date of the reinstated policy.
MISSTATEMENTS OF AGE OR GENDER
If an insured person's age or gender has been misstated, we
adjust the death benefit. We adjust death benefits to the amount
which would have been purchased for the insured person's correct
age and gender. We base this on the cost of insurance charges
deducted from your investment value on the last monthly
processing date before the insured person's death, or as
otherwise required by state law.
If unisex cost of insurance rates apply, we do not make any
adjustments for a misstatement of gender.
SUICIDE
If the insured person commits suicide, while sane or insane,
within two years of your policy date or date of reinstatement, we
limit death benefits to:
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1. the total of all premiums paid to the time of death minus
2. the amount of outstanding policy loans and accrued loan
interest, minus
3. any partial withdrawals you have taken, unless state
law requires otherwise.
If the insured person has been changed, and the new insured
person dies by suicide within two years of the change date, we
then limit the death benefit to:
1. your cash surrender value as of the change date plus
2. the premiums you paid since the change date less
3. the sum of any increases in policy loans, accrued loan
interest, and partial withdrawals taken since the change
date.
We make a limited payment to the beneficiary for an increase if
the insured commits suicide, while sane or insane within two
years of the effective date of the increase. The payment we make
is the cost of insurance and any applicable monthly expense
charges deducted for such increase.
For survivorship policies, if either insured commits suicide
within two years from the policy's issue date, upon notification
we will issue coverage to the last surviving insured on a single
life basis as of the issue date. If there is no surviving
insured, the death benefit will be limited to the amount of the
premium payments made.
If the last surviving insured commits suicide within two years of
the effective date of any increase in face amount requested by
the policyowners, we will terminate the coverage attributable to
such increase in face amount and pay only a limited benefit. The
limited benefit will be the amount of mortality cost deductions
made for such increase.
If the last surviving insured commits suicide within two years of
any date we receive and accept an additional premium which
requires evidence of insurability, any amount of death benefit
which would not be payable except for the fact that the
additional premium was made will be limited to the amount of the
additional premium.
ESTABLISHING SURVIVORSHIP -- SURVIVORSHIP POLICIES ONLY
If we are unable to determine which of the insureds was the last
survivor on the basis of the proofs of death provided to us, we
shall consider the insured (not the joint insured) to be the last
surviving insured.
PAYMENT
Within seven days after we receive all information required to
process a payment, we pay:
o death proceeds;
o cash surrender value upon surrender;
o partial withdrawals; and
o loan proceeds.
We execute transfers among the variable divisions as of the
valuation date of our receipt of your request at our customer
service center.
We may, however, delay payment if we contest the policy. We may
also delay processing payments from Separate Account A in
connection with any of these transactions at any of the following
times:
o when the NYSE is closed for trading;
o when trading on the NYSE is restricted by the SEC;
o when there is an emergency so that it is not reasonably
possible to sell securities in the variable divisions or to
determine the value of a divisions assets;
o when a governmental body with jurisdiction over the separate
account allows suspension by its order; or
o the check used to pay the premium has not cleared through
the banking system. This may take up to 15 days.
Any SEC rules and regulations that apply determine whether these
conditions exist.
We determine death proceeds on the date of death of the insured
person (for survivorship policies, the death of the last
surviving insured). The death proceeds are not affected by
changes in the value of the variable divisions after the date of
death. We pay interest at our stated rate, or at any higher rate
required by law, from the insured person's date of death to the
date of payment.
We may delay payment for up to six months from our fixed account,
unless state law requires otherwise. We may also delay for up to
six months payment of any:
o surrender proceeds;
o withdrawal amounts; or
o loan amounts.
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We pay interest at our declared rate, or at any higher rate
required by law, from the date we receive the request if we delay
payment more than 30 days.
NOTIFICATION AND CLAIMS PROCEDURES
We must receive in writing any election, designation, change,
assignment or request made by the owner.
You must use a form acceptable to us. We are not liable for
actions taken before we receive and record the written notice.
We may require you to return your policy for any policy change,
or at its surrender.
If the insured person(s) die(s) while your policy is still in
force, please let us or your registered representative know as
soon as possible. We immediately send you instructions on how to
make a claim. As proof of an insured person's death, we may
require you provide proof of the insured person's age, and a
certified copy of the insured person's death certificate.
The beneficiary and the insured person's next of kin may also
need to sign authorization forms. These authorization forms
allow us to get information about the insured person. This
information may include medical records of doctors and hospitals
used by the insured person.
NON-PARTICIPATING
Your policy does not participate in the surplus earnings of
Golden American.
DISTRIBUTION OF THE POLICIES
DSI, 1475 Dunwoody Drive, West Chester, PA 19380, 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 a New York corporation and was organized in
1987. DSI is registered with the SEC as a broker-dealer and is a
member of the National Association of Securities Dealers, Inc.
("NASD"). We pay DSI for acting as principal underwriter under a
distribution agreement. The amount we paid under this agreement
for all of the policies issued through Separate Account A came to
approximately $835,000 for 1996, $1,372,000 for 1997, and
$745,000 for 1998.
DSI will enter into sales agreements with other broker-dealers to
sell the policies. These agreements provide for payment of
commissions of up to 7% of premiums for the Genesis I policy.
Currently, for the Genesis Flex policy, the first year commission
will be greater but in no event more than 37 1/2% of premiums
with 4.5% commission on renewal premiums. The agreements also
provide that applications for policies may be solicited by
registered representatives of the broker-dealers appointed by
Golden American to sell its variable life insurance and variable
annuities. These broker-dealers are registered with the SEC and
are members of the NASD. The registered representatives are
authorized under applicable state regulations to sell variable
life insurance and variable annuities. The offering of the
policies will be continuous.
SETTLEMENT PROVISIONS
You may elect to have the beneficiary receive the death proceeds
other than in one sum. If you make this election, you must do so
during the lifetime of the insured person(s). If you have not
made this election, the beneficiary may do so within one year
after we receive proof of the death of the insured person(s).
You may also take your cash surrender value in other than one
sum.
Plans 1, 2 and 3 are supported by our general account assets and
do not vary to reflect investment experience of the Account.
Plan 4 may be supported by a separate account in which case it
will vary with investment experience.
Our approval is needed for any plan where:
(1) the person named to receive payment is other than the owner
or beneficiary; or
(2) the person named is not a natural person, such as a
corporation; or
(3) any income payment would be less than $500.
You may select from these payment options:
Option I: INCOME FOR A FIXED
PERIOD: Payments are
made in equal
installments for a
fixed number of
years.
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Option II: LIFE INCOME WITH
PAYOUTS FOR A
DESIGNATED PERIOD:
Payments are made to
the person named in
equal monthly
installments and
guaranteed for at
least a period
certain. The period
certain can be 10 or
20 years. Other
periods certain are
available on request.
A refund certain may
be chosen instead.
Under this
arrangement, income
is guaranteed until
payments equal the
amount applied.
Option III: 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.
Option IV: ANNUITY PLAN: An
amount can be used to
purchase any single
premium annuity we
offer. We will issue
a written agreement
putting the plan into
effect.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any
amounts still due as provided by the plan agreement. The amounts
still due are determined as follows:
(1) For plans 1, 2, or any remaining guaranteed payments,
payments will be continued. Under plans 1 and 2, the discounted
values of the remaining guaranteed payments may be paid in a
single sum. This means we deduct the amount of the interest each
remaining guaranteed payment would have earned had it not been
paid out early. The annual discount interest rate is 3.0% for
plan 1 and 3.50% for plan 2. We will, however, base the discount
interest rate on the interest rate used to calculate the payments
for plans 1 and 2 if such payments were not based on the tables
in the policy.
(2) For plan 3, no amounts are payable after both named persons
have died.
(3) For plan 4, the annuity agreement will state the amount due,
if any.
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable divisions' assets in shares of investment
portfolios. We are the legal owner of the shares held in the
variable account, and we have the right to vote on certain
issues. Among other things, we may vote on issues described in
the fund's current prospectus, or requiring a vote by
shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to
tell us how to vote the number of shares attributable to your
investment value. We vote the shares in accordance with your
instructions at meetings of investment portfolio shareholders.
We vote any portfolio shares that are not attributable to
policies, and any investment portfolio shares where the owner
does not give us instructions, the same way we vote where we did
receive owner instructions.
We reserve the right to vote investment portfolio shares without
getting instructions from policy owners if the federal securities
laws, regulations, or their interpretations change to allow this.
You may only instruct us on matters relating to the investment
portfolios corresponding to divisions where you have invested
assets as of the record date by the investment portfolio's Board
for the portfolio's shareholders meeting. We determine the
number of investment portfolio shares in each division that we
attribute to your policy by dividing your investment value
allocated to that division by the net asset value of one share of
the matching investment portfolio.
We count fractional shares. If you have a voting interest, we
send you proxy material and a form on which to give us your
voting instructions.
All investment portfolio shares have the right to one vote. The
votes of all investment portfolios are cast together on a
collective basis, except on issues where the interests of the
portfolios differ. In these cases, voting is done on a portfolio-
by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote
are:
1. changes in the fundamental investment policy of a particular
investment portfolio, or
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2. approval of an investment advisory agreement.
MATERIAL CONFLICTS
We are required to track events to identify any material
conflicts from using investment portfolios for both variable life
and variable annuity separate accounts. The boards of the
investment portfolios, Golden American, and other insurance
companies participating in the investment portfolios, have this
same duty. There may be a material conflict if:
o state insurance law or federal income tax law changes;
o investment management of an investment portfolio changes; or
o voting instructions given by owners of variable life
insurance policies and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified
pension and retirement plans qualifying under Code Section 401.
These include cash or deferred arrangements under Code Section
401(k). Therefore, there is a possibility that a material
conflict may arise between the interests of owners in general, or
certain classes of owners, and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine
appropriate action, including removing the portfolios involved
from our variable investment options. We may take other action
to protect policy owners. This could mean delays or
interruptions of the variable operations.
When state insurance regulatory authorities require us, we may
ignore instructions relating to changes in an investment
portfolio's adviser or its investment policies. If we do ignore
voting instructions, we give you a summary of our actions in the
next semi-annual report to owners.
Under the Investment Company Act of 1940, we must get your
approval for certain actions involving our separate account. In
this case, you have one vote for every $100 of value you have in
the variable divisions. We cast votes credited to amounts in the
variable divisions not credited to policies in the same
proportion as votes cast by owners.
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, we may from time to time make any
of the following changes to our separate account.
1. Change the investment objective.
2. Offer additional divisions which will invest in portfolios
we find appropriate for our policy.
3. Eliminate variable divisions.
4. Combine two or more variable divisions.
5. Substitute a new investment portfolio for a portfolio in
which the division currently invests. A substitution may
become necessary if, in our judgment:
o a portfolio no longer suits the purposes of your policy;
o there is a change in laws or regulations;
o there is a change in a portfolio's investment objectives
or restrictions;
o the portfolio is no longer available for investment; or
o another reason a substitution is appropriate.
6. Transfer assets related to your policy class to another
separate account.
7. Withdraw the separate account from registration under the
1940 Act.
8. Operate the separate account as a management investment
company under the 1940 Act.
9. Cause one or more divisions to invest in a mutual fund other
than, or in addition to, the investment portfolios.
10. Stop selling these policies.
11. End any employer or plan trustee agreement with us under
its terms.
12. Limit or eliminate any voting rights for the separate
account.
13. Combine our separate account with other accounts.
14. Make any changes required by the 1940 Act, its rules or
regulations.
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We will not make a change until it is effective with the SEC, and
approved by the appropriate state insurance departments, if
necessary. We notify you of changes. If you then wish to
transfer the amount you have in the affected division to another
variable division, or to the fixed account, you may do so free of
charge. Just notify us at our customer service center.
REPORTS TO OWNERS
At the end of each policy year we send a report to you that
shows:
o your total policy death benefit;
o your investment value;
o policy loans, if any, plus accrued interest;
o your cash surrender value;
o information about the variable divisions;
o your account transactions during the previous year showing
premiums, allocation changes, deductions, loans or
withdrawals.
We also send semi-annual reports with financial information on
the investment portfolios, including a list of the investment
holdings of each portfolio to you.
We send confirmation notices to you throughout the year for
certain policy transactions.
CHARGES, DEDUCTIONS AND REFUNDS
The amount of a charge may not exactly correspond to the cost
incurred by us with providing the service or benefits associated
with the particular policy. Many charges are not at "cost." For
example, the deferred loading may not fully cover all of the
sales and distribution expenses actually incurred by us and
proceeds from other charges, including the mortality and expense
risk charge or cost of insurance charges, may be used in part to
cover such expenses.
DEDUCTIONS FROM INVESTMENT VALUE
We deduct the charges described below from your investment value.
With respect to any investment value attributable to the Fixed
Account, we will deduct charges from each fixed allocation on a
pro rata basis, unless we specify otherwise.
SALES CHARGE
Deductions for Deferred Loading; Recovery of Deferred Loading.
Although the sales load is chargeable to each premium payment
when we receive it, we defer the loading, and deduct it in equal
installments on each policy anniversary over a six year period
following our receipt and acceptance of each premium payment.
This applies both to the initial and any additional 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 your policy, we will deduct the total amount of
any unrecovered deferred loading from the amount we pay you. We
also immediately recover a portion of the deferred loading
applicable to an excess partial withdrawal. Collection of a
portion of the deferred loading due to an excess partial
withdrawal may shorten the period of recovery, or the last
installment amount may be reduced. SEE PARTIAL WITHDRAWALS, PAGE
33.
As a result of the deferred loading structure, a positive net
rate of return will give a higher cash surrender value and a
negative net rate of return will give a lower cash surrender
value than would be the case had the deferred loading been
deducted from your premium.
The deferred loading covers the costs of distribution, preparing
our sales literature, promotional expenses, and other direct and
indirect expenses. The amount charged is not specifically
related to sales expenses in a particular year. We recover the
sales costs over the period all policies remain in effect. We
pay the sales expenses from our own resources including:
o the sales charge; and
o profit we may earn on other charges we deduct from your
policy.
We may reduce or waive the sales charge for certain group or
sponsored arrangements, or for corporate purchasers.
TAX CHARGES
Almost all states levy taxes on life insurance premium payments.
These premium taxes vary in amount from state to state from 0% to
3.5%, and may vary from jurisdiction to jurisdiction within a
state.
For Genesis I policies, we deduct a premium tax charge equal to
2.40% of premium. Currently, the
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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
state of residence of the insured person(s). These charges range
from 2.0% to 3.5% of each premium. We reserve the right to
change this percentage for future premium payments to conform
with changes in the law or if the insured(s) change(s) state of
residence. We deduct the charge 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 you
surrender your policy. We return any premium taxes as part of the
refund if you cancel your policy during the free look period.
CORPORATE TAX CHARGE
We currently do not but reserve the right to assess a corporate
tax charge of up to 1.38% of premiums. The charge will be
deducted from the investment value in equal installments on each
policy anniversary over a six year period following receipt and
acceptance of each premium payment. If you surrender the policy,
we will deduct the total amount of any corporate tax charge not
yet deducted from the amount we pay you.
ISSUE CHARGES
Per Policy Charge
We charge $200 for policies written on a single life basis and
$300 for policies written on a survivorship basis. This charge
is incurred on the issue date and deducted from the investment
value on the first policy anniversary. We currently waive this
charge for the Genesis I policy.
Deferred Face Amount Charge
We assess a charge 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 you choose a Genesis I or
Genesis Flex policy. It will never exceed a maximum of $12 per
$1,000 of face amount. You incur this charge on the issue date
or effective date of any increase in face amount, and we deduct
it 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 deducted when determining
the cash surrender value payable if you surrender your policy.
Mortality Cost
We deduct the mortality cost from the investment value on each
quarterly processing date. We calculate it as follows:
(1) We determine the Death Benefit as of the beginning of the
processing period and adjust it with interest at the rate shown
in the policy to the middle of the processing period.
(2) We subtract from (1) the cash surrender value plus any debt
as of the beginning of the processing period, adjusted with
interest to the end of the processing period. (This is the net
amount at risk).
(3) We determine the current cost of insurance rate per $1,000
based on each insured's sex, issue age, years since the policy
date and underwriting class.
(4) We multiply the net amount at risk in (2) by (3) and then
divide this result by 1,000.
During the guarantee period, in no event will the mortality cost
be greater than the amount determined by substituting the tabular
value for the cash surrender value plus debt in (2) above and the
guaranteed maximum cost of insurance rate per $1,000 for the
current cost of insurance rate per $1,000 in (3) above. In
addition, the tabular value will be substituted for the Option II
death benefit adjustment in calculating the death benefit in (1)
above. SEE DEATH BENEFITS, PAGE 13.
Minimum Death Benefit Guarantee Charge
We deduct an amount per $1,000 of tabular net amount at risk. The
amount is based on the attained age of the insured (the younger
insured for survivorship policies). We deduct the charge from
the investment value on each quarterly processing date during the
guarantee period. The quarterly charge will never exceed $0.15
per $1,000 of face amount per quarter.
The guaranteed death benefit risks are related to potentially
unfavorable investment results. One risk is that the policy's
cash surrender value cannot cover the charges due during the
guarantee period. Another
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risk is that we may have to limit the deduction for mortality cost.
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.
DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct a charge each day for the mortality and expense risks
we take on. This charge is 0.002477% per day of the amount you
have in the variable divisions. This is an annual rate of 0.90%.
The mortality risk we assume is that insured people as a group,
may live less time than we estimated. We assume an expense risk
that other expenses we have in issuing and administering the
policies, and in operating the variable divisions are greater
than the amount we estimated when we set these charges.
The mortality and expense risk charge does not apply to your
investment value which is invested in the fixed account or as
loan security in the general account.
Administrative Charge
We charge each division of Account A with a daily asset based
charge to cover a portion of the policy administration. The
daily charge is at a rate of 0.000276% (equivalent to an annual
rate of 0.10%) of the assets in each division. This charge is
designed to cover ongoing costs such as:
o premium billing and collections;
o claim processing;
o policy transactions;
o record keeping;
o reporting and communications with owners; and
o other expenses and overhead.
GUARANTEED ISSUE
We may offer policies on a guaranteed issue basis for certain
group or sponsored arrangements. When this happens, we issue
these policies up to a preset face amount with reduced evidence
of insurability requirements. Guaranteed issue policies may
carry a different mortality risk to us compared with policies
that are fully underwritten. So, we may charge different cost of
insurance rates for guaranteed issue policies. The cost of
insurance rates under these circumstances may depend on the:
o issue age of the insured people;
o size of the group; and
o total premium the group pays.
Generally, most guaranteed issued policies have higher overall
charges for insurance than a similar underwritten policy issued
in the standard non-tobacco user, or standard tobacco user class.
This means that an insured person in a group or sponsored
arrangement could get individually underwritten insurance
coverage at a lower overall cost.
CHARGES FOR ADDITIONAL BENEFITS
On each monthly processing date, we deduct the cost of additional
benefits under your riders.
CHANGES IN MONTHLY CHARGES
Changes we make in the cost of insurance charges or charges for
additional benefits are for a class of insured persons. We base
the new charge on changes in expectations about:
o investment earnings;
o mortality;
o the time policies remain in effect;
o expenses; and
o taxes.
New monthly charges will never be more than the guaranteed
maximum rates shown in your policy.
POLICY TRANSACTION FEES
We also charge fees for certain transactions you may make in your
policy. We take transaction fees from the variable and the fixed
accounts in the same proportion that your investment value in
each
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division has to your net investment value immediately after
the transaction.
PARTIAL WITHDRAWAL
For our costs, we charge a service fee against your investment
value for each partial withdrawal you take after four partial
withdrawals in a policy year. The fee is $25. We may also
recover deferred sales charges from your investment value. SEE
PARTIAL WITHDRAWALS, PAGE 33.
ALLOCATION CHANGES
For our costs, there is a $25 fee for each additional allocation
change over twelve per policy year. If you include multiple
allocation changes in one request, it counts as one allocation
change. There is no fee if you are transferring your investment
value into the fixed account under the right to convert feature
in your policy. SEE ALLOCATION CHANGES, PAGE 18, AND RIGHT TO
CONVERT POLICY, PAGE 22.
FEES AND EXPENSES OF THE PORTFOLIOS
The variable account purchases shares of the investment
portfolios at net asset value. This price reflects investment
management fees and other direct expenses that are deducted from
the portfolio assets. The following table describes these
investment management fees and other direct expenses of the
investment portfolios.
[end two-column format]
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GCG TRUST PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE
NET ASSETS)/1/
Total Annual Total Annual
Investment Operating Total Operating
Portfolio Management Other Expenses Waivers Expenses
--------- Fees/2/ Expenses Without and With Waivers
---------- /3/ Waivers and Reductions and
-------- Reductions ----------Reductions/4/
---------- ------------
Liquid Asset Series 0.59% 0.00% 0.59% -- 0.59%
Limited Maturity 0.60% 0.00% 0.60% -- 0.60%
Bond Series
Global Fixed Income 1.60% 0.05% 1.65% 0.05% 1.60%
Series
Total Return Series 0.94% 0.04% 0.98% 0.01% 0.97%
Equity Income Series 0.98% 0.00% 0.98% -- 0.98%
Fully Managed Series 0.98% 0.00% 0.98% -- 0.98%
Rising Dividends 0.98% 0.00% 0.98% -- 0.98%
Series
Growth & Income 1.08% 0.00% 1.08% -- 1.08%
Series
Growth Series 1.08% 0.01% 1.09% -- 1.09%
Value Equity Series 0.98% 0.00% 0.98% -- 0.98%
Research Series 0.94% 0.00% 0.94% -- 0.94%
Mid-Cap Growth 0.94% 0.01% 0.95% -- 0.95%
Series
All-Growth Series 0.98% 0.01% 0.99% -- 0.99%
Growth Opportunities 1.10% 0.05% 1.15% -- 1.15%
Series
Strategic Equity 0.98% 0.01% 0.99% -- 0.99%
Series
Capital Appreciation 0.98% 0.00% 0.98% -- 0.98%
Series
Small Cap Series 0.98% 0.01% 0.99% -- 0.99%
Real Estate Series 0.98% 0.01% 0.99% -- 0.99%
Hard Assets Series 0.98% 0.02% 1.00% -- 1.00%
Managed Global 1.25% 0.01% 1.26% -- 1.26%
Series
Developing World 1.75% 0.08% 1.83% -- 1.83%
Series
Emerging Markets 1.75% 0.08% 1.83% -- 1.83%
Series
_______________________________
/1/ These portfolio expenses are not direct charges against
division assets or reductions from contract values. Rather, we
factor these portfolio expenses when computing each underlying
portfolio's net asset value. We use the share price to calculate
the unit values of the divisions. For a more complete
description of the portfolios' costs and expenses, see the GCG
Trust Prospectus.
/2/ Fees decline as combined assets increase. See the prospectus
for the GCG Trust for more information.
/3/ Other expenses generally consist of independent trustees fees
and certain expenses associated with investing in international
markets. Other expenses are based on actual expenses for the year
ended December 31, 1998, except for portfolios that commenced
operations in 1998 where the charges have been annualized.
/4/ Directed Services, Inc. is currently reimbursing expenses to
maintain total expenses at 0.97% for the Total Return portfolio
and 1.60% for the Global Fixed Income portfolio as shown.
Without this reimbursement, and based on current estimates, total
expenses would be 0.98% for the Total Return portfolio and 1.74% for
the Global Fixed Income portfolio. This agreement will remain in
place through December 31, 1999.
34
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PIMCO VARIABLE INSURANCE TRUST PORTFOLIO ANNUAL EXPENSES (AS A
PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)/1/
Total Annual Total Annual
Investment Operating Total Operating
Portfolio Management Other Expenses Waivers Expenses
--------- Fees Expenses Without and With Waivers
--------- -------- Waivers and Reductions and
Reductions /2/ Reductions/2/
---------- --------- ------------
PIMCO High Yield 0.50% 0.25%/3/ 0.81% 0.06% 0.75%
Bond Portfolio
PIMCO StocksPLUS 0.40% 0.25% 0.72% 0.07% 0.65%
Growth and Income
Portfolio
_______________________________
/1/ The investment portfolios provided this portfolio expense
information. We have not independently verified this
information. These portfolio expenses are not direct charges
against division assets or reductions from contract values.
Rather, we factor these portfolio expenses when computing each
underlying portfolio's net asset value. We use the share price
to calculate the unit values of the divisions. For a more
complete description of the portfolios' costs and expenses, see
the PIMCO Prospectus.
/2/ PIMCO has agreed to waive some or all of its other expenses,
subject to potential future reimbursement, to the extent that
total expenses for the PIMCO High Yield Bond portfolio and PIMCO
StocksPLUS Growth and Income portfolio would exceed 0.75% and
0.65%, respectively, due to payment by the portfolios of their
pro rata portion of Trustees' fees. Without this agreement and,
based on current estimates, total expenses would be 0.81% for the
PIMCO High Yield Bond portfolio and 0.72% for the PIMCO
StocksPLUS Growth and Income portfolio.
/3/ Since the PIMCO High Yield Bond portfolio commenced operations
on April 30, 1998, other expenses as shown has been annualized
for the year ended December 31, 1998.
[two-column format]
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS
Individuals, corporations or other institutions may purchase this
policy. For group or sponsored arrangements (including our home
office employees), corporate purchases, or special exchange
programs which we may offer from time to time, we may reduce or
waive the:
o administrative charge;
o deferred loading;
o minimum initial premium;
o minimum additional premium; or
o other charges normally assessed.
We can reduce or waive these items due to expected economies
under a group or sponsored arrangement or with a corporate
purchaser. Group arrangements include those in which there is a
trustee, an employer, or an association. The group either
purchases policies covering a group of individuals on a group
basis, or endorses a policy to a group of individuals. Sponsored
arrangements include those where an employer or association
allows us to offer policies to its employees or members on an
individual basis. Group or sponsored arrangements that have been
set up solely to buy policies or that have been in existence less
than six months will not qualify for reduced charges.
Our sales, administration and mortality costs generally vary with
the size and stability of the group, among other factors. We
take all these factors into account when we reduce charges. A
group or sponsored arrangement must meet certain requirements to
qualify for reduced charges. We make reductions to charges based
on our rules in effect when we approve a policy application form.
We may change these rules from time to time.
Sponsored arrangement corporations may have different group
premium payments and premium requirements.
We will not be unfairly discriminatory in any variation in the
deferred sales charge, administrative charge, or other charges,
fees and privileges. These variations are based on differences in
costs or services.
OTHER CHARGES
Under current law, we pay no tax on investment income and capital
gains included in variable life insurance policy reserves. This
means that no charge is currently made to any variable division
for our federal income taxes. If the tax law changes and we have
federal income tax chargeable to the variable divisions, we may
make such a charge in the future.
In several states, we must pay state and local taxes, in addition
to any premium taxes which apply. Currently, these taxes are not
large. However, if
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these taxes increase, we may charge for such
taxes when they are chargeable to our variable divisions .
TAX CONSIDERATIONS
GENESIS FLEX AND GENESIS I
We designed the Genesis Flex policy to comply with the Life
Insurance Premium Payment Test under Federal tax law. As a
result, you generally should not be taxed on any loans you
receive under a Genesis Flex policy. The Genesis I policy will
not comply with the Life Insurance Premium Payment Test and thus
will be a "modified endowment contract" under Federal tax law.
Loans, partial withdrawals and surrenders under a Genesis I
policy may be taxable in whole or in part and may also be subject
to a 10% penalty tax.
The following summary provides a general description of the
federal income tax considerations associated with the policy and
does not purport to be complete or to cover all tax situations.
This discussion is not intended as tax advice. Counsel or other
competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of
the present federal income tax laws . No representation is made
as to the likelihood of continuation of the present federal
income tax laws or as to how they may be interpreted by the
Internal Revenue Service.
TAX STATUS OF THE POLICY
The Genesis Flex and Genesis I policies were designed to qualify
as a life insurance contracts under the Internal Revenue Code.
All terms and provisions of the policies shall be construed in a
manner which is consistent with that design.
In order to qualify as a life insurance contract for federal
income tax purposes and to receive the tax treatment normally
accorded life insurance contracts under federal tax law, a policy
must satisfy certain requirements which are set forth in the
Internal Revenue Code. We believe all our policies satisfy the
applicable requirements. However, there is very little guidance,
with respect to policies issued on a substandard basis and
policies issued on a survivorship basis. If it is subsequently
determined that a policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the policy
into compliance with such requirements and we reserve the right
to restrict policy transactions in order to do so.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 tests, Code Section
817(h) requires separate account investments, such as our
variable account, to be "adequately diversified." The Treasury
has issued regulations which set the standards for measuring the
adequacy of any diversification. To be adequately diversified,
each variable division must meet certain tests. If your variable
life policy is not adequately diversified under these
regulations, it is not treated as life insurance under Code
Section 7702. You would then be subject to federal income tax on
your policy income as you earn it. Our variable divisions'
investment portfolios have promised they will meet the
diversification standards that apply to your policy.
In certain circumstances, you, as owner of a variable life
insurance contract, may be considered the owner for federal
income tax purposes of the separate account assets used to
support your contract. Any income and gains from the separate
account assets are includable in the gross income from your
policy under these circumstances. The IRS has stated in
published rulings that a variable contract owner is considered
the owner of separate account assets if the contract owner has
"indicia of ownership" in those assets. "Indicia of ownership"
includes the ability to exercise investment control over the
assets.
Your ownership rights under your policy are similar to, but
different in some ways from those described by the IRS in rulings
in which it determined that policy owners are not owners of
separate account assets. For example, you have flexibility in
allocating your premium payments and in your policy values.
These differences could result in the IRS treating you as the
owner of a pro rata share of the variable account assets. We do
not know what standards will be set forth in the future, if any,
in the Treasury's regulations or rulings that it expects to
issue. We reserve the right to modify your policy, as necessary,
to try to prevent you from being considered the owner of a pro
rata share of the variable account assets, or to otherwise
qualify your policy for favorable tax treatment.
The following discussion assumes that the policy will qualify as
a life insurance contract for federal income tax purposes.
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TAX TREATMENT OF POLICY BENEFITS
We believe that the death benefit under a policy is generally
excludable from the gross income of the beneficiary. However,
there are exceptions to this general rule. Federal, state and
local transfer, estate inheritance, and other tax consequences of
ownership or receipt of policy proceeds depend on the
circumstances of each policy owner or beneficiary. A tax adviser
should be consulted on these consequences.
Generally, the policy owner will not be taxed on any of the
policy cash value until there is a distribution. When
distributions from a policy occur, or when loans are taken out
from or secured by a policy, the tax consequences depend on
whether the policy is a "Modified Endowment Contract."
Special rules may apply if you are subject to the alternative
minimum tax. You should consult a tax adviser if you are subject
to the alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
Under the Internal Revenue Code, certain life insurance contracts
are classified as "modified endowment contracts," with less
favorable tax treatment than other life insurance contracts. Due
to the flexibility of the policies at to premiums and benefits,
the individual circumstances of each policy will determine
whether it is classified as a modified endowment contract. The
rules are too complex to be summarized here, but generally depend
on the amount of premiums paid during the first seven policy
years. Certain changes in a policy after it is issued could also
cause it to be classified as a modified endowment contract. A
current or prospective policy owner should consult with a
competent advisor to determine whether a policy transaction will
cause the policy to be classified as a modified endowment
contract.
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our
affiliates) to the same policy owner during any calendar year are
treated as one modified endowment contract for purposes of
determining the amount includable in the policy owner's income
when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS
Once a policy is classified as a modified endowment contract, the
following tax rules apply both prospectively and to any
distributions made in the prior two years:
1. All distributions other than death benefits, including
distributions upon surrender and withdrawals, from a
modified endowment contact will be treated first as
distributions of gain taxable as ordinary income and as tax-
free recovery of the policy owner's investment in the policy
only after all gain has been distributed.
2. Loans taken from or secured by a policy classified as a
modified endowment contract are treated as distributions and
taxed accordingly.
3. A 10% additional income tax may be imposed on the amount
subject to tax. Consult a tax adviser to determine whether
you may be subject to this penalty tax.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE
NOT MODIFIED ENDOWMENT CONTRACTS
Distributions other than death benefits from a policy that is not
classified as a modified endowment contract are generally treated
first as a recovery of the policy owner's investment in the
policy and only after the recovery of all investment in the
policy as taxable income. However, certain distributions which
must be made in order to enable the policy to continue to qualify
as a life insurance contract for federal income tax purposes if
policy benefits are reduced during the first fifteen policy years
may be treated in whole or in part as ordinary income subject to
tax.
Loans from or secured by a policy that is not a modified
endowment contract are generally not treated as distributions.
However, the tax consequences of Preferred Loans are uncertain.
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Finally, neither distributions from nor loans from or secured by
a policy that is not a modified endowment contract are subject to
the 10% additional income tax.
INVESTMENT IN THE POLICY
Your investment in the policy is generally your aggregate
premiums. When a distribution is taken from the policy, your
investment in the policy is reduced by the amount of the
distribution that is tax free.
POLICY LOANS
In general, interest on a policy loan will not be deductible.
Before taking out a policy loan, you should consult a tax adviser
as to the tax consequences.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall
be recognized on the exchange of one life insurance policy for
another life insurance policy, or for an endowment or annuity
contract. We accept 1035 exchanges with outstanding loans.
Special rules and procedures apply to Section 1035 transactions.
If you wish to take advantage of Section 1035, you should consult
your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply where a policy is owned by a tax-exempt
entity. Tax-exempt entities should consult their tax adviser
regarding the consequences of purchasing and owning a policy.
These consequences could include an effect on the tax-exempt
status of the entity and the possibility of the unrelated
business income tax.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life insurance under
the Code, we reserve the right to refuse to accept all or part of
your premium payments, or to change your death benefit. We may
refuse to allow you to make partial withdrawals that would cause
your policy to fail to qualify as life insurance. We also may:
o make changes to your policy or its riders;
o require you to make additional premium payments; or
o make distributions from your policy to the degree that we
deem necessary to qualify your policy as life insurance for
tax purposes.
If we make any change of this type, it applies the same to all
affected policies. We will give you advance notice of this
change.
The tax law limits the amount we can charge for mortality costs
and other expenses used to calculate whether your policy
qualifies as life insurance for federal income tax purposes. We
must base these calculations on reasonable mortality charges and
other charges reasonably expected to be paid. The Treasury
issued proposed regulations on what it considers reasonable for
mortality charges. We believe that the charges used for your
policy should meet the Treasury's current requirement for
"reasonableness." We reserve the right to make changes to the
mortality charges if future regulations have standards which make
changes necessary in order to continue to qualify your policy as
life insurance for federal income tax purposes.
Additionally, assuming that you do not want your policy to be or
to become a Modified Endowment Contract, we include a policy
endorsement under which we have the right to amend your policy,
including riders. We do this to make sure that your policy
continues to meet the seven-pay test for federal income tax
purposes. If the policy premium you pay is more than the seven-
pay limit, we have the right to remove any excess premium or to
make any appropriate adjustments to your policy's investment
value and death benefit.
Any increase in your death benefit will cause an increase in your
cost of insurance charges.
OTHER
Policy owners may use our policies in various arrangements,
including:
o qualified plans;
o non-qualified deferred compensation or salary continuance
plans;
o split dollar insurance plans;
o executive bonus plans;
o retiree medical benefit plans; and
o other plans.
The tax consequences of these plans may vary depending on the
particular facts and circumstances
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of each arrangement. So, if you want to use any of our policy
in this type of arrangement, you should consult a qualified tax
adviser regarding the tax issues of your particular arrangement.
In recent years, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the
purchase of a new policy or a change in an existing policy should
consult a tax advisor.
The favorable tax treatment of Section 101(a) will not apply to
benefits paid at maturity of the policy (Attained Age 100).
The IRS requires us to withhold income taxes from any portion of
the amounts individuals receive in a taxable transaction. We do
not withhold income taxes if you elect in writing not to have
withholding apply. If the amount withheld for you is
insufficient to cover income taxes, you may have to pay income
taxes and possibly penalties later.
Depending on your particular jurisdiction and the circumstances
of you and your beneficiary, tax consequences of ownership or
receipt of your policy benefits will vary. These taxes include
federal estate and gift taxes, and state and local inheritance
taxes.
If a trustee under a pension or profit-sharing plan, or similar
deferred compensation arrangement, owns a policy, the federal,
state and estate tax consequences could differ. The amounts of
life insurance that may be purchased on behalf of a participant
in a pension or profit-sharing plan are limited. The current
cost of insurance for the net amount at risk is treated as a
"current fringe benefit" and must be included annually in the
plan participant's gross income. We report this cost (generally
referred to as the "P.S. 58" cost) to the plan annually. If a
policy is distributed to you from the plan, the cash value is
immediately taxable to the extent it exceeds your basis. If the
plan participant dies while covered by the plan and the policy
proceeds are paid to the participant's beneficiary, then the
excess of the death benefit over the cash value is not taxable.
However, the balance of the proceeds will generally be taxable to
the extent it exceeds the participant's cost basis in the policy.
Policies owned under these types of plans may be subject to
restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding
ERISA.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain,
there is always the possibility that the tax treatment of the
policy could change by legislation or otherwise. Consult a tax
adviser with respect to legislative developments and their effect
on the policy.
OUR INCOME TAXES
Under current law we pay no tax on investment income and capital
gains reflected in variable life insurance policy reserves
(except to the extent the federal deferred acquisition cost may
be considered such a tax). Consequently, no charge is currently
being made to any division of our variable account for our
federal income taxes. We reserve the right, however, to make
such a charge in the future if the tax law changes and we incur
federal income tax which is attributable to the variable account.
We must pay state and local taxes (in addition to applicable
taxes based on premiums) in several states. At the present time,
these taxes are not substantial. However, if these taxes
increase, we reserve the right to charge for such taxes when they
are attributable to our variable account.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE
INFORMATION ON FEDERAL, STATE, LOCAL, AND OTHER TAX
CONSIDERATIONS.
ILLUSTRATIONS
The following tables are intended to show how the policy works.
This includes how benefits and values can vary over a long period
of time. Each table also compares these values with total
premiums paid with interest. The policies illustrated include:
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[following table in not in two-column format]
<TABLE>
<CAPTION>
Stated
Tobacco User Type of Basis of Death Initial
Gender Age Status Policy Policy Benefit Premium
------ --- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Male 30 Non-tobacco Genesis I Single $507,639 $100,000
User
Male 55 Non-tobacco Genesis Flex Single $181,432 $10,000
User
Male 45 Non-tobacco Genesis Flex Survivorship $258,618 $10,000
User
</TABLE>
The tables show how death benefits, investment values, and cash
surrender values of a hypothetical policy could vary over an
extended period of time, assuming the variable divisions had
constant hypothetical gross annual investment returns of 0%, 6%,
or 12% over the periods indicated in each table. The amounts
shown would differ if we had used female or unisex rates.
Values would differ from those in the tables if the annual
investment returns were not constant.
These illustrations assume there are no policy loans, and that no
premium has been allocated to the fixed account.
The third column of each table shows what would happen if an
amount equal to the assumed premiums were invested to earned
interest after taxes, of 5% compounded annually.
We illustrate premium payments as if they were made at the
beginning of the year.
The difference between the investment value and the cash
surrender value in the first six years of the policy shows the
effect of the deferred sales charge.
The tables show the net investment return on your policy is lower
than the gross investment return on the variable divisions. We
show this effect in the amounts for death benefits, investment
values and cash surrender values. This effect is due to
deductions from premiums, the mortality and expense risk charge,
monthly deductions, cost of insurance rider charges, and deferred
sales charges. The tables show charges at the maximum rates we
guarantee in our policies.
The tables also reflect the effect on each division's investment
performance of the portfolio charge for management and portfolio
expenses.
The tables reflect annual investment management fees of 1.015% of the
portfolios' aggregate average daily net assets. This hypothetical
rate is a simple average of the investment management fees applying
to the investment portfolios for the years ending December 31, 1998.
We assume other portfolio expenses at the rate of 0.035% of the
portfolios' average daily net assets. This is an average of all the
portfolios' other expenses for the year ending December 31, 1998 after
any reimbursement by the investment portfolio managershas been made.
The average of all portfolios' total expense is 1.05%. Actual fees vary
by portfolio. The portfolio fees and expenses used in the illustrations
are net amounts shown after reimbursement of expenses by portfolio's
investment manager. Absent such reimbursement, the average total
expenses, average investment management fees, and average other
portfolio expenses used in the illustrations would be higher
1.06%, 1.015, and 0.04, respectively). The tables assume
that the current expense reimbursement arrangements will
continue. However, they may not continue through 1999.
The effect of these charges and expenses, and mortality and
expense risk charges result in a net rate of return of:
o (2.04)% on a 0% gross rate of return;
o 3.90% on a 6% gross rate of return; and
o 9.84% on a 12% gross rate of return
The tables assume that charges have been deducted. This includes
administrative and sales charges. The tables show that we do not
currently charge against the variable account for state or
federal taxes. If we charge for the taxes in the future, it will
take a higher gross rate of return than the rates shown to
produce the same death benefits, account values, and cash
surrender values.
If we are asked to do so, we will give a comparable personal
illustration based on:
o the insured person's age and gender;
o the insured person's underwriting classification;
o initial face amount; and
o premiums consistent with your policy form.
40
<PAGE>
<PAGE>
At issue, we deliver an individualized illustration showing the
premium you chose and the insured person's actual risk class.
After we issue the policy, if you ask us to, we will give you an
illustration of future policy benefits. We base these
hypothetical future benefits on both guaranteed and current cost
factor assumptions and actual account value.
[end two-column format]
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
TOTAL PREMIUMS END OF YEAR
PAID PLUS DEATH BENEFIT(2)
INTEREST AT 5% AS OF ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAYMENTS(1) END OF YEAR ANNUAL INVESTMENT RETURN OF
0% 6% 12%
- ------------------------------------------------------------------------------
1 $100,000 $105,000 $507,639 $507,639 $515,695
2 110,250 507,639 507,639 538,108
3 115,763 507,639 507,639 561,993
4 121,551 507,639 507,639 587,440
5 127,628 507,639 507,639 614,529
6 134,010 507,639 507,639 643,345
7 140,710 507,639 507,639 678,262
8 147,746 507,639 507,639 715,185
9 155,133 507,639 507,639 754,226
10 162,889 507,639 507,639 795,502
15 207,893 507,639 507,639 1,040,044
20 265,330 507,639 507,639 1,362,498
30 432,194 507,639 507,639 2,346,857
41
<PAGE>
<PAGE>
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%
- ------------------------------------------------------------------------------
1 $ 93,433 $ 99,243 $105,044 $ 88,095$ 93,905 $ 99,706
2 89,567 101,134 113,354 85,297 96,863 109,083
3 85,774 103,091 122,445 82,571 99,888 119,242
4 82,043 105,111 132,385 79,908 102,975 130,250
5 78,371 107,191 143,251 77,304 106,123 142,183
6 74,750 109,328 155,121 74,750 109,328 155,121
7 72,246 112,591 169,156 72,246 112,591 169,156
8 69,759 115,947 184,475 69,759 115,947 184,475
9 67,287 119,396 201,191 67,287 119,396 201,191
10 64,822 122,936 219,423 64,822 122,936 219,423
15 52,479 141,988 338,353 52,479 141,988 338,353
20 39,743 163,226 520,383 39,743 163,226 520,383
30 9,818 210,063 1,208,126 9,818 210,063 1,208,126
(1) All payments are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no policy loan or partial withdrawal has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND THE INVESTMENT EXPERIENCE OF THE SERIES OF THE TRUST. THE DEATH
BENEFIT, INVESTMENT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY
POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE
BY GOLDEN AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
42
<PAGE>
<PAGE>
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
TOTAL PREMIUMS END OF YEAR
PAID PLUS DEATH BENEFIT(2)
INTEREST AT 5% AS OF ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAYMENTS(1) END OF YEAR ANNUAL INVESTMENT RETURN OF
0% 6% 12%
- ------------------------------------------------------------------------------
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 10,000 115,779 181,432 181,432 199,357
10 (age 65) 10,000 132,068 181,432 181,432 227,309
15 168,556 181,432 181,432 295,069
20 215,125 181,432 181,432 387,377
30 (age 85) 350,415 181,432 181,432 669,410
43
<PAGE>
<PAGE>
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%
- ------------------------------------------------------------------------------
1 $ 7,552 $ 8,103 $ 8,655 $ 6,184 $ 6,735 $ 7,287
2 14,990 16,560 18,198 13,395 14,966 16,604
3 22,125 25,195 28,527 20,404 23,475 26,807
4 28,973 34,025 39,730 27,226 32,278 37,983
5 35,547 43,064 51,904 33,874 41,390 50,230
6 41,864 52,331 65,176 40,364 50,831 63,676
7 48,217 62,125 79,968 46,717 60,625 78,468
8 54,449 72,310 96,299 52,949 70,810 94,799
9 60,587 82,925 114,236 59,087 81,425 112,736
10 (age 65) 66,745 94,101 133,594 65,245 92,601 132,094
15 49,702 101,884 195,020 49,702 101,884 195,020
20 32,727 109,517 283,140 32,727 109,517 283,140
30 (age 85) 0 116,568 566,064 0 116,568 566,064
(1) If all planned premiums are paid as illustrated the Guarantee Period after
the last payment will be for life.
(2) All payments are illustrated as if made at the beginning of the Policy Year.
(3) Assumes no policy loan or partial withdrawal has been made.
(4) Guarantee Period applies.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND THE INVESTMENT EXPERIENCE OF THE SERIES OF THE TRUST. THE DEATH
BENEFIT, INVESTMENT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY
POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE
BY GOLDEN AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
44
<PAGE>
<PAGE>
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
TOTAL PREMIUMS END OF YEAR
PAID PLUS DEATH BENEFIT(2)
INTEREST AT 5% AS OF ASSUMING HYPOTHETICAL GROSS
POLICY YEAR PAYMENTS(1) END OF YEAR ANNUAL INVESTMENT RETURN OF
0% 6% 12%
- ------------------------------------------------------------------------------
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 10,000 115,779 258,618 258,618 288,628
10 (age 65) 10,000 132,068 258,618 258,618 423,066
20 10,000 215,125 258,618 258,618 554,848
30 (age 85) 350,415 258,618 258,618 957,659
45
<PAGE>
<PAGE>
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%
- ------------------------------------------------------------------------------
1 $ 8,752 $ 9,332 $ 9,912 $ 7,444 $ 8,024 $ 8,604
2 17,500 19,201 20,972 15,953 17,655 19,425
3 25,940 29,325 32,989 24,255 27,640 31,304
4 34,075 39,711 46,056 32,352 37,988 44,332
5 41,910 50,367 60,272 40,248 48,705 58,610
6 49,447 61,299 75,750 47,947 59,799 74,250
7 56,950 72,777 92,875 55,450 71,277 91,375
8 64,256 84,657 111,729 62,756 83,157 110,229
9 71,365 96,951 132,360 69,865 95,451 130,860
10 (age 65) 78,358 109,753 154,889 76,858 108,253 153,389
15 65,429 126,882 239,026 65,429 126,882 239,026
20 51,721 145,350 365,414 51,721 145,350 365,414
30 (age 85) 9,848 171,724 786,708 9,848 171,724 786,708
(1) If all planned premiums are paid as illustrated the Guarantee Period after
the last payment will be for life.
(2) All payments are illustrated as if made at the beginning of the Policy Year.
(3) Assumes no policy loan or partial withdrawal has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND THE INVESTMENT EXPERIENCE OF THE SERIES OF THE TRUST. THE DEATH
BENEFIT, INVESTMENT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD ALSO BE DIFFERENT IF ANY
POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO REPRESENTATIONS CAN BE MADE
BY GOLDEN AMERICAN LIFE INSURANCE COMPANY OR ACCOUNT A OR THE TRUSTS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
A PERIOD OF TIME.
46
<PAGE>
<PAGE>
[two-column format]
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS
Name, Age and Address* Position and Offices with
Golden American
- ---------------------- -------------------------
BarnettChernow (49) President and Director
Myles R. Tashman (56) Director, Executive Vice
President, General
Counsel and Secretary
R. Brock Armstrong (52) Director and Chairman of
5780 Powers Ferry Rd., NW the Board of Directors
Atlanta, GA 30327
Michael W. Cunningham (50) Director
5780 Powers Ferry Rd., NW
Atlanta, GA 30327
Linda B. Emory (60) Director
5780 Powers Ferry Rd., NW
Atlanta, GA 30327
Phillip R. Lowery (46) Director
5780 Powers Ferry Rd., NW
Atlanta, GA 30327
James R. McInnis (51) Executive Vice President
Stephen J. Preston (41) Executive Vice President
and Chief Actuary
E. Robert Koster (40) Senior Vice President and
Chief Financial
Officer
Patricia M. Corbett (34) Treasurer
909 Locust Avenue
Des Moines, IA 50309
David L. Jacobson (49) Senior Vice President
and Assistant Secretary
William B. Lowe (34) Senior Vice President
909 Locust Avenue
Des Moines, IA 50309
Ronald R. Blasdell (45) Senior Vice Presidnet
Steven G. Mandel (39) Senior Vice President
__________________
* Except as noted, all directors and officers are located at
Golden American's office at 1475 Dunwoody Drive, West Chester, PA
19380
Each director is elected to serve for one year or until the next
annual meeting of shareholders or until his or her successor is
elected. Some directors are directors of insurance company
affiliates of Golden American. 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 of Golden American Life and
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. From 1996
to 1998, Mr. Chernow also served as Executive Vice President of
First Golden. He was elected to serve as a Director of Golden in
April of 1998 and First Golden in June, 1996.
Mr. Myles R. Tashman joined Golden American in August, 1994 as
Senior Vice President and was named Executive Vice President,
General Counsel and Secretary effective January 1, 1996. He has
also served as a Director, Executive Vice President, General
Counsel and Secretary to First Golden since June, 1996. He was
elected to serve as a director of Golden American in January,
1998.
Mr. R. Brock Armstrong was elected to serve as a Director and
Chairman of the Board of Directors in April, 1999. He was
elected to serve as a Director of First Golden, in December 1998,
a Director and President of Equitable Life Insurance Company of
Iowa in April, 1999. He became a Group Executive of ING Group in
October 1998. Prior to October 1998, Mr. Armstrong was Senior
Vice President, The Prudential Insurance Company of America, from
April 1997 to October 1998; Executive Vice President, London
Insurance Group, From August 1994 to April 1997; President and
Chief Financial Officer of Security First Group, From August 1991
to August 1994.
Mr. Michael W. Cunningham became a Director of Golden American
and First Golden in April, 1999. Also, he has served as a
Director of Life of Georgia and Security Life of Denver since
1995. Currently, he serves as Executive Vice President and Chief
Financial Officer of ING North America Insurance Corporation, and
has worked for them since 1991.
Ms. Linda B. Emory became a Director of Golden American in April
1999. Since September 1995, she has served as a Director for Life
Insurance Company of Georgia, Southland Life Insurance Company,
Security Life of Denver, Midwestern United Life Insurance
Company, First ING of New York and Columbine Insurance Company.
Also, she is an Executive Vice President of ING North America
Insurance Corporation.
47
<PAGE>
<PAGE>
Mr. Phillip R. Lowery became a Director of Golden American in
April, 1999. Presently, he is Executive Vice President and Chief
Actuary for ING FSI North America a position he has held since
1990.
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 held various offices, including
President at the time of his departure.
Mr. E. Robert Koster was elected Senior Vice President and Chief
Financial Officer of Golden American in September 1998. From
August,
1984 to September, 1998 he has held various positions with ING
companies in The Netherlands.
Ms. Patricia M. Corbett was elected Treasurer of Golden American
in December 1998. She joined Equitable Life Insurance Company of
Iowa in 1987 and is currently Treasurer and Assistant Vice
President of Equitable Life and USG Annuity & Life Company.
Mr. David L. Jacobson joined Golden American in November 1993 as
Senior Vice President and Assistant Secretary.
Mr. Stephen J. Preston joined Golden American in December, 1993
as Senior Vice President, Chief Actuary and Controller. He became
an
Executive Vice President and Chief Actuary in June 1998.
Mr. William 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 was also President of Equitable of Iowa Securities Network,
Inc. until October 1998. Prior to joining Equitable Life, he was
an Associate Vice President of
Lincoln Benefit Life from July 1990 through December 1993.
Mr. Steven G. Mandel joined Golden American in October 1988 and
became a Senior Vice President in June 1998.
Mr. Ronald R. Blasdell joined Golden American in February 1994
and became a Senior Vice President in June 1998. Prior to
joining Golden American, he was with United Pacific Life
Insurance Company,
from November 1988 to November 1993.
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.
STATE REGULATION
We are regulated and supervised by the Insurance Department of
the State of Delaware, which periodically examines our financial
condition and operations. In addition, we are subject to the
insurance laws and regulations in every jurisdiction in which we
do business. As a result, the provisions of these policies may
vary somewhat from jurisdiction to jurisdiction.
We are required to submit annual statements, including financial
statements, of our operations and finances to the insurance
departments of the various jurisdictions in which we do business
to determine solvency and compliance with state insurance laws
and regulations.
We are also subject to various federal securities laws and
regulations.
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. has provided advice on
certain matters relating to Federal securities laws.
LEGAL PROCEEDINGS
Golden American and its affiliates, 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 material
settlement
48
<PAGE>
<PAGE>
payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Golden American
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 Golden American.
EXPERTS
The financial statements of Golden American Life Insurance
Company and Separate Account A appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the registration statement and
are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined
by Stephen J. Preston, F.S.A., MAAA, as stated in his opinion
filed as an exhibit to the Registration Statement we filed with
the SEC.
REGISTRATION STATEMENT
We have filed a Registration Statement relating to the Variable
Account and the variable life insurance policy described in this
prospectus with the SEC. The Registration Statement, which is
required by the Securities Act of 1933, includes additional
information that is not required in this prospectus under the
rules and regulations of the SEC. The additional information may
be obtained from the SEC's principal office in Washington, DC.
You will have to pay a fee for the material.
49
<PAGE>
<PAGE>
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Golden American Life Insurance Company
We have audited the accompanying consolidated balance sheets of
Golden American Life Insurance Company as of December 31, 1998 and
1997, and the related consolidated statements of operations,
changes in stockholder's equity, and cash flows for the year ended
December 31, 1998 and for the periods from October 25, 1997
through December 31, 1997, January 1, 1997 through October 24,
1997, August 14, 1996 through December 31, 1996 and January 1,
1996 through August 13, 1996. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Golden American Life Insurance Company at December 31,
1998 and 1997, and the consolidated results of its operations and
its cash flows for the year ended December 31, 1998 and for the
periods from October 25, 1997 through December 31, 1997, January
1, 1997 through October 24, 1997, August 14, 1996 through December
31, 1996 and January 1, 1996 through August 13, 1996 in conformity
with generally accepted accounting principles.
/S/Ernst & Young LLP
Des Moines, Iowa
February 12, 1999
50
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for
sale, at fair value (cost:
1998 - $739,772; 1997 -
$413,288)...................... $ 741,985 $ 414,401
Equity securities, at fair value
(cost: 1998 - $14,437; 1997 -
$4,437)........................ 11,514 3,904
Mortgage loans on real estate.... 97,322 85,093
Policy loans..................... 11,772 8,832
Short-term investments........... 41,152 14,460
---------- ----------
Total investments.................. 903,745 526,690
Cash and cash equivalents.......... 6,679 21,039
Due from affiliates................ 2,983 827
Accrued investment income.......... 9,645 6,423
Deferred policy acquisition costs.. 204,979 12,752
Value of purchased insurance in
force............................ 35,977 43,174
Current income taxes recoverable... 628 272
Deferred income tax asset.......... 31,477 36,230
Property and equipment, less
allowances for depreciation
of $801 in 1998 and $97 in 1997.. 7,348 1,567
Goodwill, less accumulated
amortization of $4,408 in 1998
and $630 in 1997................. 146,719 150,497
Other assets....................... 6,239 755
Separate account assets............ 3,396,114 1,646,169
---------- ----------
Total assets....................... $4,752,533 $2,446,395
========== ==========
</TABLE>
See accompanying notes.
51
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products......................... $ 881,112 $ 505,304
Unearned revenue reserve........... 3,840 1,189
Other policy claims and benefits... -- 10
---------- ----------
884,952 506,503
Line of credit with affiliate....... -- 24,059
Surplus notes....................... 85,000 25,000
Due to affiliates................... -- 80
Other liabilities................... 32,573 17,271
Separate account liabilities........ 3,396,114 1,646,169
---------- ----------
4,398,639 2,219,082
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share,
authorized,issued and outstanding
250,000 shares................... 2,500 2,500
Additional paid-in capital......... 347,640 224,997
Accumulated other comprehensive
income (loss).................... (895) 241
Retained earnings (deficit)........ 4,649 (425)
---------- ----------
Total stockholder's equity.......... 353,894 227,313
Total liabilities and stockholder's
equity............................ $4,752,533 $2,446,395
========== ==========
</TABLE>
See accompanying notes.
52
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
REVENUES: | |
Annuity and interest sensitive | |
life product charges........ $ 39,119 $ 3,834 | $ 18,288 $ 8,768 | $12,259
Management fee revenue....... 4,771 508 | 2,262 877 | 1,390
Net investment income........ 42,485 5,127 | 21,656 5,795 | 4,990
Realized gains (losses) on | |
investments................. (1,491) 15 | 151 42 | (420)
Other income................. 5,569 236 | 426 486 | 70
--------- -------- | -------- ------- | -------
90,453 9,720 | 42,783 15,968 | 18,289
| |
| |
INSURANCE BENEFITS AND EXPENSES: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances..................... 94,845 7,413 | 19,276 5,741 | 4,355
Benefit claims incurred in | |
excess of account balances... 2,123 -- | 125 1,262 | 915
Underwriting, acquisition | |
and insurance expenses: | |
Commissions.................. 121,171 9,437 | 26,818 9,866 | 16,549
General expenses............. 37,577 3,350 | 13,907 5,906 | 9,422
Insurance taxes.............. 4,140 450 | 1,889 672 | 1,225
Policy acquisition costs | |
deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300)
Amortization: | |
Deferred policy acquisition | |
costs..................... 5,148 892 | 1,674 244 | 2,436
Value of purchased insurance | |
in force.................. 4,724 948 | 5,225 2,745 | 951
Goodwill..................... 3,778 630 | 1,398 589 | --
--------- --------- | -------- ------ | -------
75,710 9,442 | 41,309 15,313 | 16,553
| |
Interest expense............... 4,390 557 | 2,082 85 | --
--------- --------- | -------- ------ | -------
80,100 9,999 | 43,391 15,398 | 16,553
--------- --------- | -------- ------ | -------
Income (loss) before income | |
taxes........................ 10,353 (279) | (608) 570 | 1,736
| |
Income taxes................... 5,279 146 | (1,337) 220 | (1,463)
--------- --------- | -------- ------ | -------
Net income (loss).............. $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199
========= ========= | ======== ======= | ========
</TABLE>
See accompanying notes.
53
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
Accumulated
Redeemable Additional Other Retained Total
Common Preferred Paid-in Comprehensive Earnings Stockholder's
Stock Stock Capital Income (Loss) (Deficit) Equity
------------------------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996........ $2,500 $50,000 $ 45,030 $ 658 $ (63) $ 98,125
Comprehensive income:
Net income...................... -- -- -- -- 3,199 3,199
Change in net unrealized
investment gains (losses)..... -- -- -- (1,175) -- (1,175)
Comprehensive income............. 2,024
Preferred stock dividends........ -- -- -- -- (719) (719)
------ ------- -------- ------- ------ ---------
Balance at August 13, 1996........ $2,500 $50,000 $ 45,030 $ (517) $2,417 $ 99,430
====== ======= ======== ======== ====== =========
</TABLE>
<TABLE>
------------------------------------------------------------------------------
POST-ACQUISITION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996........ $2,500 $50,000 $ 87,372 -- -- $139,872
Comprehensive income:
Net income...................... -- -- -- -- $ 350 350
Change in net unrealized
investment gains (losses)...... -- -- -- $ 262 -- 262
Comprehensive income............. 612
Contribution of preferred stock
to additional paid-in capital... -- (50,000) 50,000 -- -- --
------ ------- -------- ------- ------ --------
Balance at December 31, 1996...... 2,500 -- 137,372 262 350 140,484
Comprehensive income:
Net income...................... -- -- -- -- 729 729
Change in net unrealized
investment gains (losses)...... -- -- -- 1,543 -- 1,543
Comprehensive income............. 2,272
Contribution of capital.......... -- -- 1,121 -- -- 1,121
------ ------- -------- ------- ------ --------
Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
====== ======= ======== ====== ====== ========
</TABLE>
<TABLE>
------------------------------------------------------------------------------
POST-MERGER
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 25, 1997....... $2,500 -- $224,997 -- -- $227,497
Comprehensive income loss:
Net loss....................... -- -- -- -- $ (425) (425)
Change in net unrealized
investment gains (losses)...... -- -- -- $ 241 -- 241
Comprehensive loss............... (184)
------ ------- -------- ------- ------ --------
Balance at December 31, 1997...... 2,500 -- 224,997 241 (425) 227,313
Comprehensive income:
Net income...................... -- -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses)...... -- -- -- (1,136) -- (1,136)
Comprehensive income............. 3,938
Contribution of capital.......... -- -- 122,500 -- -- 122,500
Other............................ -- -- 143 -- -- 143
------ ------- -------- ------- ------ --------
Balance at December 31, 1998...... $2,500 -- $347,640 $ (895) $4,649 $353,894
====== ======= ======== ======= ====== ========
</TABLE>
See accompanying notes.
54
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
OPERATING ACTIVITIES | |
Net income (loss)............ $ 5,074 $ (425) | $ 729 $ 350 | $ 3,199
Adjustments to reconcile net | |
income (loss) to net cash | |
provided by (used in) | |
operations: | |
Adjustments related to annuity | |
and interest sensitive life | |
products: | |
Interest credited and other | |
charges on interest | |
sensitive products........ 94,690 7,361 | 19,177 5,106 | 4,472
Change in unearned | |
revenues.................. 2,651 1,189 | 3,292 2,063 | 2,084
Decrease (increase) in | |
accrued investment income.. (3,222) 1,205 | (3,489) (877) | (2,494)
Policy acquisition costs | |
deferred................... (197,796) (13,678) | (29,003) (11,712) | (19,300)
Amortization of deferred | |
policy acquisition costs... 5,148 892 | 1,674 244 | 2,436
Amortization of value of | |
purchased insurance in | |
force...................... 4,724 948 | 5,225 2,745 | 951
Change in other assets, | |
other liabilities and | |
accrued income taxes....... 9,891 4,205 | (8,944) (96) | 4,672
Provision for depreciation | |
and amortization........... 8,147 1,299 | 3,203 1,242 | 703
Provision for deferred | |
income taxes............... 5,279 146 | 316 220 | (1,463)
Realized (gains) losses on | |
investments................ 1,491 (15) | (151) (42) | 420
--------- -------- | -------- -------- | ---------
Net cash provided by (used | |
in)operating activities..... (63,923) 3,127 | (7,971) (757) | (4,320)
| |
INVESTING ACTIVITIES | |
Sale, maturity or repayment | |
of investments: | |
Fixed maturities - available | |
for sale 145,253 9,871 | 39,622 47,453 | 55,091
Mortgage loans on real | |
estate..................... 3,791 1,644 | 5,828 40 | --
Short-term investments-net.. -- -- | 11,415 2,629 | 354
--------- -------- | -------- -------- | ---------
149,044 11,515 | 56,865 50,122 | 55,445
Acquisition of investments: | |
Fixed maturities - available | |
for sale................... (476,523) (29,596) | (155,173) (147,170) | (184,589)
Equity securities........... (10,000) (1) | (4,865) (5) | --
Mortgage loans on real | |
estate..................... (16,390) (14,209) | (44,481) (31,499) | --
Policy loans - net.......... (2,940) (328) | (3,870) (637) | (1,977)
Short-term investments-net.. (26,692) (13,244) | -- -- | --
--------- -------- | -------- -------- | ---------
(532,545) (57,378) | (208,389) (179,311) | (186,566)
Purchase of property and | |
equipment................... (6,485) (252) | (875) (137) | --
--------- -------- | -------- -------- | ---------
Net cash used in investing | |
activities.................. (389,986) (46,115) | (152,399) (129,326) | (131,121)
</TABLE>
See accompanying notes.
55
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
<S> <C> <C> | <C> <C> | <C>
FINANCING ACTIVITIES | |
Proceeds from issuance of | |
surplus note................ $ 60,000 -- | -- $ 25,000 | --
Proceeds from reciprocal loan | |
agreement borrowings........ 500,722 -- | -- -- | --
Repayment of reciprocal loan | |
agreement borrowings........ (500,722) -- | -- -- | --
Proceeds from revolving | |
note payable................ 108,495 -- | -- -- | --
Repayment of revolving note | |
payable..................... (108,495) -- | -- -- | --
Proceeds from line of credit | |
borrowings.................. -- $10,119 | $ 97,124 -- | --
Repayment of line of credit | |
borrowings................... -- (2,207) | (80,977) -- | --
Receipts from annuity and | |
interest sensitive life | |
policies credited to | |
account balances............ 593,428 62,306 | 261,549 116,819 | $149,750
Return of account balances | |
on annuity and interest | |
sensitive life policies..... (72,649) (6,350) | (13,931) (3,315) | (2,695)
Net reallocations to Separate | |
Accounts (239,671) (17,017) | (93,069) (10,237) | (8,286)
Contributions of capital by | |
parent...................... 98,441 -- | 1,011 -- | --
Dividends paid on preferred | |
stock....................... -- -- | -- -- | (719)
Net cash provided by | |
financing activities........ 439,549 46,851 | 171,707 128,267 | 138,050
| |
Increase (decrease) in cash | |
and cash equivalents........ (14,360) 3,863 | 11,337 (1,816) | 2,609
Cash and cash equivalents at | |
beginning of period......... 21,039 17,176 | 5,839 7,655 | 5,046
Cash and cash equivalents at | |
end of period............... $ 6,679 $21,039 | $ 17,176 $ 5,839 | $ 7,655
| |
SUPPLEMENTAL DISCLOSURE | |
OF CASH FLOW INFORMATION | |
Cash paid during the period | |
for: | |
Interest.................... $ 4,305 $ 295 | $ 1,912 -- | --
Income taxes................ 99 -- | 283 -- | --
Non-cash financing activities: | |
Non-cash adjustment to | |
additional paid-in capital | |
for adjusted merger costs.. 143 -- | -- -- | --
Contribution of property and | |
equipment from EIC Variable, | |
Inc. net of $353 of | |
accumulated depreciation... -- -- | 110 -- | --
Contribution of capital from | |
parent to repay line of | |
credit borrowings.......... 24,059 -- | -- -- | --
</TABLE>
See accompanying notes.
56
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly owned
subsidiary, First Golden American Life Insurance Company of New
York ("First Golden," and with Golden American, collectively, the
"Companies"). All significant intercompany accounts and
transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa
Companies, Inc., offers variable insurance products and is
licensed as a life insurance company in the District of Columbia
and all states except New York. On January 2, 1997 and December
23, 1997, First Golden became licensed to sell insurance products
in New York and Delaware, respectively. The Companies' products
are marketed by broker/dealers, financial institutions and
insurance agents. The Companies' primary customers are consumers
and corporations.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of
Equitable of Iowa Companies ("Equitable") according to the terms
of an Agreement and Plan of Merger ("Merger Agreement") dated July
7, 1997 among Equitable, PFHI and ING Groep N.V. ("ING"). PFHI is
a wholly owned subsidiary of ING, a global financial services
holding company based in The Netherlands. As a result of this
transaction, Equitable was merged into PFHI, which was
simultaneously renamed Equitable of Iowa Companies, Inc. ("EIC" or
the "Parent"), a Delaware corporation. See Note 6 for additional
information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable, Inc. (subsequently known as EIC
Variable, Inc.) and its wholly owned subsidiaries, Golden American
and Directed Services, Inc. ("DSI") from Whitewood Properties
Corporation ("Whitewood"). See Note 7 for additional information
regarding the acquisition.
For financial statement purposes, the ING merger was accounted for
as a purchase effective October 25, 1997 and the change in control
of Golden American through the acquisition of BT Variable, Inc.
was accounted for as a purchase effective August 14, 1996. The
merger and acquisition resulted in new bases of accounting
reflecting estimated fair values of assets and liabilities at
their respective dates. As a result, the Companies' financial
statements for the periods after October 24, 1997 are presented on
the Post-Merger new basis of accounting, for the period August 14,
1996 through October 24, 1997 are presented on the Post-
Acquisition basis of accounting, and for August 13, 1996 and prior
periods are presented on the Pre-Acquisition basis of accounting.
INVESTMENTS
Fixed Maturities: The Companies account for their investments
under the Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires fixed maturities to be designated as
either "available for sale," "held for investment" or "trading."
Sales of fixed maturities designated as "available for sale" are
not restricted by SFAS No. 115. Available for sale securities are
reported at fair value and unrealized gains and losses on these
securities are included directly in stockholder's equity, after
adjustment for related changes in value of purchased insurance in
force ("VPIF"), deferred policy acquisition costs ("DPAC") and
deferred income
57
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
taxes. At December 31, 1998 and 1997, all of the Companies'
fixed maturities are designated as available for sale,
although the Companies are not precluded from designating
fixed maturities as held for investment or trading at
some future date.
Securities determined to have a decline in value that is other
than temporary are written down to estimated fair value, which
becomes the new cost basis by a charge to realized losses in the
Companies' Statements of Operations. Premiums and discounts are
amortized/accrued utilizing a method which results in a constant
yield over the securities' expected lives. Amortization/accrual of
premiums and discounts on mortgage and other asset-backed
securities incorporates a prepayment assumption to estimate the
securities' expected lives.
Equity Securities: Equity securities are reported at estimated
fair value if readily marketable. The change in unrealized
appreciation and depreciation of marketable equity securities (net
of related deferred income taxes, if any) is included directly in
stockholder's equity. Equity securities determined to have a
decline in value that is other than temporary are written down to
estimated fair value, which then becomes the new cost basis by a
charge to realized losses in the Companies' Statements of
Operations.
Mortgage Loans: Mortgage loans on real estate are reported at cost
adjusted for amortization of premiums and accrual of discounts. If
the value of any mortgage loan is determined to be impaired (i.e.,
when it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to
the present value of expected future cash flows from the loan
discounted at the loan's effective interest rate, or to the loan's
observable market price, or the fair value of the underlying
collateral. The carrying value of impaired loans is reduced by the
establishment of a valuation allowance which is adjusted at each
reporting date for significant changes in the calculated value of
the loan. Changes in this valuation allowance are charged or
credited to income.
Other Investments: Policy loans are reported at unpaid principal.
Short-term investments are reported at cost, adjusted for
amortization of premiums and accrual of discounts.
Realized Gains and Losses: Realized gains and losses are
determined on the basis of specific identification and average
cost methods for manager initiated and issuer initiated disposals,
respectively.
Fair Values: Estimated fair values, as reported herein, of
conventional mortgage-backed securities not actively traded in a
liquid market and publicly traded fixed maturities are estimated
using a third party pricing system. This pricing system uses a
matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities. Fair
values of private placement bonds are estimated using a matrix
that assumes a spread (based on interest rates and a risk
assessment of the bonds) over U.S. Treasury bonds. Estimated fair
values of equity securities which consist of the Companies'
investment in its registered separate accounts are based upon the
quoted fair value of the securities comprising the individual
portfolios underlying the separate accounts.
58
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the
Companies consider all demand deposits and interest-bearing
accounts not related to the investment function to be cash
equivalents. All interest-bearing accounts classified as cash
equivalents have original maturities of three months or less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally
first year commissions and interest bonuses, extra credit bonuses
and other expenses related to the production of new business, have
been deferred. Acquisition costs for variable annuity and variable
life products are being amortized generally in proportion to the
present value (using the assumed crediting rate) of expected
future gross profits. This amortization is adjusted
retrospectively when the Companies revise their estimate of
current or future gross profits to be realized from a group of
products. DPAC is adjusted to reflect the pro forma impact of
unrealized gains and losses on fixed maturities the Companies have
designated as "available for sale" under SFAS No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and the acquisition, a portion of the
purchase price related to each transaction was allocated to the
right to receive future cash flows from existing insurance
contracts. This allocated cost represents VPIF which reflects the
value of those purchased policies calculated by discounting
actuarially determined expected future cash flows at the discount
rate determined by the purchaser. Amortization of VPIF is charged
to expense in proportion to expected gross profits of the
underlying business. This amortization is adjusted retrospectively
when the Companies revise the estimate of current or future gross
profits to be realized from the insurance contracts acquired. VPIF
is adjusted to reflect the pro forma impact of unrealized gains
and losses on available for sale fixed maturities. See Notes 6 and
7 for additional information on VPIF resulting from the merger and
acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements,
office furniture, certain other equipment and capitalized computer
software and are not considered to be significant to the
Companies' overall operations. Property and equipment are reported
at cost less allowances for depreciation. Depreciation expense is
computed primarily on the basis of the straight-line method over
the estimated useful lives of the assets.
GOODWILL
Goodwill was established as a result of the merger and is being
amortized over 40 years on a straight-line basis. Goodwill
established as a result of the acquisition was being amortized
over 25 years on a straight-line basis. See Notes 6 and 7 for
additional information on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for divisions with fixed interest
guarantees of the variable products are established utilizing the
retrospective deposit accounting method. Policy reserves represent
the premiums received plus accumulated interest, less mortality
and administration charges. Interest credited to these policies
ranged from 3.00% to 10.00% during 1998, 3.30% to 8.25% during
1997 and 4.00% to 7.25% during 1996. The unearned revenue reserve
represents unearned distribution fees. These distribution fees
have been deferred and are amortized over the life of the
contracts in proportion to expected gross profits.
59
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the
accompanying Balance Sheets represent funds separately
administered principally for variable annuity and variable life
contracts. Contractholders, rather than the Companies, bear the
investment risk for the variable products. At the direction of the
contractholders, the separate accounts invest the premiums from
the sale of variable products in shares of specified mutual funds.
The assets and liabilities of the separate accounts are clearly
identified and segregated from other assets and liabilities of the
Companies. The portion of the separate account assets equal to the
reserves and other liabilities of variable annuity and variable
life contracts cannot be charged with liabilities arising out of
any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the
underlying investments and generally represent contractholder
investment values maintained in the accounts. Variable separate
account liabilities represent account balances for the variable
annuity and variable life contracts invested in the separate
accounts; the fair value of these liabilities is equal to their
carrying amount. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are
not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable products
consist of charges applicable to each contract for mortality and
expense risk, cost of insurance, contract administration and
surrender charges. In addition, some variable annuity and all
variable life contracts provide for a distribution fee collected
for a limited number of years after each premium deposit. Revenue
recognition of collected distribution fees is amortized over the
life of the contract in proportion to its expected gross profits.
The balance of unrecognized revenue related to the distribution
fees is reported as an unearned revenue reserve.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate.
Deferred tax assets or liabilities are adjusted to reflect the pro
forma impact of unrealized gains and losses on equity securities
and fixed maturities the Companies have designated as available
for sale under SFAS No. 115. Changes in deferred tax assets or
liabilities resulting from this SFAS No. 115 adjustment are
charged or credited directly to stockholder's equity. Deferred
income tax expenses or credits reflected in the Companies'
Statements of Operations are based on the changes in the deferred
tax asset or liability from period to period (excluding the SFAS
No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is
restricted. Prior approval of insurance regulatory authorities is
required for payment of dividends to the stockholder which exceed
an annual limit. During 1999, Golden American cannot pay dividends
to its Parent without prior approval of statutory authorities.
Under the provisions of the insurance laws of the State of New
York, First Golden cannot distribute any dividends to its
stockholder unless a notice of its intent to declare a dividend
and the amount of the dividend has been filed at least thirty days
in advance of the proposed declaration. If the Superintendent
finds the financial condition of First Golden does not warrant the
distribution, the Superintendent may disapprove the distribution
by giving written notice to First Golden within thirty days after
the filing.
60
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
SEGMENT REPORTING
As of December 31, 1998, the Companies adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 superseded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way public business enterprises
report information about operating segments in annual financial
statements and requires enterprises to report selected information
about operating segments in interim financial reports. SFAS No.
131 also establishes standards for related disclosures about
products and services, geographic areas and major customers.
The Companies manage their business as one segment, the sale of
variable products designed to meet customer needs for tax-
advantaged methods of saving for retirement and protection from
unexpected death. Variable products are sold to consumers and
corporations throughout the United States. The adoption of SFAS
No. 131 did not affect the results of operations or financial
position of the Companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions affecting the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
Management is required to utilize historical experience and
assumptions about future events and circumstances in order to
develop estimates of material reported amounts and disclosures.
Included among the material (or potentially material) reported
amounts and disclosures that require extensive use of estimates
and assumptions are (1) estimates of fair values of investments in
securities and other financial instruments, as well as fair values
of policyholder liabilities, (2) policyholder liabilities, (3)
deferred policy acquisition costs and value of purchased insurance
in force, (4) fair values of assets and liabilities recorded as a
result of merger and acquisition transactions, (5) asset valuation
allowances, (6) guaranty fund assessment accruals, (7) deferred
tax benefits (liabilities) and (8) estimates for commitments and
contingencies including legal matters, if a liability is
anticipated and can be reasonably estimated. Estimates and
assumptions regarding all of the proceeding are inherently subject
to change and are reassessed periodically. Changes in estimates
and assumptions could materially impact the financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the periods ended
within the years ended December 31, 1997 and 1996 have been
reclassified to conform to the December 31, 1998 financial
statement presentation.
2. BASIS OF FINANCIAL REPORTING
The financial statements of the Companies differ from related
statutory-basis financial statements principally as follows: (1)
acquisition costs of acquiring new business are deferred and
amortized over the life of the policies rather than charged to
operations as incurred; (2) an asset representing the present
value of future cash flows from insurance contracts acquired was
established as a result of the merger/acquisition and is amortized
and charged to expense; (3) future policy benefit reserves for
divisions with fixed interest guarantees of the variable products
are based on full account values, rather than the greater of cash
surrender value or amounts derived from discounting methodologies
utilizing statutory interest rates; (4) reserves are reported
before reduction for reserve credits related to
61
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
2. BASIS OF FINANCIAL REPORTING (continued)
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 value of
purchased insurance in force, deferred policy acquisition costs
and deferred income taxes (if applicable), credited/charged
directly to stockholder's equity rather than valued at amortized
cost; (6) the carrying value of fixed maturities is reduced to
fair value by a charge to realized losses in the Statements of
Operations when declines in carrying value are judged to be other
than temporary, rather than through the establishment of a formula-
determined statutory investment reserve (carried as a liability),
changes in which are charged directly to surplus; (7) deferred
income taxes are provided for the difference between the financial
statement and income tax bases of assets and liabilities; (8) net
realized gains or losses attributed to changes in the level of
interest rates in the market are recognized when the sale is
completed rather than deferred and amortized over the remaining
life of the fixed maturity security; (9) a liability is
established for anticipated guaranty fund assessments, net of
related anticipated premium tax credits, rather than capitalized
when assessed and amortized in accordance with procedures
permitted by insurance regulatory authorities; (10) revenues for
variable products consist of policy charges applicable to each
contract for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges
assessed rather than premiums received; (11) the financial
statements of Golden American's wholly owned subsidiary are
consolidated rather than recorded at the equity in net assets;
(12) surplus notes are reported as liabilities rather than as
surplus; and (13) assets and liabilities are restated to fair
values when a change in ownership occurs, with provisions for
goodwill and other intangible assets, rather than continuing to be
presented at historical cost.
The net loss for Golden American as determined in accordance with
statutory accounting practices was $68,002,000 in 1998, $428,000
in 1997 and $9,188,000 in 1996. Total statutory capital and
surplus was $183,045,000 at December 31, 1998 and $76,914,000 at
December 31, 1997.
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
62
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities............. $35,224 $4,443 | $18,488 $5,083 | $4,507
Equity securities............ -- 3 | -- 103 | --
Mortgage loans on | |
real estate................. 6,616 879 | 3,070 203 | --
Policy loans................. 619 59 | 482 78 | 73
Short-term | |
investments................. 1,311 129 | 443 441 | 341
Other, net................... 246 (154) | 24 2 | 22
Funds held in | |
escrow...................... -- -- | -- -- | 145
------- ------ | ------- ------ | ------
Gross investment | |
income...................... 44,016 5,359 | 22,507 5,910 | 5,088
Less investment | |
expenses.................... (1,531) (232) | (851) (115) | (98)
------- ------ | ------- ------ | ------
Net investment | |
income...................... $42,485 $5,127 | $21,656 $5,795 | $4,990
======= ====== | ======= ====== | ======
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities: | |
available for sale.......... $(1,428) $25 | $151 $42 | $(420)
Mortgage loans............... (63) (10) | -- -- | --
------- --- | ---- --- | -----
Realized gains (losses) | |
on investments.............. $(1,491) $15 | $151 $42 | $(420)
======= === | ==== === | =====
</TABLE>
The change in unrealized appreciation (depreciation) of securities
at fair value is as follows:
63
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Fixed maturities: | |
Available for sale.......... $1,100 $(3,494) | $4,197 $2,497 | $(3,045)
Held for investment......... -- -- | -- -- | (90)
Equity securities............ (2,390) (68) | (462) (4) | (2)
------ ------- | ------ ------ | -------
Unrealized appreciation | |
(depreciation) of | |
securities.................. $(1,290) $(3,562) | $3,735 $2,493 | $(3,137)
======= ======= | ====== ====== | =======
</TABLE>
At December 31, 1998 and December 31, 1997, amortized cost, gross
unrealized gains and losses and estimated fair values of fixed
maturities, all of which are designated as available for sale, are
as follows:
<TABLE>
POST-MERGER
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. government and governmental
agencies and authorities............. $ 13,568 $ 182 $ (8) $ 13,742
Foreign governments................... 2,028 8 -- 2,036
Public utilities...................... 67,710 546 (447) 67,809
Corporate securities.................. 365,569 4,578 (2,658) 367,489
Other asset-backed securities......... 99,877 281 (1,046) 99,112
Mortgage-backed securities............ 191,020 1,147 (370) 191,797
-------- ------ ------- --------
Total................................. $739,772 $6,742 $(4,529) $741,985
======== ====== ======= ========
DECEMBER 31, 1997
U.S. government and governmental
agencies and authorities............ $ 5,705 $ 5 $ (1) $ 5,709
Foreign governments................... 2,062 -- (9) 2,053
Public utilities...................... 26,983 55 (4) 27,034
Corporate securities.................. 259,798 1,105 (242) 260,661
Other asset-backed securities......... 3,155 32 -- 3,187
Mortgage-backed securities............ 115,585 202 (30) 115,757
-------- ------ ------- --------
Total................................. $413,288 $1,399 $ (286) $414,401
======== ====== ======= ========
</TABLE>
At December 31, 1998, net unrealized investment gains on fixed
maturities designated as available for sale totaled $2,213,000.
Appreciation of $1,005,000 was included in stockholder's equity at
December 31,
64
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
1998 (net of an adjustment of $203,000 to VPIF, an
adjustment of $455,000 to DPAC and deferred income taxes of
$550,000). Short-term investments with maturities of 30 days or
less have been excluded from the above schedules. Amortized cost
approximates fair value for these securities.
Amortized cost and estimated fair value of fixed maturities
designated as available for sale, by contractual maturity, at
December 31, 1998 are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
POST-MERGER
---------------------------
Amortized Estimated
December 31, 1998 Cost Fair Value
- ----------------------------------------------------------------------
(Dollars in thousands)
Due within one year...................... $ 50,208 $ 50,361
Due after one year through five years.... 310,291 311,943
Due after five years through ten years... 78,264 78,541
Due after ten years...................... 10,112 10,231
448,875 451,076
Other asset-backed securities............ 99,877 99,112
Mortgage-backed securities............... 191,020 191,797
-------- --------
Total.................................... $739,772 $741,985
======== ========
An analysis of sales, maturities and principal repayments of the
Companies' fixed maturities portfolio is as follows:
<TABLE>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
POST-MERGER
For the year ended December 31, 1998:
Scheduled principal repayments,
calls and tenders...................... $102,504 $ 60 $ (3) $102,561
Sales................................... 43,204 518 (1,030) 42,692
-------- ---- ------- --------
Total................................... $145,708 $578 $(1,033) $145,253
======== ==== ======= ========
For the period October 25, 1997 through
December 31, 1997:
Scheduled principal repayments,
calls and tenders..................... $ 6,708 $ 2 -- $ 6,710
Sales.................................. 3,138 23 -- 3,161
-------- ---- ------- --------
Total.................................. $ 9,846 $ 25 -- $ 9,871
======== ==== ======= ========
</TABLE>
65
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
<TABLE>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
POST- ACQUISITION
For the period January 1, 1997 through
October 24, 1997:
Scheduled principal repayments,
calls and tenders..................... $25,419 -- -- $25,419
Sales.................................. 14,052 $153 $ (2) 14,203
------- ---- ---- -------
Total.................................. $39,471 $153 $ (2) $39,622
======= ==== ==== =======
For the period August 14, 1996 through
December 31, 1996:
Scheduled principal repayments,
calls and tenders.................... $ 1,612 -- -- $ 1,612
Sales................................. 45,799 $115 $(73) 45,841
------- ---- ---- -------
Total................................. $47,411 $115 $(73) $47,453
======= ==== ==== =======
PRE-ACQUISITION
For the period January 1, 1996 through
August 13, 1996:
Scheduled principal repayments,
calls and tenders.................... $ 1,801 -- -- $ 1,801
Sales................................. 53,710 $152 $(572) 53,290
------- ---- ----- -------
Total................................. $55,511 $152 $(572) $55,091
======= ==== ===== =======
</TABLE>
Investment Valuation Analysis: The Companies analyze the
investment portfolio at least quarterly in order to determine if
the carrying value of any investment has been impaired. The
carrying value of debt and equity securities is written down to
fair value by a charge to realized losses when an impairment in
value appears to be other than temporary. During the year ended
December 31, 1998, Golden American recognized a loss on two fixed
maturity investments of $973,000. During 1997 and 1996, no
investments were identified as having an other than temporary
impairment.
Investments on Deposit: At December 31, 1998 and 1997, affidavits
of deposits covering bonds with a par value of $6,470,000 and
$6,605,000, respectively, were on deposit with regulatory
authorities pursuant to certain statutory requirements.
Investment Diversifications: The Companies' investment policies
related to the investment portfolio require diversification by
asset type, company and industry and set limits on the amount
which can be invested in an individual issuer. Such policies are
at least as restrictive as those set forth by regulatory
authorities. The following percentages relate to holdings at
December 31, 1998 and December 31, 1997. Fixed maturities included
investments in basic industrials (26% in 1998, 30% in 1997),
conventional mortgage-backed securities (25% in 1998, 13% in
1997), financial companies (19% in 1998, 24% in 1997), other asset-
backed securities (11% in 1998) and various government bonds and
government or agency mortgage-backed securities (5% in 1998, 17%
in 1997). Mortgage loans on real estate have been analyzed
66
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
3. INVESTMENT OPERATIONS (continued)
by geographical location with concentrations by state identified as
California (12% in 1998 and 1997), Utah (11% in 1998, 13% in 1997)
and Georgia (10% in 1998, 11% in 1997). There are no other
concentrations of mortgage loans in any state exceeding ten
percent at December 31, 1998 and 1997. Mortgage loans on real
estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (36% in 1998, 43% in
1997), industrial buildings (32% in 1998, 33% in 1997) and retail
facilities (20% in 1998, 15% in 1997). Equity securities are not
significant to the Companies' overall investment portfolio.
No investment in any person or its affiliates (other than bonds
issued by agencies of the United States government) exceeded ten
percent of stockholder's equity at December 31, 1998.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Companies adopted the SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no
impact on the Companies' net income or stockholder's equity. SFAS
No. 130 requires unrealized gains or losses on the Companies'
available for sale securities (net of VPIF, DPAC and deferred
income taxes) to be included in other comprehensive income. Prior
to the adoption of SFAS No. 130, unrealized gains (losses) were
reported separately in stockholder's equity. Prior year financial
statements have been reclassified to conform to the requirements
of SFAS No. 130.
Total comprehensive income (loss) for the Companies includes
$1,015,000 for the year ended December 31, 1998 for First Golden
($159,000, $536,000 and $(57,000), respectively, for the periods
October 25, 1997 through December 31, 1997, October 1, 1997
through October 24, 1997 and December 17, 1996 through December
31, 1996). Other comprehensive income excludes net investment
gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These
amounts total $(2,133,000) in 1998. Such amounts, which have been
measured through the date of sale, are net of income taxes and
adjustments to VPIF and DPAC totaling $705,000 in 1998.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of estimated fair value of all
financial instruments, including both assets and liabilities
recognized and not recognized in a company's balance sheet, unless
specifically exempted. SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments,"
requires additional disclosures about derivative financial
instruments. Most of the Companies' investments, investment
contracts and debt fall within the standards' definition of a
financial instrument. Fair values for the Companies' insurance
contracts other than investment contracts are not required to be
disclosed. In cases where quoted market prices are not available,
estimated fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accounting, actuarial and
regulatory bodies are continuing to study the methodologies to be
used in developing fair value information, particularly as it
relates to such things as liabilities for insurance contracts.
Accordingly, care should be exercised in deriving conclusions
about the Companies' business or financial condition based on the
information presented herein.
The Companies closely monitor the composition and yield of
invested assets, the duration and interest credited on insurance
liabilities and resulting interest spreads and timing of cash
flows. These amounts
67
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
are taken into consideration in the
Companies' overall management of interest rate risk, which
attempts to minimize exposure to changing interest rates through
the matching of investment cash flows with amounts expected to be
due under insurance contracts. These assumptions may not result
in values consistent with those obtained through an actuarial
appraisal of the Companies' business or values that might arise in
a negotiated transaction.
The following compares carrying values as shown for financial
reporting purposes with estimated fair values:
<TABLE>
POST-MERGER
-----------------------------------------------
December 31, 1998 December 31, 1997
---------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- --------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities, available
for sale...................... $ 741,985 $ 741,985 $ 414,401 $ 414,401
Equity securities.............. 11,514 11,514 3,904 3,904
Mortgage loans on real estate.. 97,322 99,762 85,093 86,348
Policy loans................... 11,772 11,772 8,832 8,832
Short-term investments......... 41,152 41,152 14,460 14,460
Cash and cash equivalents...... 6,679 6,679 21,039 21,039
Separate account assets........ $3,396,114 $3,396,114 $1,646,169 $1,646,169
LIABILITIES
Annuity products............... 869,009 827,597 493,181 469,714
Surplus notes.................. 85,000 90,654 25,000 28,837
Line of credit with affiliate.. -- -- 24,059 24,059
Separate account liabilities... 3,396,114 3,396,114 1,646,169 1,646,169
</TABLE>
The following methods and assumptions were used by the Companies
in estimating fair values.
Fixed Maturities: Estimated fair values of conventional mortgage-
backed securities not actively traded in a liquid market and
publicly traded securities are estimated using a third party
pricing system. This pricing system uses a matrix calculation
assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities.
Equity Securities: Estimated fair values of equity securities,
which consist of the Companies' investment in the portfolios
underlying its separate accounts, are based upon the quoted fair
value of individual securities comprising the individual
portfolios. For equity securities not actively traded, estimated
fair values are based upon values of issues of comparable returns
and quality.
Mortgage Loans on Real Estate: Fair values are estimated by
discounting expected cash flows, using interest rates currently
offered for similar loans.
Policy Loans: Carrying values approximate the estimated fair value
for policy loans.
68
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
Short-Term Investments and Cash and Cash Equivalents: Carrying
values reported in the Companies' historical cost basis balance
sheet approximate estimated fair value for these instruments due
to their short-term nature.
Separate Account Assets: Separate account assets are reported at
the quoted fair values of the individual securities in the
separate accounts.
Annuity Products: Estimated fair values of the Companies'
liabilities for future policy benefits for the divisions of the
variable annuity products with fixed interest guarantees and for
supplemental contracts without life contingencies are stated at
cash surrender value, the cost the Companies would incur to
extinguish the liability.
Surplus Notes: Estimated fair value of the Companies' surplus
notes were based upon discounted future cash flows using a
discount rate approximating the Companies' return on invested
assets.
Line Of Credit With Affiliate: Carrying value reported in the
Companies' historical cost basis balance sheet approximates
estimated fair value for this instrument.
Separate Account Liabilities: Separate account liabilities are
reported at full account value in the Companies' historical cost
balance sheet. Estimated fair values of separate account
liabilities are equal to their carrying amount.
6. MERGER
Transaction: On October 23, 1997, Equitable's shareholders
approved the Merger Agreement dated July 7, 1997 among Equitable,
PFHI and ING. On October 24, 1997, PFHI, a Delaware corporation,
acquired all of the outstanding capital stock of Equitable
according to the Merger Agreement. PFHI is a wholly owned
subsidiary of ING, a global financial services holding company
based in The Netherlands. Equitable, an Iowa corporation, in turn,
owned all the outstanding capital stock of Equitable Life
Insurance Company of Iowa ("Equitable Life") and Golden American
and their wholly owned subsidiaries. In addition, Equitable owned
all the outstanding capital stock of Locust Street Securities,
Inc. ("LSSI"), Equitable Investment Services, Inc. (subsequently
dissolved), DSI, Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa
Securities Network, Inc. (subsequently renamed ING Funds
Distributor, Inc.). In exchange for the outstanding capital stock
of Equitable, ING paid total consideration of approximately $2.1
billion in cash and stock and assumed approximately $400 million
in debt. As a result of this transaction, Equitable was merged
into PFHI, which was simultaneously renamed Equitable of Iowa
Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation.
All costs of the merger, including expenses to terminate certain
benefit plans, were paid by the Parent.
Accounting Treatment: The merger was accounted for as a purchase
resulting in a new basis of accounting, reflecting estimated fair
values for assets and liabilities at October 24, 1997. The
purchase price was allocated to EIC and its subsidiaries with
$227,497,000 allocated to the Companies. Goodwill was established
for the excess of the merger cost over the fair value of the net
assets and attributed to EIC and its subsidiaries including Golden
American and First Golden. The amount of goodwill allocated to the
Companies relating to the merger was $151,127,000 at the merger
date and is being amortized over 40 years on a straight-line
basis. The carrying value of goodwill will be reviewed
periodically for any indication of impairment in value. The
Companies' DPAC, previous balance of VPIF and unearned
69
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
6. Merger (continued)
revenue reserve, as of the merger date, were eliminated and a new asset
of $44,297,000 representing VPIF was established for all policies in
force at the merger date.
Value of Purchased Insurance In Force: As part of the merger, a
portion of the acquisition cost was allocated to the right to
receive future cash flows from insurance contracts existing with
the Companies at the merger date. This allocated cost represents
VPIF reflecting the value of those purchased policies calculated
by discounting the actuarially determined expected future cash
flow at the discount rate determined by ING.
An analysis of the VPIF asset is as follows:
POST-MERGER
-------------------------------------
For the period
For the year October 25, 1997
ended through
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Beginning balance................. $43,174 $44,297
Imputed interest.................. 2,802 1,004
Amortization...................... (7,753) (1,952)
Changes in assumptions of
timing of future gross profits... 227 --
Net amortization.................. (4,724) (948)
Adjustment for unrealized gains
on available for sale
securities....................... (28) (175)
Adjustment for other receivables
and merger costs................. (2,445) --
Ending balance.................... $35,977 $43,174
Interest is imputed on the unamortized balance of VPIF at a rate
of 7.38% for the year ended December 31, 1998 and 7.03% for the
period October 25, 1997 through December 31, 1997. The
amortization of VPIF, net of imputed interest, is charged to
expense. VPIF decreased $2,664,000 in the second quarter of 1998
to adjust the value of other receivables at merger date and
increased $219,000 in the first quarter of 1998 as a result of an
adjustment to the merger costs. VPIF is adjusted for the
unrealized gains (losses) on available for sale securities; such
changes are included directly in stockholder's equity. Based on
current conditions and assumptions as to the impact of future
events on acquired policies in force, the expected approximate net
amortization relating to VPIF as of December 31, 1998 is
$4,300,000 in 1999, $4,000,000 in 2000, $3,900,000 in 2001,
$3,700,000 in 2002 and $3,300,000 in 2003. Actual amortization may
vary based upon changes in assumptions and experience.
7. ACQUISITION
Transaction: On August 13, 1996, Equitable acquired all of the
outstanding capital stock of BT Variable from Whitewood, a wholly
owned subsidiary of Bankers Trust Company ("Bankers Trust"),
according to the terms of the Purchase Agreement dated May 3, 1996
between Equitable and Whitewood. In exchange for the outstanding
capital stock of BT Variable, Equitable paid the sum of
$93,000,000 in cash to
70
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
7. Acquisition (continued)
Whitewood in accordance with the terms of the Purchase Agreement.
Equitable also paid the sum of $51,000,000 in cash to Bankers
Trust to retire certain debt owed by BT Variable to Bankers
Trust pursuant to a revolving credit arrangement. After the
acquisition, the BT Variable, Inc. name was changed to EIC
Variable, Inc. On April 30, 1997, EIC Variable, Inc. was
liquidated and its investments in Golden American and DSI
were transferred to Equitable, while the remainder of its net
assets were contributed to Golden American. On December 30, 1997,
EIC Variable, Inc. was dissolved.
Accounting Treatment: The acquisition was accounted for as a
purchase resulting in a new basis of accounting, which reflected
estimated fair values for assets and liabilities at August 13,
1996. The purchase price was allocated to the three companies
purchased - BT Variable, DSI and Golden American. The allocation
of the purchase price to Golden American was approximately
$139,872,000. Goodwill was established for the excess of the
purchase price over the fair value of the net assets acquired and
attributed to Golden American. The amount of goodwill relating to
the acquisition was $41,113,000 and was amortized over 25 years on
a straight-line basis until the October 24, 1997 merger with ING.
Golden American's DPAC, previous balance of VPIF and unearned
revenue reserve, as of the acquisition date, were eliminated and
an asset of $85,796,000 representing VPIF was established for all
policies in force at the acquisition date.
Value of Purchased Insurance In Force: As part of the
acquisition, a portion of the acquisition cost was allocated to
the right to receive future cash flows from the insurance
contracts existing with Golden American at the date of
acquisition. This allocated cost represents VPIF reflecting the
value of those purchased policies calculated by discounting the
actuarially determined expected future cash flows at the discount
rate determined by Equitable.
An analysis of the VPIF asset is as follows:
<TABLE>
POST-ACQUISITION | PRE-ACQUISITION
------------------------------------|----------------
For the period For the period | For the period
January 1, 1997 August 14,1996 | January 1, 1996
through through | through
October 24, 1997 December 31, 1996 | August 13, 1996
---------------- ----------------- | ---------------
(Dollars in thousands)
<S> <C> <C> | <C>
Beginning balance................ $83,051 $85,796 | $6,057
------- ------- | ------
Imputed interest................. 5,138 2,465 | 273
Amortization..................... (12,656) (5,210) | (1,224)
Changes in assumption of | ------
timing of gross profits......... 2,293 -- | --
------- ------- |
Net amortization................. (5,225) (2,745) | (951)
Adjustment for unrealized gains |
(losses) on available for sale |
securities...................... (373) -- | 11
------- ------- | ------
Ending balance $77,453 $83,051 | $5,117
======= ======= | ======
</TABLE>
Pre-Acquisition VPIF represents the remaining value assigned to in
force contracts when Bankers Trust purchased Golden American from
Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual
Benefit") on September 30, 1992.
Interest was imputed on the unamortized balance of VPIF at rates
of 7.70% to 7.80% for the period August 14, 1996 through October
24, 1997. The amortization of VPIF net of imputed interest was
charged to expense. VPIF was also adjusted for the unrealized
gains (losses) on available for sale securities; such changes were
included directly in stockholder's equity.
71
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
8. INCOME TAXES
Golden American files a consolidated federal income tax return.
Under the Internal Revenue Code, a newly acquired insurance
company cannot file as part of its parent's consolidated tax
return for 5 years.
At December 31, 1998, the Companies have net operating loss
("NOL") carryforwards for federal income tax purposes of
approximately $50,917,000. Approximately $5,094,000, $3,354,000
and $42,469,000 of these NOL carryforwards are available to offset
future taxable income of the Companies through the years 2011,
2012 and 2013, respectively.
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated
financial statements is as follows:
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
Current..................... -- -- | $ 12 -- | --
Deferred.................... $5,279 $146 | (1,349) $220 | $(1,463)
------ ---- | |
$5,279 $146 | $(1,337) $220 | $(1,463)
====== ==== | ======= ==== | =======
</TABLE>
The effective tax rate on income (loss) before income taxes is
different from the prevailing federal income tax rate. A
reconciliation of this difference is as follows:
72
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
8. INCOME TAXES (continued)
<TABLE>
POST-MERGER | POST-ACQUISITION | PRE-ACQUISITION
------------------------------------ | ----------------------------------- | ---------------
For the period | For the period For the period | For the period
For the year October 25,1997 | January 1,1997 August 14, 1996 | January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997 | October 24, 1997 December 31, 1996 | August 13, 1996
----------------- ----------------- | ---------------- ----------------- | ---------------
| (Dollars in thousands) |
<S> <C> <C> | <C> <C> | <C>
| |
Income (loss) before | |
income taxes.............. $10,353 $(279) | $ ( 608) $570 | $1,736
======= ===== | ======= ==== | ======
Income tax (benefit) at | |
federal statutory rate.... $ 3,624 $ (98) | $ (213) $200 | $ 607
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards........... -- -- | -- -- | (1,214)
Goodwill amortization..... 1,322 220 | -- -- | --
Compensatory stock | |
option and restricted | |
stock expense............ -- -- | (1,011) -- | --
Meals and | |
entertainment............ 157 23 | 53 20 | --
Other items............... 176 1 | (166) -- | --
Change in valuation | |
allowance................. -- -- | -- -- | (856)
=------ ----- | ------- ---- | -------
Income tax expense | |
(benefit)................. $ 5,279 $ 146 | $(1,337) $220 | $(1,463)
======= ===== | ======= ==== | =======
</TABLE>
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the
Companies' deferred income tax assets and liabilities at December
31, 1998 and 1997 is as follows:
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of
securities at fair value.......... $ 691 --
Future policy benefits............. 66,273 $27,399
Deferred policy acquisition costs.. -- 4,558
Goodwill........................... 16,323 17,620
Net operating loss carryforwards... 17,821 3,044
Other.............................. 1,272 1,548
-------- -------
102,380 54,169
73
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
8. INCOME TAXES (continued)
POST-MERGER
------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
(Dollars in thousands)
Deferred tax liabilities:
Net unrealized appreciation of
securities at fair value.......... -- $ (130)
Fixed maturity securities.......... $ (1,034) (1,665)
Deferred policy acquisition costs.. (55,520) --
Mortgage loans on real estate...... (845) (845)
Value of purchased insurance in
force............................. (12,592) (15,172)
Other.............................. (912) (127)
-------- --------
(70,903) (17,939)
-------- --------
Deferred income tax asset........... $ 31,477 $ 36,230
======== ========
The Companies are required to establish a "valuation allowance"
for any portion of the deferred tax assets management believes
will not be realized. In the opinion of management, it is more
likely than not the Companies will realize the benefit of the
deferred tax assets; therefore, no such valuation allowance has
been established.
9. RETIREMENT PLAN
Defined Benefit Plans: In 1998 and 1997, the Companies were
allocated their share of the pension liability associated with
their employees. The Companies' employees are covered by the
employee retirement plan of an affiliate, Equitable Life. Further,
Equitable Life sponsors a defined contribution plan that is
qualified under Internal Revenue Code Section 401(k). The
following tables summarize the benefit obligations and the funded
status for pension benefits over the two-year period ended
December 31, 1998:
1998 1997
-------- ------
(Dollars in thousands)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1............ $ 956 $192
Service cost............................... 1,138 682
Interest cost.............................. 97 25
Actuarial loss............................. 2,266 57
Benefit payments........................... (3) --
------ ----
Benefit obligation at December 31.......... $4,454 $956
====== ====
1998 1997
-------- ------
(Dollars in thousands)
FUNDED STATUS
Funded status at December 31............... $(4,454) $(956)
Unrecognized net loss...................... 2,266 --
------- -----
Net amount recognized...................... $(2,188) $(956)
======= =====
74
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
8. RETIREMENT PLAN (continued)
During 1998 and 1997, the Companies' plan assets were held by
Equitable Life, an affiliate.
The weighted-average assumptions used in the measurement of the
Companies' benefit obligation are as follows:
1998 1997
------ ------
DECEMBER 31
Discount rate................................ 6.75% 7.25%
Expected return on plan assets............... 9.50 9.00
Rate of compensation increase................ 4.00 5.00
The following table provides the net periodic benefit cost for the
fiscal years 1998 and 1997:
<TABLE>
POST-MERGER | POST-ACQUISITION
------------------------------------ | ----------------
For the period | For the period
For the year October 25,1997 | January 1,1997
ended through | through
December 31, 1998 December 31, 1997 | October 24, 1997
----------------- ----------------- | ----------------
(Dollars in thousands)
<S> <C> <C> | <C>
Service cost................ $1,138 $114 | $568
Interest cost............... 97 10 | 15
Amortization of net loss.... -- -- | 1
------ ---- | ----
Net periodic benefit cost... $1,235 $124 | $584
====== ==== | ====
</TABLE>
There were no gains or losses resulting from curtailments or
settlements during 1998 or 1997.
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $4,454,000,
$3,142,000 and $0, respectively, as of December 31, 1998 and
$956,000, $579,000 and $0, respectively, as of December 31, 1997.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI acts as the principal underwriter (as
defined in the Securities Act of 1933 and the Investment Company
Act of 1940, as amended) and distributor of the variable insurance
products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies'
variable insurance products and appoint representatives of the
broker/dealers as agents. For the year ended December 31, 1998 and
for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the Companies paid
commissions to DSI totaling $117,470,000, $9,931,000 and
$26,419,000, respectively ($9,995,000 for the period August 14,
1996 through December 31, 1996 and $17,070,000 for the period
January 1, 1996 through August 13, 1996).
Golden American provides certain managerial and supervisory
services to DSI. The fee paid by DSI for these services is
calculated as a percentage of average assets in the variable
separate accounts. For the year ended December 31, 1998 and for
the periods October 25, 1997 through December 31, 1997 and January
1, 1997 through October 24, 1997, the fee was $4,771,000, $508,000
and $2,262,000, respectively.
75
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
10. RELATED PARTY TRANSACTIONS (continued)
For the periods August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13,
1996 the fee was $877,000 and $1,390,000, respectively.
Effective January 1, 1998, the Companies have an asset management
agreement with ING Investment Management LLC ("ING IM"), an
affiliate, in which ING IM provides asset management services.
Under the agreement, the Companies record a fee based on the value
of the assets under management. The fee is payable quarterly. For
the year ended December 31, 1998, the Companies incurred fees of
$1,504,000 under this agreement.
Prior to 1998, the Companies had a service agreement with
Equitable Investment Services, Inc. ("EISI"), an affiliate, in
which EISI provided investment management services. Payments for
these services totaled $200,000, $768,000 and $72,000 for the
periods October 25, 1997 through December 31, 1997, January 1,
1997 through October 24, 1997 and August 14, 1996 through December
31, 1996, respectively.
Golden American has a guaranty agreement with Equitable Life, an
affiliate. In consideration of an annual fee, payable June 30,
Equitable Life guarantees to Golden American that it will make
funds available, if needed, to Golden American to pay the
contractual claims made under the provisions of Golden American's
life insurance and annuity contracts. The agreement is not, and
nothing contained therein or done pursuant thereto by Equitable
Life shall be deemed to constitute, a direct or indirect guaranty
by Equitable Life of the payment of any debt or other obligation,
indebtedness or liability, of any kind or character whatsoever, of
Golden American. The agreement does not guarantee the value of the
underlying assets held in separate accounts in which funds of
variable life insurance and variable annuity policies have been
invested. The calculation of the annual fee is based on risk based
capital. As Golden American's risk based capital level was above
required amounts, no annual fee was payable in 1998 or in 1997.
Golden American provides certain advisory, computer and other
resources and services to Equitable Life. Revenues for these
services, which reduced general expenses incurred by Golden
American, totaled $5,833,000 for the year ended December 31, 1998
($1,338,000 and $2,992,000 for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24,
1997, respectively). No services were provided by Golden American
in 1996.
The Companies have a service agreement with Equitable Life in
which Equitable Life provides administrative and financial related
services. Under this agreement, the Companies incurred expenses of
$1,058,000 for the year ended December 31, 1998 ($13,000 and
$16,000 for the periods October 25, 1997 through December 31, 1997
and January 1, 1997 through October 24, 1997, respectively).
First Golden provides resources and services to DSI. Revenues for
these services, which reduce general expenses incurred by the
Companies, totaled $75,000 in 1998.
For the year ended December 31, 1998, the Companies had premiums,
net of reinsurance, for variable products from four affiliates,
Locust Street Securities, Inc., Vestax Securities Corporation, DSI
and Multi-Financial Securities Corporation of $122,900,000,
$44,900,000, $13,600,000 and $13,400,000, respectively. The
Companies had premiums, net reinsurance, for variable products
from three affiliates, Locust Street Securities, Inc., Vestax
Securities Corporation and DSI of $9,300,000, $1,900,000 and
$2,100,000 respectively, for the period October 25, 1997 through
December 31, 1997 ($16,900,000, $1,200,000 and $400,000 for the
period January 1, 1997 through October 24, 1997, respectively).
76
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
10. RELATED PARTY TRANSACTIONS (continued)
Reciprocal Loan Agreement: Golden American maintains a reciprocal
loan agreement with ING America Insurance Holdings, Inc. ("ING
AIH"), a Delaware corporation and affiliate, to facilitate the
handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement which became effective January
1, 1998 and expires December 31, 2007, Golden American and ING AIH
can borrow up to $65,000,000 from one another. Prior to lending
funds to ING AIH, Golden American must obtain the approval of the
State of Delaware Department of Insurance. Interest on any Golden
American borrowings is charged at the rate of ING AIH's cost of
funds for the interest period plus 0.15%. Interest on any ING AIH
borrowings is charged at a rate based on the prevailing interest
rate of U.S. commercial paper available for purchase with a
similar duration. Under this agreement, Golden American incurred
interest expense of $1,765,000 in 1998. At December 31, 1998,
Golden American did not have any borrowings or receivables from
ING AIH under this agreement.
Line of Credit: Golden American maintained a line of credit
agreement with Equitable to facilitate the handling of unusual
and/or unanticipated short-term cash requirements. Under this
agreement which became effective December 1, 1996 and expired
December 31, 1997, Golden American could borrow up to $25,000,000.
Interest on any borrowings was charged at the rate of Equitable's
monthly average aggregate cost of short-term funds plus 1.00%.
Under this agreement, Golden American incurred interest expense of
$211,000 for the year ended December 31, 1998 ($213,000 for the
period October 25, 1997 through December 31, 1997, $362,000 for
the period January 1, 1997 through October 24, 1997 and $85,000
for the period August 14, 1996 through December 31, 1996). The
outstanding balance was paid by a capital contribution.
Surplus Notes: On December 30, 1998, Golden American issued a
7.25% surplus note in the amount of $60,000,000 to Equitable Life.
The note matures on December 29, 2028. The note and related
accrued interest is subordinate to payments due to policyholders,
claimant and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of
Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred no interest in 1998.
On December 17, 1996, Golden American issued an 8.25% surplus note
in the amount of $25,000,000 to Equitable. The note matures on
December 17, 2026. The note and related accrued interest is
subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of
debtors of Golden American. Any payment of principal made is
subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling
$2,063,000 in 1998 ($344,000 and $1,720,000 for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, respectively). On December 17, 1996,
Golden American contributed the $25,000,000 to First Golden
acquiring 200,000 shares of common stock (100% of outstanding
stock) of First Golden.
Stockholder's Equity: On September 23, 1996, EIC Variable, Inc.
contributed $50,000,000 of Preferred Stock to the Companies'
additional paid-in capital. During 1998, Golden American received
$122,500,000 of capital contributions from its Parent.
11. COMMITMENTS AND CONTINGENCIES
Contingent Liability: In a transaction that closed on September
30, 1992, Bankers Trust acquired from Mutual Benefit, in
accordance with the terms of an Exchange Agreement, all of the
issued and outstanding capital stock of Golden American and DSI
and certain related assets for consideration with an aggregate
value of $13,200,000 and contributed them to BT Variable. The
transaction involved
77
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
11. COMMITMENTS AND CONTINGENCIES (continued)
settlement of pre-existing claims of Bankers
Trust against Mutual Benefit. The ultimate value of these claims
has not yet been determined by the Superior Court of New Jersey
and, prior to August 13, 1996, was contingently supported by a
$5,000,000 note payable from Golden American and a $6,000,000
letter of credit from Bankers Trust. Bankers Trust estimated the
contingent liability due from Golden American amounted to $439,000
at August 13, 1996. At August 13, 1996, the balance of the escrow
account established to fund the contingent liability was
$4,293,000.
On August 13, 1996, Bankers Trust made a cash payment to Golden
American in an amount equal to the balance of the escrow account
less the $439,000 contingent liability discussed above. In
exchange, Golden American irrevocably assigned to Bankers Trust
all of Golden American's rights to receive any amounts to be
disbursed from the escrow account in accordance with the terms of
the Exchange Agreement. Bankers Trust also irrevocably agreed to
make all payments becoming due under the Golden American note and
to indemnify Golden American for any liability arising from the
note.
Reinsurance: At December 31, 1998, the Companies had reinsurance
treaties with four unaffiliated reinsurers and one affiliated
reinsurer covering a significant portion of the mortality risks
under variable contracts. The Companies remain liable to the
extent reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life
mortality risks were $111,552,000 and $96,686,000 at December 31,
1998 and 1997, respectively. At December 31, 1998, the Companies
have a net receivable of $7,470,000 for reserve credits,
reinsurance claims or other receivables from these reinsurers
comprised of $439,000 for claims recoverable from reinsurers,
$543,000 for a payable for reinsurance premiums and $7,574,000 for
a receivable from an unaffiliated reinsurer. Included in the
accompanying financial statements are net considerations to
reinsurers of $4,797,000, $326,000, $1,871,000, $875,000 and
$600,000 and net policy benefits recoveries of $2,170,000,
$461,000, $1,021,000, $654,000 and $1,267,000 for the year ended
December 31, 1998 and for the periods October 25, 1997 through
December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996
through August 13, 1996, respectively.
Effective June 1, 1994, Golden American entered into a modified
coinsurance agreement with an unaffiliated reinsurer. The
accompanying financial statements are presented net of the effects
of the treaty which increased income by $1,022,000, $265,000,
$335,000, $10,000 and $56,000 for the year ended December 31, 1998
and for the periods October 25, 1997 through December 31, 1997,
January 1, 1997 through October 24, 1997, August 14, 1996 through
December 31, 1996 and January 1, 1996 through August 13, 1996,
respectively.
Guaranty Fund Assessments: Assessments are levied against the
Companies by life and health guaranty associations in most states
in which the Companies are licensed to cover losses of
policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially recovered through a
reduction in future premium taxes. The Companies cannot predict
whether and to what extent legislative initiatives may affect the
right to offset. The associated cost for a particular insurance
company can vary significantly based upon its fixed account
premium volume by line of business and state premiums as well as
its potential for premium tax offset. The Companies have
established an undiscounted reserve to cover such assessments and
regularly reviews information regarding known failures and revises
its estimates of future guaranty fund assessments. Accordingly,
the Companies accrued and charged to expense an additional
$1,123,000 for the year ended December 31, 1998, $141,000 for the
period October 25, 1997 through December 31, 1997, $446,000 for
the period January 1, 1997 through October 24, 1997, $291,000 for
the period August 14, 1996 through December 31, 1996 and $480,000
for the period January 1, 1996 through August 13, 1996. At
December 31, 1998, the Companies have an undiscounted reserve of
78
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
11. COMMITMENTS AND CONTINGENCIES (continued)
$2,446,000 to cover estimated future assessments (net of related
anticipated premium tax credits) and has established an asset
totaling $586,000 for assessments paid which may be recoverable
through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund
assessments, based upon previous premiums, and known insolvencies
at this time.
Litigation: The Companies, like other insurance companies, may be
named or otherwise involved in lawsuits, including class action
lawsuits. In some class action and other lawsuits involving
insurers, substantial damages have been sought and/or material
settlement payments have been made. The Companies currently
believe no pending or threatened lawsuits exist that are
reasonably likely to have a material adverse impact on the
Companies.
Vulnerability from Concentrations: The Companies have various
concentrations in its investment portfolio (see Note 3 for further
information). The Companies' asset growth, net investment income
and cash flow are primarily generated from the sale of variable
products and associated future policy benefits and separate
account liabilities. Substantial changes in tax laws that would
make these products less attractive to consumers and extreme
fluctuations in interest rates or stock market returns which may
result in higher lapse experience than assumed could cause a
severe impact to the Companies' financial condition. Two
broker/dealers generated 27% of the Companies' sales (53% by two
broker/dealers during 1997).
Leases: The Companies lease their home office space, certain
other equipment and capitalized computer software under operating
leases which expire through 2018. During the year ended December
31, 1998 and for the periods October 25, 1997 through December 31,
1997, January 1, 1997 through October 24, 1997, August 14, 1996
through December 31, 1996 and January 1, 1996 through August 13,
1996, rent expense totaled $1,241,000, $39,000, $331,000, $147,000
and $247,000, respectively. At December 31, 1998, minimum rental
payments due under all non-cancelable operating leases with
initial terms of one year or more are: 1999 - $1,528,000; 2000 -
$1,429,000; 2001 - $1,240,000; 2002 - $1,007,000; 2003 - $991,000
and 2004 and thereafter - $5,363,000.
Revolving Note Payable: To enhance short-term liquidity, the
Companies have established a revolving note payable effective July
27, 1998 and expiring July 31, 1999 with SunTrust Bank, Atlanta
(the "Bank"). The note was approved by the Boards of Directors of
Golden American and First Golden on August 5, 1998 and September
29, 1998, respectively. The total amount the Companies may have
outstanding is $85,000,000, of which Golden American and First
Golden have individual credit sublimits of $75,000,000 and
$10,000,000, respectively. The note accrues interest at an annual
rate equal to: (1) the cost of funds for the Bank for the period
applicable for the advance plus 0.25% or (2) a rate quoted by the
Bank to the Companies for the advance. The terms of the agreement
require the Companies to maintain the minimum level of Company
Action Level Risk Based Capital as established by applicable state
law or regulation. During the year ended December 31, 1998, the
Companies incurred interest expense of $352,000. At December 31,
1998, the Companies did not have any borrowings under this
agreement.
79
<PAGE>
<PAGE>
FINANCIAL STATEMENTS
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
80
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
TABLE OF CONTENTS
Report of Independent Auditors.............................................. 53
Audited Financial Statements
Statement of Assets and Liability........................................... 54
Statements of Operations.................................................... 55
Statements of Changes in Net Assets......................................... 62
Notes to Financial Statements............................................... 69
81
<PAGE>
<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 Golden
American Life Insurance Company Separate Account A as of December 31, 1998, and
the related statements of operations and changes in net assets for each of the
three years in the period then ended. These financial statements are the
responsibility of the Account's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Golden American Life
Insurance Company Separate Account A at December 31, 1998, and the results of
its operations and changes in its net assets for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 25, 1999
82
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
COMBINED
--------
ASSETS
Investments at net asset value:
The GCG Trust:
Liquid Asset Series, 2,417,878 shares (cost - $2,418)........... $ 2,418
Limited Maturity Bond Series, 93,633 shares (cost - $1,015)..... 1,000
Hard Assets Series, 47,314 shares (cost - $479)................. 454
All-Growth Series, 109,052 shares (cost - $1,557)............... 1,635
Real Estate Series, 42,416 shares (cost - $679)................. 576
Fully Managed Series, 234,008 shares (cost - $3,597)............ 3,564
Multiple Allocation Series, 202,030 shares (cost - $2,608)...... 2,560
Capital Appreciation Series, 269,720 shares (cost - $5,040)..... 4,879
Rising Dividends Series, 308,038 shares (cost - $5,892)......... 6,780
Emerging Markets Series, 120,497 shares (cost - $1,026)......... 805
Value Equity Series, 201,392 shares (cost - $3,378)............. 3,198
Strategic Equity Series, 127,803 shares (cost - $1,624)......... 1,638
Small Cap Series, 191,056 shares (cost - $2,619)................ 3,063
Managed Global Series, 226,003 shares (cost - $3,128)........... 3,207
Mid-Cap Growth Series, 82,760 shares (cost - $1,337)............ 1,498
Growth & Income Series, 160,691 shares (cost - $2,413).......... 2,510
Research Series, 140,550 shares (cost - $2,742)................. 2,855
Total Return Series, 130,161 shares (cost - $2,031)............. 2,057
Value + Growth Series, 105,483 shares (cost - $1,489)........... 1,648
Global Fixed Income Series, 525 shares (cost - $6).............. 6
PIMCO Variable Insurance Trust:
PIMCO High Yield Bond Portfolio, 8,017 shares (cost - $79)...... 78
PIMCO StocksPLUS Growth and Income Portfolio, 5,794 shares
(cost - $68)................................................. 73
-------
TOTAL ASSETS (cost - $45,225)................................ 46,502
LIABILITY
Payable to Golden American Life Insurance Company for charges
and fees........................................................ 102
-------
TOTAL NET ASSETS................................................ $46,400
=======
NET ASSETS
For variable life insurance policies.............................. $43,556
Retained in Separate Account A by Golden American Life
Insurance Company............................................... 2,844
-------
TOTAL NET ASSETS................................................ $46,400
=======
See accompanying notes.
83
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY HARD ASSETS
DIVISION BOND DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. $ 142 $ 117 $ 85 $ 30 $ 68 $ 119 26 $ 73 $ 2
Capital gains
distributions......... -- -- -- -- -- -- 16 79 60
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME 142 117 85 30 68 119 42 152 62
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... 26 22 17 8 9 10 8 9 3
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... 26 22 17 8 9 10 8 9 3
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. 116 95 68 22 59 109 34 143 59
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. -- -- -- (5) (24) 39 (347) 174 28
Net unrealized
appreciation
(depreciation) of
investments............ -- -- -- 35 19 (113) 226 (248) (7)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 116 $ 95 $ 68 $ 52 $ 54 $ 35 $ (87)$ 69 $ 80
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
84
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. $ 9 $ 4 $ 39 $ 28 $ 29 $ 16 $ 105 $ 89 $ 72
Capital gains
distributions......... 10 54 6 52 26 7 196 130 87
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME 19 58 45 80 55 23 301 219 159
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... 16 17 16 6 8 2 28 25 16
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... 16 17 16 6 8 2 28 25 16
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. 3 41 29 74 47 21 273 194 143
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. 21 (21) (7) (159) 144 27 72 179 18
Net unrealized
appreciation
(depreciation) of
investments............ 115 55 (82) (89) (54) 27 194 (16) 77
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 139 $ 75 $ (60) $ (174)$ 137 $ 75 $ 151 $ 357 $ 238
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
85
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MULTIPLE CAPITAL RISING
ALLOCATION APPRECIATION DIVIDENDS
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. $ 129 $ 163 $ 96 $ 64 $ 175 $ 27 $ 32 $ 30 $ 20
Capital gains
distributions......... 139 80 85 373 347 168 236 79 17
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME 268 243 181 437 522 195 268 109 37
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... 23 21 18 41 31 19 53 33 17
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... 23 21 18 41 31 19 53 33 17
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. 245 222 163 396 491 176 215 76 20
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. 41 94 31 441 221 73 452 308 45
Net unrealized
appreciation
(depreciation) of
investments............ (110) 27 (50) (378) 122 104 5 523 235
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 176 $ 343 $ 144 $ 459 $ 834 $ 353 $ 672 $ 907 $ 300
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
86
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EMERGING VALUE STRATEGIC
MARKETS EQUITY EQUITY
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. -- $ 2 -- $ 71 $ 210 $ 27 $ 45 $ 64 $ 6
Capital gains
distributions......... -- -- -- 26 51 49 63 1 6
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME -- 2 -- 97 261 76 108 65 12
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... $ 11 12 $ 9 27 19 10 12 9 2
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... 11 12 9 27 19 10 12 9 2
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. (11) (10) (9) 70 242 66 96 56 10
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. (84) 54 (21) 206 188 12 18 60 13
Net unrealized
appreciation
(depreciation) of
investments............ (47) (184) 59 (291) 45 42 (115) 111 17
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ (142)$ (140)$ 29 $ (15)$ 475 $ 120 $ (1)$ 227 $ 40
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
87
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SMALL CAP MANAGED GLOBAL MID-CAP GROWTH
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996(a) 1998 1997 1996(b) 1998 1997 1996(c)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. -- -- -- $ 45 $ 42 -- $ 64 $ 18 --
Capital gains
distributions......... -- -- -- 90 2 -- -- 1 $ 4
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME -- -- -- 135 44 -- 64 $ 19 4
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... $ 25 $ 16 $ 6 13 3 -- 12 3 --
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... 25 16 6 13 3 -- 12 3 --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. (25) (16) (6) 122 41 -- 52 16 4
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. 202 118 8 310 33 -- (177) -- 2
Net unrealized
appreciation
(depreciation) of
investments............ 310 101 33 122 (44)$ 1 129 36 (4)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 487 $ 203 $ 35 $ 554 $ 30 $ 1 $ 4 $ 52 $ 2
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
88
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL VALUE +
GROWTH & INCOME RESEARCH RETURN GROWTH
DIVISION DIVISION DIVISION DIVISION
----------------------- --------------- --------------- ---------------
1998 1997 1996(c) 1998 1997(d) 1998 1997(e) 1998 1997(e)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. $ 74 $ 87 -- $ 152 $ 18 $ 113 $ 12 $ 68 --
Capital gains
distributions......... -- 1 -- -- 7 -- 4 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME 74 88 -- 152 25 113 16 68 --
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... 15 7 -- 15 3 12 2 7 $ 2
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... 15 7 -- 15 3 12 2 7 2
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. 59 81 -- 137 22 101 14 61 (2)
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. (25) 142 -- 136 70 8 7 (30) 55
Net unrealized
appreciation
(depreciation) of
investments............ 164 (69)$ 2 132 (19) 23 3 197 (38)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ 198 $ 154 $ 2 $ 405 $ 73 $ 132 $ 24 $ 228 $ 15
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
89
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PIMCO
GLOBAL PIMCO STOCKSPLUS
FIXED HIGH YIELD GROWTH AND
INCOME BOND INCOME COMBINED
DIVISION DIVISION DIVISION -----------------------
1998(h) 1998(g) 1998(f) 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends............. -- $ 1 $ 1 $ 1,199 $ 1,201 $ 509
Capital gains
distributions......... -- -- -- 1,201 862 489
------- ------- ------- ------- ------- -------
TOTAL INVESTMENT INCOME -- 1 1 2,400 2,063 998
Expenses:
Mortality and expense
risk and asset based
administrative
charges............... -- -- -- 358 251 145
------- ------- ------- ------- ------- -------
TOTAL EXPENSES......... -- -- -- 358 251 145
------- ------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS)................. -- 1 1 2,042 1,812 853
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) on investments.. $ (50) -- -- 1,030 1,802 268
Net unrealized
appreciation
(depreciation) of
investments............ -- (1) 5 238 370 341
------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... $ (50) -- $ 6 $ 3,310 $ 3,984 $ 1,462
======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
90
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIQUID ASSET LIMITED MATURITY HARD ASSETS
DIVISION BOND DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... $ 116 $ 95 $ 68 $ 22 $ 59 $ 109 $ 34 $ 143 $ 59
Net realized gain (loss) on
investments..................... -- -- -- (5) (24) 39 (347) 174 28
Net unrealized appreciation
(depreciation) of investments... -- -- -- 35 19 (113) 226 (248) (7)
------ ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations 116 95 68 52 54 35 (87) 69 80
Changes from policy related
transactions:
Premiums.......................... 8,625 10,919 10,103 30 23 3 19 12 4
Surrenders and other withdrawals.. (1,081) (3,040) (2,084) (169) (106) (22) (203) (45) (44)
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... (8,288) (7,465) (8,526) 198 (107) 334 40 87 375
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ 887 73 (23) (18) (20) 39 (8) 1 44
Policy related charges and fees.. (21) (11) (11) (9) (7) (6) (13) (9) (6)
------ ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. 122 476 (541) 32 (217) 348 (165) 46 373
------ ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)........ 238 571 (473) 84 (163) 383 (252) 115 453
NET ASSETS AT BEGINNING OF PERIOD.. 2,174 1,603 2,076 914 1,077 694 705 590 137
------ ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 2,412 $ 2,174 $ 1,603 $ 998 $ 914 $ 1,077 $ 453 $ 705 $ 590
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
91
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ALL-GROWTH REAL ESTATE FULLY MANAGED
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... $ 3 $ 41 $ 29 $ 74 $ 47 $ 21 $ 273 $ 194 $ 143
Net realized gain (loss) on
investments..................... 21 (21) (7) (159) 144 27 72 179 18
Net unrealized appreciation
(depreciation) of investments... 115 55 (82) (89) (54) 27 (194) (16) 77
------ ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations 139 75 (60) (174) 137 75 151 357 238
Changes from policy related
transactions:
Premiums.......................... 57 52 22 27 8 1 97 55 5
Surrenders and other withdrawals.. (256) (61) (32) (140) (21) (3) (153) (336) (131)
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... (317) 177 680 93 206 198 800 549 787
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ (21) (29) 63 (9) 25 20 (38) 40 80
Policy related charges and fees.. (17) (14) (13) (6) (7) (2) (33) (26) (13)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. (554) 125 720 (35) 211 214 673 282 728
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)........ (415) 200 660 (209) 348 289 824 639 966
NET ASSETS AT BEGINNING OF PERIOD.. 2,047 1,847 1,187 784 436 147 2,732 2,093 1,127
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 1,632 $ 2,047 $ 1,847 $ 575 $ 784 $ 436 $ 3,556 $ 2,732 $ 2,093
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
92
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MULTIPLE CAPITAL RISING
ALLOCATION APPRECIATION DIVIDENDS
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... $ 245 $ 222 $ 163 $ 396 $ 491 $ 176 $ 215 $ 76 $ 20
Net realized gain (loss) on
investments..................... 41 94 31 441 221 73 453 308 45
Net unrealized appreciation
(depreciation) of investments... (110) 27 (50) (378) 122 104 5 523 235
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations 176 343 144 459 834 353 672 907 300
Changes from policy related
transactions:
Premiums.......................... 78 97 18 215 82 7 248 182 37
Surrenders and other withdrawals.. (247) (122) (152) (499) (368) (145) (528) (149) (79)
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... 229 33 454 (1,237) 2,574 1,292 1,878 1,058 1,355
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ (29) 7 38 (54) 225 151 (74) 105 161
Policy related charges and fees.. (22) (18) (15) (37) (43) (27) (62) (41) (19)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. 9 (3) 343 (1,612) 2,470 1,278 1,462 1,155 1,455
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)........ 185 340 487 (1,153) 3,304 1,631 2,134 2,062 1,755
NET ASSETS AT BEGINNING OF PERIOD.. 2,369 2,029 1,542 6,023 2,719 1,088 4,631 2,569 814
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 2,554 $ 2,369 $ 2,029 $ 4,870 $ 6,023 $ 2,719 $ 6,765 $ 4,631 $ 2,569
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
93
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EMERGING VALUE STRATEGIC
MARKETS EQUITY EQUITY
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... $ (11)$ (10)$ (9) $ 70 $ 242 $ 66 $ 96 $ 56 $ 10
Net realized gain (loss) on
investments..................... (84) 54 (21) 206 188 12 18 60 13
Net unrealized appreciation
(depreciation) of investments... (47) (184) 59 (291) 45 42 (115) 111 17
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations (142) (140) 29 (15) 475 120 (1) 227 40
Changes from policy related
transactions:
Premiums.......................... 39 48 5 142 93 8 40 45 --
Surrenders and other withdrawals.. (19) (17) (118) (363) (107) (31) (15) (17) (1)
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... (83) 48 527 547 735 1,130 334 467 424
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ (10) (20) 45 (39) 59 130 (18) 53 51
Policy related charges and fees.. (9) (11) (10) (29) (21) (12) (9) (7) (2)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. (82) 48 449 258 759 1,225 332 541 472
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)........ (224) (92) 478 243 1,234 1,345 331 768 512
NET ASSETS AT BEGINNING OF PERIOD.. 1,027 1,119 641 2,948 1,714 369 1,305 537 25
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 803 $ 1,027 $ 1,119 $ 3,191 $ 2,948 $ 1,714 $ 1,636 $ 1,305 $ 537
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
94
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SMALL CAP MANAGED GLOBAL MID-CAP GROWTH
DIVISION DIVISION DIVISION
----------------------- ----------------------- -----------------------
1998 1997 1996(a) 1998 1997 1996(b) 1998 1997 1996(c)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... $ (25)$ (16)$ (6) $ 122 $ 41 -- $ 52 $ 16 $ 4
Net realized gain (loss) on
investments..................... 202 118 8 310 33 -- (177) -- 2
Net unrealized appreciation
(depreciation) of investments... 310 101 33 122 (44)$ 1 129 36 (4)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations 487 203 35 554 30 1 4 52 2
Changes from policy related
transactions:
Premiums.......................... 114 98 8 72 6 (2) 166 38 1
Surrenders and other withdrawals.. (286) (40) (5) (108) (4) -- (117) (10) --
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... 589 643 1,134 2,157 386 87 1,022 269 72
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ (31) 38 125 (11) 43 8 (5) 20 7
Policy related charges and fees.. (26) (20) (10) (14) (5) -- (22) (5) (1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. 360 719 1,252 2,096 426 93 1,044 312 79
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)........ 847 922 1,287 2,650 456 94 1,048 364 81
NET ASSETS AT BEGINNING OF PERIOD.. 2,209 1,287 -- 550 94 -- 445 81 --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 3,056 $ 2,209 $ 1,287 $ 3,200 $ 550 $ 94 $ 1,493 $ 445 $ 81
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
95
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL VALUE +
GROWTH & INCOME RESEARCH RETURN GROWTH
DIVISION DIVISION DIVISION DIVISION
----------------------- --------------- --------------- ---------------
1998 1997 1996(c) 1998 1997(d) 1998 1997(e) 1998 1997(e)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... $ 59 $ 81 -- $ 137 $ 22 $ 101 $ 14 $ 61 $ (2)
Net realized gain (loss) on
investments..................... (25) 142 -- 136 70 8 7 (30) 55
Net unrealized appreciation
(depreciation) of investments... 164 (69)$ 2 132 (19) 23 3 197 (38)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations 198 154 2 405 73 132 24 228 15
Changes from policy related
transactions:
Premiums.......................... 81 78 1 377 10 46 1 48 16
Surrenders and other withdrawals.. (41) (4) -- (26) (4) (15) (1) (7) --
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... 1,232 798 71 1,312 721 1,404 483 960 229
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ (25) (15) 9 (55) 77 (14) 10 (11) 186
Policy related charges and fees.. (22) (13) -- (32) (8) (15) (3) (12) (8)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. 1,225 844 81 1,576 796 1,406 490 978 423
------- ------- ------- ------- ------- ------- ------- ------- -------
Total increase (decrease)........ 1,423 998 83 1,981 869 1,538 514 1,206 438
NET ASSETS AT BEGINNING OF PERIOD.. 1,081 83 -- 869 -- 514 -- 438 --
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 2,504 $ 1,081 $ 83 $ 2,850 $ 869 $ 2,052 $ 514 $ 1,644 $ 438
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
96
<PAGE>
<PAGE>
[landscaped]
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996, EXCEPT AS NOTED
(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PIMCO
GLOBAL PIMCO STOCKSPLUS
FIXED HIGH YIELD GROWTH AND
INCOME BOND INCOME COMBINED
DIVISION DIVISION DIVISION -----------------------
1998(h) 1998(g) 1998(f) 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)...... -- $ 1 $ 1 $ 2,042 $ 1,812 $ 853
Net realized gain (loss) on
investments..................... $ (50) -- -- 1,030 1,802 268
Net unrealized appreciation
(depreciation) of investments... -- (1) 5 238 370 341
------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations (50) -- 6 3,310 3,984 1,462
Changes from policy related
transactions:
Premiums.......................... (1) -- -- 10,520 11,863 10,221
Surrenders and other withdrawals.. -- (4) -- (4,277) (4,452) (2,847)
Net transfers among Divisions and
Fixed Interest Division of
Golden American Life Insurance
Company......................... 57 84 67 3,078 1,891 394
Net additions to (from) assets
retained in the account by
Golden American Life Insurance
Company........................ -- (2) -- 415 878 948
Policy related charges and fees.. -- (1) -- (411) (277) (147)
------- ------- ------- ------- ------- -------
Increase (decrease) in net assets
from policy related transactions. 56 77 67 9,325 9,903 8,569
------- ------- ------- ------- ------- -------
Total increase (decrease)........ 6 77 73 12,635 13,887 10,031
NET ASSETS AT BEGINNING OF PERIOD.. -- -- -- 33,765 19,878 9,847
------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD........ $ 6 $ 77 $ 73 $46,400 $33,765 $19,878
======= ======= ======= ======= ======= =======
</TABLE>
(a)Commencement of operations, January 30, 1996
(b)Commencement of operations, September 23, 1996
(c)Commencement of operations, October 2, 1996
(d)Commencement of operations, February 20, 1997
(e)Commencement of operations, February 21, 1997
(f)Commencement of operations, July 31, 1998
(g)Commencement of operations, August 3, 1998
(h)Commencement of operations, September 4, 1998
See accompanying notes.
97
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION
Golden American Life Insurance Company 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 primarily engaged in the issuance of variable
insurance products and is licensed as a life insurance company
in the District of Columbia and all states except New York. The
Account is registered as a unit investment trust with the
Securities 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 identified and distinguished from the other assets
and liabilities of Golden American.
At December 31, 1998, the Account had, under GoldenSelect
Policies (Genesis I and Genesis Flex), twenty-two investment
divisions: Liquid Asset, Limited Maturity Bond, Hard Assets, All-
Growth, Real Estate, Fully Managed, Multiple Allocation, Capital
Appreciation, Rising Dividends, Emerging Markets, Value Equity,
Strategic Equity, Small Cap, Managed Global, Mid-Cap Growth
(formerly OTC), Growth & Income, Research, Total Return, Value +
Growth, Global Fixed Income, PIMCO High Yield Bond and PIMCO
StocksPLUS Growth and Income ("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, The GCG Trust and the PIMCO Variable Insurance
Trust, (the "Trusts"). The Developing World and Growth
Opportunities Divisions were available under GoldenSelect
Policies but did not have investments at December 31, 1998.
Prior to August 14, 1998, the Account also had certain
investment divisions available from the Equi-Select Series
Trust. In an effort to consolidate operations, Golden American
requested permission from the Securities and Exchange Commission
("SEC") to substitute shares of each Portfolio of the Equi-
Select Series Trust with shares of a similar Series of The GCG
Trust. On August 14, 1998, after approval from the SEC, shares
of each Portfolio of the Equi-Select Series Trust were
substituted with shares of a similar series of The GCG Trust.
The consolidation resulted in the following Series being
substituted from The GCG Trust:
Equi-Select Series Trust The GCG Trust
Investment Division Investment Division
------------------------ -------------------
OTC Mid-Cap Growth
Research Research
Total Return Total Return
Value + Growth Value + Growth
Growth & Income Growth & Income
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting
policies of the Account:
USE OF ESTIMATES: The preparation of the financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
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 Series 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 from each Series or
Portfolio of the Trusts are recognized on the ex-distribution
date. Realized gains and losses on redemptions of the shares of
the Series or Portfolio of the Trusts are determined on the
specific identification basis.
98
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES: Operations of the Account form a part of,
and are taxed with, the total operations of Golden American
which is taxed as a life insurance company under the Internal
Revenue Code. Earnings and realized capital gains of the
Account attributable to the 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 Policies to cover Golden American's expenses in
connection with the issuance and administration of the Policies.
Following is a summary of these charges:
MORTALITY AND EXPENSE RISK 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 the Policies.
ADMINISTRATIVE CHARGES: An administrative charge of $200
(single life) or $300 (joint life) is made to cover the cost of
underwriting and issuing a Policy. The charge is deducted in
quarterly installments on each Policy during the first Policy
year. In addition, an 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 Policies. The cost is based on
each insurer's sex, attained age, and underwriting class and can
be adjusted, subject to certain maximum amounts set forth in the
Policies.
MINIMUM DEATH BENEFIT GUARANTEE CHARGE: A minimum death benefit
guarantee charge is assessed at a maximum rate per year of $0.60
per $1,000 of face or net amount at risk, as defined in each
Policy. The charge is deducted in equal installments on each
Policy quarterly processing date during the guarantee period.
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 assessed
to each premium payment for sales-related expenses as specified
in the Policy. For the Policies offered prior to October 1995,
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: A charge is assessed which is
deducted in equal installments over a six year period following
receipt of the initial premium or increase in face amount. This
charge varies based on the face amount, age and sex of the
insured and the Policy chosen. This charge will never exceed
$12 per $1,000 of face amount. A portion of this charge is
considered to be an additional sales load.
PREMIUM TAXES: Premiums are subject to a charge for premium and
other state and local taxes. The amount and timing of the
payment by Golden American depends 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 component of the Policyowner's investment value
and then deducted in equal installments 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
deducted from the Policyowner's investment value. For some
Policies, the deferred premium taxes are collected in one
installment at the end of the Policy processing period following
the premium collection.
99
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - CHARGES AND FEES (CONTINUED)
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-allocation, a $25 charge may be made
from the amount transferred between 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.
A summary of the net assets retained in the Account,
representing the unamortized deferred sales load and premium
taxes advanced by Golden American previously noted follows:
YEAR ENDED DECEMBER 31
--------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
Balance at beginning of year $2,429 $1,551 $ 603
Sales load advanced 767 825 758
Premium tax advanced 271 322 304
Net transfer from Fixed Interest
Division -- 94 38
Amortization of deferred sales load
and premium tax (623) (363) (152)
------ ------ ------
Balance at end of year $2,844 $2,429 $1,551
====== ====== ======
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
--------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
The GCG Trust
Liquid Asset Division $22,611 $22,372 $13,442 $12,871 $ 9,546 $10,017
Limited Maturity Bond Division 398 344 3,241 3,399 1,100 642
Hard Assets Division 6,948 7,080 4,335 4,146 576 140
All-Growth Division 204 755 1,263 1,099 1,918 1,168
Real Estate Division 3,093 3,055 6,843 6,584 337 102
Fully Managed Division 1,237 289 1,229 751 1,054 180
Multiple Allocation Division 556 301 908 689 915 408
Capital Appreciation Division 1,885 3,104 3,945 981 2,513 1,054
Rising Dividends Division 2,916 1,236 2,021 785 1,653 174
Emerging Markets Division 2,178 2,271 588 551 777 335
Value Equity Division 1,826 1,497 1,952 949 1,390 94
Strategic Equity Division 552 124 1,079 482 583 100
Small Cap Division 1,236 900 2,239 1,535 1,404 153
Managed Global Division 14,100 11,877 809 340 96 3
Mid-Cap Growth Division 12,222 11,124 416 82 127 47
Growth & Income Division 2,006 720 4,003 3,074 81 --
Research Division 4,261 2,546 1,563 742 -- --
Total Return Division 1,690 180 571 65 -- --
Value + Growth Division 1,249 208 2,605 2,182 -- --
Global Fixed Income Division 4,323 4,267 -- -- -- --
PIMCO Variable Insurance Trust:
PIMCO High Yield Bond Portfolio 86 7 -- -- -- --
PIMCO StocksPLUS Growth and
Income Portfolio 69 1 -- -- -- --
------- ------- ------- ------- ------- -------
COMBINED $85,646 $74,258 $53,052 $41,307 $24,070 $14,617
======= ======= ======= ======= ======= =======
</TABLE>
100
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Policyowners' transactions shown in the following table reflect
gross inflows ("Purchases") and outflows ("Sales") in units for
each Division.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
The GCG Trust
Liquid Asset Division 1,585,803 1,575,552 973,006 937,639 751,988 792,125
Limited Maturity Bond Division 21,495 19,604 195,361 208,941 64,993 41,870
Hard Assets Division 387,627 390,222 181,583 177,600 29,493 9,091
All-Growth Division 13,955 50,356 80,436 73,085 131,273 83,029
Real Estate Division 126,885 131,070 276,497 266,809 15,888 4,944
Fully Managed Division 45,578 13,056 55,134 38,235 55,652 11,003
Multiple Allocation Division 13,857 13,050 34,857 34,416 43,404 23,182
Capital Appreciation Division 61,997 135,741 159,349 46,074 148,680 67,690
Rising Dividends Division 121,562 55,078 107,589 42,323 113,046 12,227
Emerging Markets Division 254,914 250,189 56,756 54,201 78,278 33,532
Value Equity Division 93,161 80,872 102,289 59,623 96,086 6,366
Strategic Equity Division 31,056 7,888 81,966 36,885 51,542 8,565
Small Cap Division 89,683 63,335 187,527 125,606 121,574 12,919
Managed Global Division 1,034,663 870,875 65,487 27,970 8,986 250
Mid-Cap Growth Division 622,118 580,413 23,612 4,933 8,153 3,011
Growth & Income Division 126,743 50,768 267,409 204,064 6,613 4
Research Division 193,134 116,164 84,489 38,856 -- --
Total Return Division 92,613 10,087 35,701 4,087 -- --
Value + Growth Division 81,538 15,029 177,892 144,389 -- --
Global Fixed Income Division 321,091 320,650 -- -- -- --
PIMCO Variable Insurance Trust:
PIMCO High Yield Bond Portfolio 8,389 720 -- -- -- --
PIMCO StocksPLUS Growth and
Income Portfolio 6,582 39 -- -- -- --
--------- --------- --------- --------- --------- ---------
COMBINED 5,334,444 4,750,758 3,146,940 2,525,736 1,725,649 1,109,808
========= ========= ========= ========= ========= =========
</TABLE>
NOTE 6 - NET ASSETS
Investments at net asset value less the payable to Golden American
Life Insurance Company for charges and fees
at December 31, 1998 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 $ 1,997 $ 766 $ 358 $ 1,280 $ 481 $ 2,631
Accumulated investment income (loss)
and net realized gain (loss)
on investments 415 247 120 274 197 958
Net unrealized appreciation
(depreciation) of investments -- (15) (25) 78 (103) (33)
------- ------- ------- ------- ------- -------
$ 2,412 $ 998 $ 453 $ 1,632 $ 575 $ 3,556
======= ======= ======= ======= ======= =======
</TABLE>
101
<PAGE>
<PAGE>
<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 $ 1,541 $ 2,998 $ 4,739 $ 1,158 $ 2,577 $ 1,369
Accumulated investment income (loss)
and net realized gain (loss)
on investments 1,061 2,033 1,138 (134) 794 253
Net unrealized appreciation
(depreciation) of investments (48) (161) 888 (221) (180) 14
------- ------- ------- ------- ------- -------
$ 2,554 $ 4,870 $ 6,765 $ 803 $ 3,191 $ 1,636
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MANAGED MID-CAP GROWTH & TOTAL
SMALL CAP GLOBAL GROWTH INCOME RESEARCH RETURN
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Unit transactions $ 2,331 $ 2,615 $ 1,435 $ 2,150 $ 2,372 $ 1,896
Accumulated investment income (loss)
and net realized gain (loss)
on investments 281 506 (103) 257 365 130
Net unrealized appreciation
(depreciation) of investments 444 79 161 97 113 26
------- ------- ------- ------- ------- -------
$ 3,056 $ 3,200 $ 1,493 $ 2,504 $ 2,850 $ 2,052
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PIMCO
STOCKSPLUS
VALUE + GLOBAL FIXED PIMCO HIGH GROWTH AND
GROWTH INCOME YIELD BOND INCOME
DIVISION DIVISION DIVISION DIVISION COMBINED
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unit transactions $ 1,401 $ 56 $ 77 $ 67 $36,295
Accumulated investment income (loss)
and net realized gain (loss)
on investments 84 (50) 1 1 8,828
Net unrealized appreciation
(depreciation) of investments 159 -- (1) 5 1,277
------- ------- ------- ------- -------
$ 1,644 $ 6 $ 77 $ 73 $46,400
======= ======= ======= ======= =======
</TABLE>
NOTE 7 - UNIT VALUES
Accumulation unit value information (which is based on total assets)
for units outstanding by policy type as of December 31, 1998 was as
follows:
TOTAL UNIT
DIVISION/POLICY UNITS UNIT VALUE VALUE
- ------------------------------------------------------------------------
(IN THOUSANDS)
LIQUID ASSET
Variable Life - Single 1,884 $15.12 $ 28
Variable Life - Joint 160,461 14.89 2,390
-------
2,418
102
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - UNIT VALUES (CONTINUED)
TOTAL UNIT
DIVISION/POLICY UNITS UNIT VALUE VALUE
- ------------------------------------------------------------------------
(IN THOUSANDS)
LIMITED MATURITY BOND
Variable Life - Single 129 17.74 2
Variable Life - Joint 57,289 17.42 998
-------
1,000
HARD ASSETS
Variable Life - Single 1,702 15.15 26
Variable Life - Joint 28,860 14.85 428
-------
454
ALL-GROWTH
Variable Life - Single 457 16.40 7
Variable Life - Joint 101,554 16.03 1,628
-------
1,635
REAL ESTATE
Variable Life - Joint 25,493 22.60 576
FULLY MANAGED
Variable Life - Joint 166,978 21.34 3,564
MULTIPLE ALLOCATION
Variable Life - Single 452 23.18 11
Variable Life - Joint 111,800 22.80 2,549
-------
2,560
CAPITAL APPRECIATION
Variable Life - Single 6,866 25.47 174
Variable Life - Joint 187,218 25.13 4,705
-------
4,879
RISING DIVIDENDS
Variable Life - Single 1,883 23.31 44
Variable Life - Joint 292,116 23.06 6,736
-------
6,780
EMERGING MARKETS
Variable Life - Single 9 6.71 --
Variable Life - Joint 121,222 6.64 805
-------
805
VALUE EQUITY
Variable Life - Single 2,395 $18.73 $ 45
Variable Life - Joint 169,765 18.58 3,153
-------
3,198
STRATEGIC EQUITY
Variable Life - Joint 113,785 14.40 1,638
103
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - UNIT VALUES (CONTINUED)
TOTAL UNIT
DIVISION/POLICY UNITS UNIT VALUE VALUE
- ------------------------------------------------------------------------
(IN THOUSANDS)
SMALL CAP
Variable Life - Joint 196,924 15.55 3,063
MANAGED GLOBAL
Variable Life - Joint 210,041 15.27 3,207
MID-CAP GROWTH
Variable Life - Single 5,661 23.04 130
Variable Life - Joint 59,865 22.84 1,368
-------
1,498
GROWTH & INCOME
Variable Life - Single 2,600 17.29 45
Variable Life - Joint 143,329 17.20 2,465
-------
2,510
RESEARCH
Variable Life - Single 5,632 23.47 133
Variable Life - Joint 116,971 23.27 2,722
-------
2,855
TOTAL RETURN
Variable Life - Joint 114,140 18.02 2,057
VALUE + GROWTH
Variable Life - Joint 100,012 16.47 1,648
GLOBAL FIXED INCOME
Variable Life - Joint 441 13.31 6
PIMCO HIGH YIELD BOND
Variable Life - Joint 7,669 10.11 78
PIMCO STOCKSPLUS
GROWTH AND INCOME
Variable Life - Joint 6,543 11.14 73
--------- -------
COMBINED 2,522,146 $46,502
========= =======
104
<PAGE>
<PAGE>
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
For the years ended December 31, 1998 and 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, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholder's
equity, and cash flows for the year ended December 31, 1998 and for the
periods from October 25, 1997 through December 31, 1997, January 1, 1997
through October 24, 1997, August 14, 1996 through December 31, 1996 and
January 1, 1996 through August 13, 1996. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Golden American
Life Insurance Company at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the year ended December 31,
1998 and for the periods from October 25, 1997 through December 31, 1997,
January 1, 1997 through October 24, 1997, August 14, 1996 through December
31, 1996 and January 1, 1996 through August 13, 1996 in conformity with
generally accepted accounting principles.
s/Ernst & Young LLP
Des Moines, Iowa
February 12, 1999
77
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
--------------------------------------
December 31, 1998 December 31, 1997
------------------- -----------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (cost: 1998 - $739,772;
1997 - $413,288) $741,985 $414,401
Equity securities, at fair value
(cost: 1998 - $14,437; 1997 - $4,437) 11,514 3,904
Mortgage loans on real estate 97,322 85,093
Policy loans 11,772 8,832
Short-term investments 41,152 14,460
------------------ ----------------
Total investments 903,745 526,690
Cash and cash equivalents 6,679 21,039
Due from affiliates 2,983 827
Accrued investment income 9,645 6,423
Deferred policy acquisition costs 204,979 12,752
Value of purchased insurance in force 35,977 43,174
Current income taxes recoverable 628 272
Deferred income tax asset 31,477 36,230
Property and equipment, less allowances
for depreciation of $801 in 1998 and
$97 in 1997 7,348 1,567
Goodwill, less accumulated amortization
of $4,408 in 1998 and $630 in 1997 146,719 150,497
Other assets 6,239 755
Separate account assets 3,396,114 1,646,169
------------------ ----------------
Total assets $4,752,533 $2,446,395
================== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life
products $881,112 $505,304
Unearned revenue reserve 3,840 1,189
Other policy claims and benefits -- 10
------------------ ----------------
884,952 506,503
Line of credit with affiliate -- 24,059
Surplus notes 85,000 25,000
Due to affiliates -- 80
Other liabilities 32,573 17,271
Separate account liabilities 3,396,114 1,646,169
------------------- -----------------
4,398,639 2,219,082
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share,
authorized, issued and outstanding
250,000 shares 2,500 2,500
Additional paid-in capital 347,640 224,997
Accumulated other comprehensive income
(loss) (895) 241
Retained earnings (deficit) 4,649 (425)
------------------ ----------------
Total stockholder's equity 353,894 227,313
------------------ ----------------
Total liabilities and stockholder's
equity $4,752,533 $2,446,395
================== ================
See accompanying notes.
78
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
------------------------------------ ------------------------------------ ------------------
For the period| For the period For the period| For the period
October 25, 1997| January 1, 1997 August 14, 1996| January 1, 1996
For the year ended through| through through| through
December 31, 1998 December 31, 1997| October 24, 1997 December 31, 1996| August 13, 1996
------------------ -----------------|------------------ -----------------|------------------
| |
<S> <C> <C> <C> <C> <C>
Revenues: | |
Annuity and interest sensitive life | |
product charges $39,119 $3,834 | $18,288 $8,768 | $12,259
Management fee revenue 4,771 508 | 2,262 877 | 1,390
Net investment income 42,485 5,127 | 21,656 5,795 | 4,990
Realized gains (losses) on | |
investments (1,491) 15 | 151 42 | (420)
Other income 5,569 236 | 426 486 | 70
----------------- ---------------- |----------------- ---------------- |-----------------
90,453 9,720 | 42,783 15,968 | 18,289
| |
| |
Insurance benefits and expenses: | |
Annuity and interest sensitive | |
life benefits: | |
Interest credited to account | |
balances 94,845 7,413 | 19,276 5,741 | 4,355
Benefit claims incurred in excess | |
of account balances 2,123 -- | 125 1,262 | 915
Underwriting, acquisition and | |
insurance expenses: | |
Commissions 121,171 9,437 | 26,818 9,866 | 16,549
General expenses 37,577 3,350 | 13,907 5,906 | 9,422
Insurance taxes 4,140 450 | 1,889 672 | 1,225
Policy acquisition costs deferred (197,796) (13,678)| (29,003) (11,712)| (19,300)
Amortization: | |
Deferred policy acquisition costs 5,148 892 | 1,674 244 | 2,436
Value of puchased insurance in force 4,724 948 | 5,225 2,745 | 951
Goodwill 3,778 630 | 1,398 589 | --
----------------- ---------------- |----------------- ---------------- |-----------------
75,710 9,442 | 41,309 15,313 | 16,553
| |
Interest expense 4,390 557 | 2,082 85 | --
----------------- ---------------- |----------------- ---------------- |-----------------
80,100 9,999 | 43,391 15,398 | 16,553
----------------- ---------------- |----------------- ---------------- |-----------------
Income (loss) before income taxes 10,353 (279)| (608) 570 | 1,736
| |
Income taxes 5,279 146 | (1,337) 220 | (1,463)
----------------- ---------------- |----------------- ---------------- |-----------------
| |
Net income (loss) $5,074 ($425)| $729 $350 | $3,199
================= ================ |================= ================ |=================
</TABLE>
See accompanying notes.
79
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
PRE-ACQUISITION
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500 $50,000 $45,030 $658 ($63) $98,125
Comprehensive income:
Net income -- -- -- -- 3,199 3,199
Change in net unrealized
investment gains (losses) -- -- -- (1,175) -- (1,175)
-----------
Comprehensive income 2,024
Preferred stock dividends -- -- -- -- (719) (719)
------------ ------------ ------------ ------------ ------------ -----------
Balance at August 13, 1996 $2,500 $50,000 $45,030 ($517) $2,417 $99,430
============ ============ ============ ============ ============ ===========
<CAPTION>
POST-ACQUISITION
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 14, 1996 $2,500 $50,000 $87,372 -- -- $139,872
Comprehensive income:
Net income -- -- -- -- $350 350
Change in net unrealized
investment gains (losses) -- -- -- $262 -- 262
-----------
Comprehensive income 612
Contribution of preferred
stock to additional
paid-in capital -- (50,000) 50,000 -- -- --
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1996 $2,500 -- $137,372 $262 $350 $140,484
Comprehensive income:
Net income -- -- -- -- 729 729
Change in net unrealized
investment gains (losses) -- -- -- 1,543 -- 1,543
-----------
Comprehensive income 2,272
Contribution of capital -- -- 1,121 -- -- 1,121
------------ ------------ ------------ ------------ ------------ -----------
Balance at October 24, 1997 $2,500 -- $138,493 $1,805 $1,079 $143,877
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
xx
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER
------------------------------------------------------------------------------------
Accumulated
Other
Redeemable Additional Comprehensive Retained Total
Common Preferred Paid-in Income Earnings Stockholder's
Stock Stock Capital (Loss) (Deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 25, 1997 $2,500 -- $224,997 -- -- $227,497
Comprehensive loss:
Net loss -- -- -- -- ($425) (425)
Change in net unrealized
investment gains (losses) -- -- -- $241 -- 241
-----------
Comprehensive loss (184)
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1997 $2,500 -- $224,997 $241 ($425) $227,313
Comprehensive income:
Net income -- -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses) -- -- -- (1,136) -- (1,136)
-----------
Comprehensive income 3,938
Contribution of capital -- -- 122,500 -- -- 122,500
Other -- -- 143 -- -- 143
------------ ------------ ------------ ------------ ------------ -----------
Balance at December 31, 1998 $2,500 -- $347,640 ($895) $4,649 $353,894
============ ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
80
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
----------------------------------- ----------------------------------- -----------------
For the period | For the period For the period | For the period
For the year October 25, 1997 |January 1, 1997 August 14, 1996 |January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997|October 24, 1997 December 31, 1996| August 13, 1996
----------------- -----------------|----------------- -----------------|-----------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES | |
Net income (loss) $5,074 ($425)| $729 $350 | $3,199
Adjustments to reconcile net income | |
(loss) to net cash provided by (used | |
in) operations: | |
Adjustments related to annuity and | |
interest sensitive life products: | |
Interest credited and other charges on | |
interest sensitive products 94,690 7,361 | 19,177 5,106 | 4,472
Change in unearned revenues 2,651 1,189 | 3,292 2,063 | 2,084
Decrease (increase) in accrued | |
investment income (3,222) 1,205 | (3,489) (877)| (2,494)
Policy acquisition costs deferred (197,796) (13,678)| (29,003) (11,712)| (19,300)
Amortization of deferred policy | |
acquisition costs 5,148 892 | 1,674 244 | 2,436
Amortization of value of purchased | |
insurance in force 4,724 948 | 5,225 2,745 | 951
Change in other assets, other | |
liabilities and accrued income taxes 9,891 4,205 | (8,944) (96)| 4,672
Provision for depreciation and | |
amortization 8,147 1,299 | 3,203 1,242 | 703
Provision for deferred income taxes 5,279 146 | 316 220 | (1,463)
Realized (gains) losses on investments 1,491 (15)| (151) (42)| 420
------------- ------------- | ------------- ------------- | -----------
Net cash provided by (used in) | |
operating activities (63,923) 3,127 | (7,971) (757)| (4,320)
| |
INVESTING ACTIVITIES | |
Sale, maturity or repayment of | |
investments: | |
Fixed maturities - available for sale 145,253 9,871 | 39,622 47,453 | 55,091
Mortgage loans on real estate 3,791 1,644 | 5,828 40 | --
Short-term investments - net -- -- | 11,415 2,629 | 354
------------- ------------- | ------------- ------------- | ------------
149,044 11,515 | 56,865 50,122 | 55,445
Acquisition of investments: | |
Fixed maturities - available for sale (476,523) (29,596)| (155,173) (147,170)| (184,589)
Equity securities (10,000) (1)| (4,865) (5)| --
Mortgage loans on real estate (16,390) (14,209)| (44,481) (31,499)| --
Policy loans - net (2,940) (328)| (3,870) (637)| (1,977)
Short-term investments - net (26,692) (13,244)| -- -- | --
------------- ------------- | ------------- ------------- | ------------
(532,545) (57,378)| (208,389) (179,311)| (186,566)
Purchase of property and equipment (6,485) (252)| (875) (137)| --
------------- ------------- | -------------- ------------- | ------------
Net cash used in investing activities (389,986) (46,115)| (152,399) (129,326)| (131,121)
</TABLE>
See accompanying notes.
81
<PAGE>
<PAGE>
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION PRE-ACQUISITION
----------------------------------- ----------------------------------- -----------------
For the period | For the period For the period | For the period
For the year October 25, 1997 |January 1, 1997 August 14, 1996 |January 1, 1996
ended through | through through | through
December 31, 1998 December 31, 1997|October 24, 1997 December 31, 1996| August 13, 1996
----------------- -----------------|----------------- -----------------|-----------------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES | |
Proceeds from issuance of surplus note $ 60,000 -- | -- $ 25,000 | --
Proceeds from reciprocal loan | |
agreement borrowings 500,722 -- | -- -- | --
Repayment of reciprocal loan | |
agreement borrowings (500,722) -- | -- -- | --
Proceeds from revolving note payable 108,495 -- | -- -- | --
Repayment from revolving note payable (108,495) -- | -- -- | --
Proceeds from line of credit borrowings -- $ 10,119 | $ 97,124 -- | --
Repayment of line of credit borrowings -- (2,207)| (80,977) -- | --
Receipts from annuity and interest | |
sensitive life policies credited | |
to account balances 593,428 62,306 | 261,549 116,819 | $ 149,750
Return of account balances | |
on annuity and interest sensitive | |
life policies (72,649) (6,350)| (13,931) (3,315)| (2,695)
Net reallocations to Separate | |
Accounts (239,671) (17,017)| (93,069) (10,237)| (8,286)
Contributions of capital by parent 98,441 -- | 1,011 -- | --
Dividends paid on preferred stock -- -- | -- -- | (719)
------------- ------------- | -------------- ------------- | ------------
Net cash provided by financing | |
activities 439,549 46,851 | 171,707 128,267 | 138,050
------------- ------------- | -------------- ------------- | ------------
Increase (decrease) in cash and | |
cash equivalents (14,360) 3,863 | 11,337 (1,816)| 2,609
| |
Cash and cash equivalents at | |
beginning of period 21,039 17,176 | 5,839 7,655 | 5,046
------------- ------------- | -------------- ------------- | ------------
Cash and cash equivalents at end | |
of period $ 6,679 $ 21,039 | $ 17,176 $ 5,839 | $ 7,655
============= ============= | ============== ============= | =============
| |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW | |
INFORMATION | |
Cash paid during the period for: | |
Interest 4,305 295 | 1,912 -- | --
Income taxes 99 -- | 283 -- | --
Non-cash financing activities: | |
Non-cash adjustment to additional | |
paid-in capital for adjusted merger | |
costs 143 -- | -- -- | --
Contribution of property and equipment | |
from EIC Variable, Inc. net of $353 of | |
accumulated depreciation -- -- | 110 -- | --
Contribution of capital from parent to | |
repay line of credit borrowings 24,059 -- | -- -- | --
</TABLE>
See accompanying notes.
82
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
CONSOLIDATION
The consolidated financial statements include Golden American Life Insurance
Company ("Golden American") and its wholly owned subsidiary, First Golden
American Life Insurance Company of New York ("First Golden," and with Golden
American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American, a wholly owned subsidiary of Equitable of Iowa Companies,
Inc., offers variable insurance products and is licensed as a life insurance
company in the District of Columbia and all states except New York. On
January 2, 1997 and December 23, 1997, First Golden became licensed to sell
insurance products in New York and Delaware, respectively. The Companies'
products are marketed by broker/dealers, financial institutions and insurance
agents. The Companies' primary customers are consumers and corporations.
On October 24, 1997, PFHI Holding, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") according to the terms of an Agreement and Plan of Merger
("Merger Agreement") dated July 7, 1997 among Equitable, PFHI and ING Groep
N.V. ("ING"). PFHI is a wholly owned subsidiary of ING, a global financial
services holding company based in The Netherlands. As a result of this
transaction, Equitable was merged into PFHI, which was simultaneously renamed
Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware
corporation. See Note 6 for additional information regarding the merger.
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of BT Variable, Inc. (subsequently known as EIC Variable, Inc.) and its
wholly owned subsidiaries, Golden American and Directed Services, Inc.
("DSI") from Whitewood Properties Corporation ("Whitewood"). See Note 7 for
additional information regarding the acquisition.
For financial statement purposes, the ING merger was accounted for as a
purchase effective October 25, 1997 and the change in control of Golden
American through the acquisition of BT Variable, Inc. was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in
new bases of accounting reflecting estimated fair values of assets and
liabilities at their respective dates. As a result, the Companies' financial
statements for the periods after October 24, 1997 are presented on the Post-
Merger new basis of accounting, for the period August 14, 1996 through
October 24, 1997 are presented on the Post-Acquisition basis of accounting,
and for August 13, 1996 and prior periods are presented on the Pre-
Acquisition basis of accounting.
INVESTMENTS
FIXED MATURITIES: The Companies account for their investments under the
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires fixed
maturities to be designated as either "available for sale," "held for
investment" or "trading." Sales of fixed maturities designated as "available
for sale" are not restricted by SFAS No. 115. Available for sale securities
are reported at fair value and unrealized gains and losses on these
securities are included directly in stockholder's equity, after adjustment
for related changes in value of purchased insurance in force ("VPIF"),
deferred policy acquisition costs ("DPAC") and deferred income taxes. At
December 31, 1998 and 1997, all of the Companies' fixed maturities are
designated as available for sale, although the Companies are not precluded
from designating fixed maturities as held for investment or trading at some
future date.
Securities determined to have a decline in value that is other than temporary
are written down to estimated fair value, which becomes the new cost basis by
a charge to realized losses in the Companies' Statements of Operations.
Premiums and discounts are amortized/accrued utilizing a method which results
in a constant yield over the securities' expected lives. Amortization/accrual
of premiums and discounts on mortgage and other asset-backed securities
incorporates a prepayment assumption to estimate the securities' expected
lives.
EQUITY SECURITIES: Equity securities are reported at estimated fair value if
readily marketable. The change in unrealized appreciation and depreciation of
marketable equity securities (net of related deferred income taxes, if any)
is included directly in stockholder's equity. Equity securities determined to
have a decline in value that is other than temporary are written down to
estimated fair value, which then becomes the new cost basis by a charge to
realized losses in the Companies' Statements of Operations.
MORTGAGE LOANS: Mortgage loans on real estate are reported at cost adjusted
for amortization of premiums and accrual of discounts. If the value of any
mortgage loan is determined to be impaired (i.e., when it is probable the
Companies will be unable to collect all amounts due according to the
contractual terms of the loan agreement), the carrying value of the mortgage
loan is reduced to the present value of expected future cash flows from the
loan discounted at the loan's effective interest rate, or to the loan's
observable market price, or the fair value of the underlying collateral. The
carrying value of impaired loans is reduced by the establishment of a
valuation allowance which is adjusted at each reporting date for significant
changes in the calculated value of the loan. Changes in this valuation
allowance are charged or credited to income.
OTHER INVESTMENTS: Policy loans are reported at unpaid principal. Short-term
investments are reported at cost, adjusted for amortization of premiums and
accrual of discounts.
REALIZED GAINS AND LOSSES: Realized gains and losses are determined on the
basis of specific identification and average cost methods for manager
initiated and issuer initiated disposals, respectively.
FAIR VALUES: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market and
publicly traded fixed maturities are estimated using a third party pricing
system. This pricing system uses a matrix calculation assuming a spread over
U.S. Treasury bonds based upon the expected average lives of the securities.
Fair values of private placement bonds are estimated using a matrix that
assumes a spread (based on interest rates and a risk assessment of the bonds)
over U.S. Treasury bonds. Estimated fair values of equity securities which
consist of the Companies' investment in its registered separate accounts are
based upon the quoted fair value of the securities comprising the individual
portfolios underlying the separate accounts.
CASH AND CASH EQUIVALENTS
For purposes of the accompanying Statements of Cash Flows, the Companies
consider all demand deposits and interest-bearing accounts not related to the
investment function to be cash equivalents. All interest-bearing accounts
classified as cash equivalents have original maturities of three months or
less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally first year
commissions and interest bonuses, extra credit bonuses and other expenses
related to the production of new business, have been deferred. Acquisition
costs for variable annuity and variable life products are being amortized
generally in proportion to the present value (using the assumed crediting
rate) of expected future gross profits. This amortization is adjusted
retrospectively when the Companies revise their estimate of current or future
gross profits to be realized from a group of products. DPAC is adjusted to
reflect the pro forma impact of unrealized gains and losses on fixed
maturities the Companies have designated as "available for sale" under SFAS
No. 115.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and the acquisition, a portion of the purchase
price related to each transaction was allocated to the right to receive
future cash flows from existing insurance contracts. This allocated cost
represents VPIF which reflects the value of those purchased policies
calculated by discounting actuarially determined expected future cash flows
at the discount rate determined by the purchaser. Amortization of VPIF is
charged to expense in proportion to expected gross profits of the underlying
business. This amortization is adjusted retrospectively when the Companies
revise the estimate of current or future gross profits to be realized from
the insurance contracts acquired. VPIF is adjusted to reflect the pro forma
impact of unrealized gains and losses on available for sale fixed maturities.
See Notes 6 and 7 for additional information on VPIF resulting from the
merger and acquisition.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements, office
furniture, certain other equipment and capitalized computer software and are
not considered to be significant to the Companies' overall operations.
Property and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily on the basis of the straight-line
method over the estimated useful lives of the assets.
GOODWILL
Goodwill was established as a result of the merger and is being amortized
over 40 years on a straight-line basis. Goodwill established as a result of
the acquisition was being amortized over 25 years on a straight-line basis.
See Notes 6 and 7 for additional information on the merger and acquisition.
FUTURE POLICY BENEFITS
Future policy benefits for divisions with fixed interest guarantees of the
variable products are established utilizing the retrospective deposit
accounting method. Policy reserves represent the premiums received plus
accumulated interest, less mortality and administration charges. Interest
credited to these policies ranged from 3.00% to 10.00% during 1998, 3.30% to
8.25% during 1997 and 4.00% to 7.25% during 1996. The unearned revenue
reserve represents unearned distribution fees. These distribution fees have
been deferred and are amortized over the life of the contracts in proportion
to expected gross profits.
SEPARATE ACCOUNTS
Assets and liabilities of the separate accounts reported in the accompanying
Balance Sheets represent funds separately administered principally for
variable annuity and variable life contracts. Contractholders, rather than
the Companies, bear the investment risk for the variable products. At the
direction of the contractholders, the separate accounts invest the premiums
from the sale of variable products in shares of specified mutual funds. The
assets and liabilities of the separate accounts are clearly identified and
segregated from other assets and liabilities of the Companies. The portion of
the separate account assets equal to the reserves and other liabilities of
variable annuity and variable life contracts cannot be charged with
liabilities arising out of any other business the Companies may conduct.
Variable separate account assets are carried at fair value of the underlying
investments and generally represent contractholder investment values
maintained in the accounts. Variable separate account liabilities represent
account balances for the variable annuity and variable life contracts
invested in the separate accounts; the fair value of these liabilities is
equal to their carrying amount. Net investment income and realized and
unrealized capital gains and losses related to separate account assets are
not reflected in the accompanying Statements of Operations.
Product charges recorded by the Companies from variable products consist of
charges applicable to each contract for mortality and expense risk, cost of
insurance, contract administration and surrender charges. In addition, some
variable annuity and all variable life contracts provide for a distribution
fee collected for a limited number of years after each premium deposit.
Revenue recognition of collected distribution fees is amortized over the life
of the contract in proportion to its expected gross profits. The balance of
unrecognized revenue related to the distribution fees is reported as an
unearned revenue reserve.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred tax assets or
liabilities are adjusted to reflect the pro forma impact of unrealized gains
and losses on equity securities and fixed maturities the Companies have
designated as available for sale under SFAS No. 115. Changes in deferred tax
assets or liabilities resulting from this SFAS No. 115 adjustment are charged
or credited directly to stockholder's equity. Deferred income tax expenses or
credits reflected in the Companies' Statements of Operations are based on the
changes in the deferred tax asset or liability from period to period
(excluding the SFAS No. 115 adjustment).
DIVIDEND RESTRICTIONS
Golden American's ability to pay dividends to its Parent is restricted. Prior
approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 1999,
Golden American cannot pay dividends to its Parent without prior approval of
statutory authorities.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder unless a notice of
its intent to declare a dividend and the amount of the dividend has been
filed at least thirty days in advance of the proposed declaration. If the
Superintendent finds the financial condition of First Golden does not warrant
the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing.
SEGMENT REPORTING
As of December 31, 1998, the Companies adopted the SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires enterprises to report selected information about
operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
The Companies manage their business as one segment, the sale of variable
products designed to meet customer needs for tax-advantaged methods of saving
for retirement and protection from unexpected death. Variable products are
sold to consumers and corporations throughout the United States. The adoption
of SFAS No. 131 did not affect the results of operations or financial
position of the Companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Management is required to utilize historical experience and assumptions about
future events and circumstances in order to develop estimates of material
reported amounts and disclosures. Included among the material (or potentially
material) reported amounts and disclosures that require extensive use of
estimates and assumptions are (1) estimates of fair values of investments in
securities and other financial instruments, as well as fair values of
policyholder liabilities, (2) policyholder liabilities, (3) deferred policy
acquisition costs and value of purchased insurance in force, (4) fair values
of assets and liabilities recorded as a result of merger and acquisition
transactions, (5) asset valuation allowances, (6) guaranty fund assessment
accruals, (7) deferred tax benefits (liabilities) and (8) estimates for
commitments and contingencies including legal matters, if a liability is
anticipated and can be reasonably estimated. Estimates and assumptions
regarding all of the proceeding are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could
materially impact the financial statements.
RECLASSIFICATIONS
Certain amounts in the financial statements for the periods ended within the
years ended December 31, 1997 and 1996 have been reclassified to conform to
the December 31, 1998 financial statement presentation.
2. BASIS OF FINANCIAL REPORTING
- ------------------------------------------------------------------------------
The financial statements of the Companies differ from related statutory-basis
financial statements principally as follows: (1) acquisition costs of
acquiring new business are deferred and amortized over the life of the
policies rather than charged to operations as incurred; (2) an asset
representing the present value of future cash flows from insurance contracts
acquired was established as a result of the merger/acquisition and is
amortized and charged to expense; (3) future policy benefit reserves for
divisions with fixed interest guarantees of the variable products are based
on full account values, rather than the greater of cash surrender value or
amounts derived from discounting methodologies utilizing statutory interest
rates; (4) reserves are reported before reduction for reserve credits related
to reinsurance ceded and a receivable is established, net of an allowance for
uncollectible amounts, for these credits rather than presented net of these
credits; (5) fixed maturity investments are designated as "available for
sale" and valued at fair value with unrealized appreciation/depreciation, net
of adjustments to value of purchased insurance in force, deferred policy
acquisition costs and deferred income taxes (if applicable), credited/charged
directly to stockholder's equity rather than valued at amortized cost; (6)
the carrying value of fixed maturities is reduced to fair value by a charge
to realized losses in the Statements of Operations when declines in carrying
value are judged to be other than temporary, rather than through the
establishment of a formula-determined statutory investment reserve (carried
as a liability), changes in which are charged directly to surplus; (7)
deferred income taxes are provided for the difference between the financial
statement and income tax bases of assets and liabilities; (8) net realized
gains or losses attributed to changes in the level of interest rates in the
market are recognized when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security; (9) a
liability is established for anticipated guaranty fund assessments, net of
related anticipated premium tax credits, rather than capitalized when
assessed and amortized in accordance with procedures permitted by insurance
regulatory authorities; (10) revenues for variable products consist of policy
charges applicable to each contract for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed rather than premiums received; (11) the financial statements
of Golden American's wholly owned subsidiary are consolidated rather than
recorded at the equity in net assets; (12) surplus notes are reported as
liabilities rather than as surplus; and (13) assets and liabilities are
restated to fair values when a change in ownership occurs, with provisions
for goodwill and other intangible assets, rather than continuing to be
presented at historical cost.
The net loss for Golden American as determined in accordance with statutory
accounting practices was $68,002,000 in 1998, $428,000 in 1997 and $9,188,000
in 1996. Total statutory capital and surplus was $183,045,000 at December 31,
1998 and $76,914,000 at December 31, 1997.
3. INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
POST-MERGER | POST-ACQUISITION
-----------------------------------| ----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------| ----------------
(Dollars in thousands)
Fixed maturities $35,224 $4,443 | $18,488
Equity securities -- 3 | --
Mortgage loans on real |
estate 6,616 879 | 3,070
Policy loans 619 59 | 482
Short-term investments 1,311 129 | 443
Other, net 246 (154) | 24
Funds held in escrow -- -- | --
------- ------ | -------
Gross investment income 44,016 5,359 | 22,507
Less investment expenses (1,531) (232) | (851)
------- ------ | -------
Net investment income $42,485 $5,127 | $21,656
======= ====== | =======
POST-ACQUISITION PRE-ACQUISITION
---------------- | ---------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
------------------ | ---------------
(Dollars in thousands)
Fixed maturities $5,083 | $4,507
Equity securities 103 | --
Mortgage loans on real |
estate 203 | --
Policy loans 78 | 73
Short-term investments 441 | 341
Other, net 2 | 22
Funds held in escrow -- | 145
------ | ------
Gross investment income 5,910 | 5,088
Less investment expenses (115) | (98)
------ | ------
Net investment income $5,795 | $4,990
====== | ======
Realized gains (losses) on investments are as follows:
POST-MERGER | POST-ACQUISITION
-----------------------------------| ----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------|-----------------
(Dollars in thousands)
Fixed maturities, |
available for sale ($1,428) $25 | $151
Mortgage loans (63) (10) | --
------- --- | ----
Realized gains (losses) |
on investments ($1,491) $15 | $151
======= === ====
POST-ACQUISITION PRE-ACQUISITION
---------------- | ---------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
----------------- | ----------------
(Dollars in thousands)
Fixed maturities, |
available for sale $42 | ($420)
Mortgage loans -- | --
--- | -----
Realized gains (losses) |
on investments $42 | ($420)
=== =====
The change in unrealized appreciation (depreciation) on securities at
fair value is as follows:
POST-MERGER | POST-ACQUISITION
-----------------------------------| -----------------
For the period | For the period
For the year October 25, 1997| January 1, 1997
ended through | through
December 31, 1998 December 31, 1997| October 24, 1997
----------------- -----------------| ----------------
(Dollars in thousands)
Fixed maturities: |
Available for sale $1,100 ($3,494) | $4,197
Held for investment -- -- | --
Equity securities (2,390) (68) | (462)
------- ------- | ------
Unrealized appreciation |
(depreciation) of |
securities ($1,290) ($3,562) | $3,735
======= ======= ======
POST-ACQUISITION | PRE-ACQUISITION
----------------- | ----------------
For the period | For the period
August 14, 1996 | January 1, 1996
through | through
December 31, 1996 | August 13, 1996
----------------- | ----------------
(Dollars in thousands)
Fixed maturities: |
Available for sale $2,497 | ($3,045)
Held for investment -- | (90)
Equity securities (4) | (2)
------ | -------
Unrealized appreciation |
(depreciation) of |
securities $2,493 | ($3,137)
====== =======
At December 31, 1998 and December 31, 1997, amortized cost, gross unrealized
gains and losses and estimated fair values of fixed maturities, all of which
are designated as available for sale, are as follows:
POST-MERGER
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
December 31, 1998
- ----------------------------
U.S. government and
governmental agencies
and authorities $ 13,568 $ 182 ($ 8) $ 13,742
Foreign governments 2,028 8 -- 2,036
Public utilities 67,710 546 (447) 67,809
Corporate securities 365,569 4,578 (2,658) 367,489
Other asset-backed securities 99,877 281 (1,046) 99,112
Mortgage-backed securities 191,020 1,147 (370) 191,797
-------- ------ ------- --------
Total $739,772 $6,742 ($4,529) $741,985
======== ====== ======= ========
December 31, 1997
- ----------------------------
U.S. government and
governmental agencies
and authorities $5,705 $5 ($1) $5,709
Foreign governments 2,062 -- (9) 2,053
Public utilities 26,983 55 (4) 27,034
Corporate securities 259,798 1,105 (242) 260,661
Other asset-backed securities 3,155 32 -- 3,187
Mortgage-backed securities 115,585 202 (30) 115,757
-----------------------------------------------
Total $413,288 $1,399 ($286) $414,401
===============================================
At December 31, 1998, net unrealized investment gains on fixed maturities
designated as available for sale totaled $2,213,000. Appreciation of
$1,005,000 was included in stockholder's equity at December 31, 1998 (net of
an adjustment of $203,000 to VPIF, an adjustment of $455,000 to DPAC and
deferred income taxes of $550,000). Short-term investments with maturities of
30 days or less have been excluded from the above schedules. Amortized cost
approximates fair value for these securities.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1998 are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
POST-MERGER
-------------------------
Estimated
Amortized Fair
December 31, 1998 Cost Value
- ----------------- --------- ---------
(Dollars in thousands)
Due within one year $ 50,208 $ 50,361
Due after one year through five years 310,291 311,943
Due after five years through ten years 78,264 78,541
Due after ten years 10,112 10,231
-------- --------
448,875 451,076
Other asset-backed securities 99,877 99,112
Mortgage-backed securities 191,020 191,797
-------- --------
Total $739,772 $741,985
======== ========
An analysis of sales, maturities and principal repayments of the Companies'
fixed maturities portfolio is as follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
For the year ended
December 31, 1998:
Scheduled principal
repayments, calls and
tenders $102,504 $ 60 ($ 3) $102,561
Sales 43,204 518 (1,030) 42,692
-------- ---- ------- --------
Total $145,708 $578 ($1,033) $145,253
======== ==== ======= ========
For the period October 25,
1997 through
December 31, 1997:
Scheduled principal
repayments, calls and
tenders $ 6,708 $ 2 -- $ 6,710
Sales 3,138 23 -- 3,161
-------- ---- ------- --------
Total $ 9,846 $ 25 -- $ 9,871
======== ==== ======= ========
POST-ACQUISITION:
For the period January 1,
1997 through October 24,
1997:
Scheduled principal
repayments, calls and
tenders $ 25,419 -- -- $ 25,419
Sales 14,052 $153 ($ 2) 14,203
-------- ---- ------- --------
Total $ 39,471 $153 ($ 2) $ 39,622
======== ==== ======= ========
For the period August 14,
1996 through
December 31, 1996:
Scheduled principal
repayments, calls and
tenders $ 1,612 -- -- $ 1,612
Sales 45,799 $115 ($ 73) 45,841
-------- ---- ------- --------
Total $ 47,411 $115 ($ 73) $ 47,453
======== ==== ======= ========
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
PRE-ACQUISITION:
For the period January 1,
1996 through August 13,
1996:
Scheduled principal
repayments, calls and
tenders $ 1,801 -- -- $ 1,801
Sales 53,710 $152 ($ 572) 53,290
-------- ---- ------- --------
Total $ 55,511 $152 ($ 572) $ 55,091
======== ==== ======= ========
</TABLE>
INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio
at least quarterly in order to determine if the carrying value of any
investment has been impaired. The carrying value of debt and equity
securities is written down to fair value by a charge to realized losses when
an impairment in value appears to be other than temporary. During the year
ended December 31, 1998, Golden American recognized a loss on two fixed
maturity investments of $973,000. During 1997 and 1996, no investments were
identified as having an other than temporary impairment.
INVESTMENTS ON DEPOSIT: At December 31, 1998 and 1997, affidavits of deposits
covering bonds with a par value of $6,470,000 and $6,605,000, respectively,
were on deposit with regulatory authorities pursuant to certain statutory
requirements.
INVESTMENT DIVERSIFICATIONS: The Companies' investment policies related to
the investment portfolio require diversification by asset type, company and
industry and set limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. The following percentages relate to holdings at
December 31, 1998 and December 31, 1997. Fixed maturities included
investments in basic industrials (26% in 1998, 30% in 1997), conventional
mortgage-backed securities (25% in 1998, 13% in 1997), financial companies
(19% in 1998, 24% in 1997), other asset-backed securities (11% in 1998) and
various government bonds and government or agency mortgage-backed securities
(5% in 1998, 17% in 1997). Mortgage loans on real estate have been analyzed
by geographical location with concentrations by state identified as
California (12% in 1998 and 1997), Utah (11% in 1998, 13% in 1997) and
Georgia (10% in 1998, 11% in 1997). There are no other concentrations of
mortgage loans in any state exceeding ten percent at December 31, 1998 and
1997. Mortgage loans on real estate have also been analyzed by collateral
type with significant concentrations identified in office buildings (36% in
1998, 43% in 1997), industrial buildings (32% in 1998, 33% in 1997) and
retail facilities (20% in 1998, 15% in 1997). Equity securities are not
significant to the Companies' overall investment portfolio.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of
stockholder's equity at December 31, 1998.
4. COMPREHENSIVE INCOME
- ------------------------------------------------------------------------------
As of January 1, 1998, the Companies adopted the SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this statement had no impact on the Companies' net income or stockholder's
equity. SFAS No. 130 requires unrealized gains or losses on the Companies'
available for sale securities (net of VPIF, DPAC and deferred income taxes)
to be included in other comprehensive income. Prior to the adoption of SFAS
No. 130, unrealized gains (losses) were reported separately in stockholder's
equity. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
Total comprehensive income (loss) for the Companies includes $1,015,000 for
the year ended December 31, 1998 for First Golden ($159,000, $536,000 and
$(57,000), respectively, for the periods October 25, 1997 through December
31, 1997, October 1, 1997 through October 24, 1997 and December 17, 1996
through December 31, 1996). Other comprehensive income excludes net
investment gains (losses) included in net income which merely represent
transfers from unrealized to realized gains and losses. These amounts total
$(2,133,000) in 1998. Such amounts, which have been measured through the date
of sale, are net of income taxes and adjustments to VPIF and DPAC totaling
$705,000 in 1998.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of estimated fair value of all financial instruments,
including both assets and liabilities recognized and not recognized in a
company's balance sheet, unless specifically exempted. SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," requires additional disclosures about derivative
financial instruments. Most of the Companies' investments, investment
contracts and debt fall within the standards' definition of a financial
instrument. Fair values for the Companies' insurance contracts other than
investment contracts are not required to be disclosed. In cases where quoted
market prices are not available, estimated fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accounting, actuarial and regulatory
bodies are continuing to study the methodologies to be used in developing
fair value information, particularly as it relates to such things as
liabilities for insurance contracts. Accordingly, care should be exercised in
deriving conclusions about the Companies' business or financial condition
based on the information presented herein.
The Companies closely monitor the composition and yield of invested assets,
the duration and interest credited on insurance liabilities and resulting
interest spreads and timing of cash flows. These amounts are taken into
consideration in the Companies' overall management of interest rate risk,
which attempts to minimize exposure to changing interest rates through the
matching of investment cash flows with amounts expected to be due under
insurance contracts. These assumptions may not result in values consistent
with those obtained through an actuarial appraisal of the Companies' business
or values that might arise in a negotiated transaction.
The following compares carrying values as shown for financial reporting
purposes with estimated fair values:
POST-MERGER
-----------------------------------------
December 31 1998 1997
- ----------- -------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- -----------
(Dollars in thousands)
ASSETS
Fixed maturities, available
for sale $741,985 $741,985 $414,401 $414,401
Equity securities 11,514 11,514 3,904 3,904
Mortgage loans on real estate 97,322 99,762 85,093 86,348
Policy loans 11,772 11,772 8,832 8,832
Short-term investments 41,152 41,152 14,460 14,460
Cash and cash equivalents 6,679 6,679 21,039 21,039
Separate account assets 3,396,114 3,396,114 1,646,169 1,646,169
LIABILITIES
Annuity products 869,009 827,597 493,181 469,714
Surplus notes 85,000 90,654 25,000 28,837
Line of credit with affiliate -- -- 24,059 24,059
Separate account liabilities 3,396,114 3,396,114 1,646,169 1,646,169
The following methods and assumptions were used by the Companies in
estimating fair values.
FIXED MATURITIES: Estimated fair values of conventional mortgage-backed
securities not actively traded in a liquid market and publicly traded
securities are estimated using a third party pricing system. This pricing
system uses a matrix calculation assuming a spread over U.S. Treasury bonds
based upon the expected average lives of the securities.
EQUITY SECURITIES: Estimated fair values of equity securities, which consist
of the Companies' investment in the portfolios underlying its separate
accounts, are based upon the quoted fair value of individual securities
comprising the individual portfolios. For equity securities not actively
traded, estimated fair values are based upon values of issues of comparable
returns and quality.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting
expected cash flows, using interest rates currently offered for similar
loans.
POLICY LOANS: Carrying values approximate the estimated fair value for policy
loans.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
reported in the Companies' historical cost basis balance sheet approximate
estimated fair value for these instruments due to their short-term nature.
SEPARATE ACCOUNT ASSETS: Separate account assets are reported at the quoted
fair values of the individual securities in the separate accounts.
ANNUITY PRODUCTS: Estimated fair values of the Companies' liabilities for
future policy benefits for the divisions of the variable annuity products
with fixed interest guarantees and for supplemental contracts without life
contingencies are stated at cash surrender value, the cost the Companies
would incur to extinguish the liability.
SURPLUS NOTES: Estimated fair value of the Companies' surplus notes were
based upon discounted future cash flows using a discount rate approximating
the Companies' return on invested assets.
LINE OF CREDIT WITH AFFILIATE: Carrying value reported in the Companies'
historical cost basis balance sheet approximates estimated fair value for
this instrument.
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at
full account value in the Companies' historical cost balance sheet. Estimated
fair values of separate account liabilities are equal to their carrying
amount.
6. MERGER
- ------------------------------------------------------------------------------
TRANSACTION: On October 23, 1997, Equitable's shareholders approved the
Merger Agreement dated July 7, 1997 among Equitable, PFHI and ING. On October
24, 1997, PFHI, a Delaware corporation, acquired all of the outstanding
capital stock of Equitable according to the Merger Agreement. PFHI is a
wholly owned subsidiary of ING, a global financial services holding company
based in The Netherlands. Equitable, an Iowa corporation, in turn, owned all
the outstanding capital stock of Equitable Life Insurance Company of Iowa
("Equitable Life") and Golden American and their wholly owned subsidiaries.
In addition, Equitable owned all the outstanding capital stock of Locust
Street Securities, Inc. ("LSSI"), Equitable Investment Services, Inc.
(subsequently dissolved), DSI, Equitable of Iowa Companies Capital Trust,
Equitable of Iowa Companies Capital Trust II and Equitable of Iowa Securities
Network, Inc. (subsequently renamed ING Funds Distributor, Inc.). In exchange
for the outstanding capital stock of Equitable, ING paid total consideration
of approximately $2.1 billion in cash and stock and assumed approximately
$400 million in debt. As a result of this transaction, Equitable was merged
into PFHI, which was simultaneously renamed Equitable of Iowa Companies, Inc.
("EIC" or the "Parent"), a Delaware corporation. All costs of the merger,
including expenses to terminate certain benefit plans, were paid by the
Parent.
ACCOUNTING TREATMENT: The merger was accounted for as a purchase resulting in
a new basis of accounting, reflecting estimated fair values for assets and
liabilities at October 24, 1997. The purchase price was allocated to EIC and
its subsidiaries with $227,497,000 allocated to the Companies. Goodwill was
established for the excess of the merger cost over the fair value of the net
assets and attributed to EIC and its subsidiaries including Golden American
and First Golden. The amount of goodwill allocated to the Companies relating
to the merger was $151,127,000 at the merger date and is being amortized over
40 years on a straight-line basis. The carrying value of goodwill will be
reviewed periodically for any indication of impairment in value. The
Companies' DPAC, previous balance of VPIF and unearned revenue reserve, as of
the merger date, were eliminated and a new asset of $44,297,000 representing
VPIF was established for all policies in force at the merger date.
VALUE OF PURCHASED INSURANCE IN FORCE: As part of the merger, a portion of
the acquisition cost was allocated to the right to receive future cash flows
from insurance contracts existing with the Companies at the merger date. This
allocated cost represents VPIF reflecting the value of those purchased
policies calculated by discounting the actuarially determined expected future
cash flow at the discount rate determined by ING.
An analysis of the VPIF asset is as follows:
POST-MERGER
------------------ -----------------
For the period
October 25, 1997
For the year ended through
December 31, 1998 December 31, 1997
------------------ -----------------
(Dollars in thousands)
Beginning balance $43,174 $44,297
------- -------
Imputed interest 2,802 1,004
Amortization (7,753) (1,952)
Changes in assumptions of timing
of gross profits 227 --
------- -------
Net amortization (4,724) (948)
Adjustment for unrealized gains
on available for sale securities (28) (175)
Adjustment for other receivables
and merger costs (2,445) --
------- -------
Ending balance $35,977 $43,174
======= =======
Interest is imputed on the unamortized balance of VPIF at a rate of 7.38% for
the year ended December 31, 1998 and 7.03% for the period October 25, 1997
through December 31, 1997. The amortization of VPIF, net of imputed interest,
is charged to expense. VPIF decreased $2,664,000 in the second quarter of
1998 to adjust the value of other receivables at merger date and increased
$219,000 in the first quarter of 1998 as a result of an adjustment to the
merger costs. VPIF is adjusted for the unrealized gains (losses) on available
for sale securities; such changes are included directly in stockholder's
equity. Based on current conditions and assumptions as to the impact of
future events on acquired policies in force, the expected approximate net
amortization relating to VPIF as of December 31, 1998 is $4,300,000 in 1999,
$4,000,000 in 2000, $3,900,000 in 2001, $3,700,000 in 2002 and $3,300,000 in
2003. Actual amortization may vary based upon changes in assumptions and
experience.
7. ACQUISITION
- ------------------------------------------------------------------------------
TRANSACTION: On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable from Whitewood, a wholly owned subsidiary of
Bankers Trust Company ("Bankers Trust"), according to the terms of the
Purchase Agreement dated May 3, 1996 between Equitable and Whitewood. In
exchange for the outstanding capital stock of BT Variable, Equitable paid the
sum of $93,000,000 in cash to Whitewood in accordance with the terms of the
Purchase Agreement. Equitable also paid the sum of $51,000,000 in cash to
Bankers Trust to retire certain debt owed by BT Variable to Bankers Trust
pursuant to a revolving credit arrangement. After the acquisition, the BT
Variable, Inc. name was changed to EIC Variable, Inc. On April 30, 1997, EIC
Variable, Inc. was liquidated and its investments in Golden American and DSI
were transferred to Equitable, while the remainder of its net assets were
contributed to Golden American. On December 30, 1997, EIC Variable, Inc. was
dissolved.
ACCOUNTING TREATMENT: The acquisition was accounted for as a purchase
resulting in a new basis of accounting, which reflected estimated fair values
for assets and liabilities at August 13, 1996. The purchase price was
allocated to the three companies purchased - BT Variable, DSI and Golden
American. The allocation of the purchase price to Golden American was
approximately $139,872,000. Goodwill was established for the excess of the
purchase price over the fair value of the net assets acquired and attributed
to Golden American. The amount of goodwill relating to the acquisition was
$41,113,000 and was amortized over 25 years on a straight-line basis until
the October 24, 1997 merger with ING. Golden American's DPAC, previous
balance of VPIF and unearned revenue reserve, as of the acquisition date,
were eliminated and an asset of $85,796,000 representing VPIF was established
for all policies in force at the acquisition date.
VALUE OF PURCHASED INSURANCE IN FORCE: As part of the acquisition, a portion
of the acquisition cost was allocated to the right to receive future cash
flows from the insurance contracts existing with Golden American at the date
of acquisition. This allocated cost represents VPIF reflecting the value of
those purchased policies calculated by discounting the actuarially determined
expected future cash flows at the discount rate determined by Equitable.
An analysis of the VPIF asset is as follows:
| PRE-
POST-ACQUISITION | ACQUISITION
-------------------- | -----------
For the For the | For the
period period | period
January August | January
1, 1997 14, 1996 | 1, 1996
through through | through
October December | August
24, 1997 31, 1996 | 13, 1996
------------------------ | -----------
(Dollars in thousands)
Beginning balance $83,051 $85,796 | $6,057
------- ------- | ------
Imputed interest 5,138 2,465 | 273
Amortization (12,656) (5,210) | (1,224)
Changes in assumption of |
timing of gross profits 2,293 -- | --
------- ------- | ------
Net amoritization (5,225) (2,745) | (951)
Adjustment for unrealized |
gains (losses) on available |
for sale securities (373) -- | 11
------- ------- | ------
Ending balance $77,453 $83,051 | $5,117
======= ======= ======
Pre-Acquisition VPIF represents the remaining value assigned to in force
contracts when Bankers Trust purchased Golden American from Mutual Benefit
Life Insurance Company in Rehabilitation ("Mutual Benefit") on September 30,
1992.
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period August 14, 1996 through October 24, 1997. The
amortization of VPIF net of imputed interest was charged to expense. VPIF was
also adjusted for the unrealized gains (losses) on available for sale
securities; such changes were included directly in stockholder's equity.
8. INCOME TAXES
- ------------------------------------------------------------------------------
Golden American files a consolidated federal income tax return. Under the
Internal Revenue Code, a newly acquired insurance company cannot file as part
of its parent's consolidated tax return for 5 years.
At December 31, 1998, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $50,917,000.
Approximately $5,094,000, $3,354,000 and $42,469,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012 and 2013, respectively.
INCOME TAX EXPENSE
Income tax expense (benefit) included in the consolidated financial
statements is as follows:
<TABLE>
<CAPTION>
PRE-
POST-MERGER | POST-ACQUISITION | ACQUISITION
--------------------------| --------------------------| -------------
For the| For the For the| For the
period| period period| period
October 25,| January 1, August 14,| January 1,
For the year 1997| 1997 1996| 1996
ended through| through through| through
December 31, December 31,| October 24, December 31,| August 13,
1998 1997| 1997 1996| 1996
--------------------------| --------------------------| -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Current -- -- | $12 -- | --
Deferred $5,279 $146 | (1,349) $220 | ($1,463)
--------------------------| --------------------------| -------------
$5,279 $146 | ($1,337) $220 | ($1,463)
=====================================================================
</TABLE>
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
is as follows:
<TABLE>
<CAPTION>
| | PRE-
| | ACQUISI-
POST-MERGER | POST-ACQUISITION | TION
----------------------| --------------------| ---------
For the| For the For the| For the
period| period period| period
October| January August| January
For the 25, 1997| 1, 1997 14, 1996| 1, 1996
year ended through| through through| through
December December| October December| August
31, 1998 31, 1997| 24, 1997 31, 1996| 13, 1996
----------------------| --------------------| ---------
(Dollars in thousands)
<S> <C> <C> | <C> <C> | <C>
Income (loss) | |
before income taxes $10,353 ($279)| ($608) $570 | $1,736
======================| ====================| =========
Income tax | |
(benefit) at federal | |
statutory rate $3,624 ($98)| ($213) $200 | $607
Tax effect (decrease) of: | |
Realization of NOL | |
carryforwards -- -- | -- -- | (1,214)
Goodwill amortization 1,322 220 | -- -- | --
Compensatory stock | |
option and restricted | |
stock expense -- -- | (1,011) -- | --
Meals and | |
entertainment 157 23 | 53 20 |
Other items 176 1 | (166) -- | --
Change in valuation | |
allowance -- -- | -- -- | (856)
----------------------| --------------------| ---------
Income tax expense | |
(benefit) $5,279 $146 | ($1,337) $220 | ($1,463)
=======================================================
</TABLE>
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies'
deferred income tax assets and liabilities at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
POST-MERGER
---------------- ----------------
December 31 1998 1997
- ------------------------------------------------------------ ----------------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Net unrealized depreciation of
securities at fair value $691 --
Future policy benefits 66,273 $27,399
Deferred policy acquisition costs -- 4,558
Goodwill 16,323 17,620
Net operating loss carryforwards 17,821 3,044
Other 1,272 1,548
---------------- ----------------
102,380 54,169
Deferred tax liabilities:
Net unrealized appreciation of
securities at fair value -- (130)
Fixed maturity securities (1,034) (1,665)
Deferred policy acquisition costs (55,520) --
Mortgage loans on real estate (845) (845)
Value of purchased insurance in force (12,592) (15,172)
Other (912) (127)
---------------- ----------------
(70,903) (17,939)
---------------- ----------------
Deferred income tax asset $31,477 $36,230
================ ================
</TABLE>
The Companies are required to establish a "valuation allowance" for any
portion of the deferred tax assets management believes will not be realized.
In the opinion of management, it is more likely than not the Companies will
realize the benefit of the deferred tax assets; therefore, no such valuation
allowance has been established.
9. RETIREMENT PLANS
- ------------------------------------------------------------------------------
DEFINED BENEFIT PLANS
In 1998 and 1997, the Companies were allocated their share of the pension
liability associated with their employees. The Companies' employees are
covered by the employee retirement plan of an affiliate, Equitable Life.
Further, Equitable Life sponsors a defined contribution plan that is
qualified under Internal Revenue Code Section 401(k). The following tables
summarize the benefit obligations and the funded status for pension benefits
over the two-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997
------------------------
(Dollars in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $956 $192
Service cost 1,138 682
Interest cost 97 25
Actuarial loss 2,266 57
Benefit payments (3) --
------------------------
Benefit obligation at December 31 $4,454 $956
========================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------------------
(Dollars in thousands)
<S> <C> <C>
Funded status:
Funded status at December 31 ($4,454) ($956)
Unrecognized net loss 2,266 --
------------------------
Net amount recognized ($2,188) ($956)
========================
</TABLE>
During 1998 and 1997, the Companies' plan assets were held by Equitable Life,
an affiliate.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation are as follows:
<TABLE>
<CAPTION>
December 31 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.75% 7.25%
Expected return on plan assets 9.50 9.00
Rate of compensation increase 4.00 5.00
</TABLE>
The following table provides the net periodic benefit cost for the fiscal
years 1998 and 1997:
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
-----------------------------------|----------------
For the period| For the period
For the year October 25, 1997| January 1, 1997
ended through| through
December 31, 1998 December 31, 1997|October 24, 1997
----------------- -----------------|----------------
(Dollars in thousands)
<S> <C> <C> | <C>
Service cost $1,138 $114 | $568
Interest cost 97 10 | 15
Amortization of net loss -- -- | 1
----------------- -----------------|----------------
Net periodic benefit cost $1,235 $124 | $584
====================================================
</TABLE>
There were no gains or losses resulting from curtailments or settlements
during 1998 or 1997.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $4,454,000, $3,142,000 and $0, respectively, as
of December 31, 1998 and $956,000, $579,000 and $0, respectively, as of
December 31, 1997.
10. RELATED PARTY TRANSACTIONS
- ------------------------------------------------------------------------------
OPERATING AGREEMENTS: DSI acts as the principal underwriter (as defined in
the Securities Act of 1933 and the Investment Company Act of 1940, as
amended) and distributor of the variable insurance products issued by the
Companies. DSI is authorized to enter into agreements with broker/dealers to
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the year ended December
31, 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the Companies paid commissions to
DSI totaling $117,470,000, $9,931,000 and $26,419,000, respectively
($9,995,000 for the period August 14, 1996 through December 31, 1996 and
$17,070,000 for the period January 1, 1996 through August 13, 1996).
Golden American provides certain managerial and supervisory services to DSI.
The fee paid by DSI for these services is calculated as a percentage of
average assets in the variable separate accounts. For the year ended December
31, 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $4,771,000, $508,000
and $2,262,000, respectively. For the periods August 14, 1996 through
December 31, 1996 and January 1, 1996 through August 13, 1996 the fee was
$877,000 and $1,390,000, respectively.
Effective January 1, 1998, the Companies have an asset management agreement
with ING Investment Management LLC ("ING IM"), an affiliate, in which ING IM
provides asset management services. Under the agreement, the Companies record
a fee based on the value of the assets under management. The fee is payable
quarterly. For the year ended December 31, 1998, the Companies incurred fees
of $1,504,000 under this agreement.
Prior to 1998, the Companies had a service agreement with Equitable
Investment Services, Inc. ("EISI"), an affiliate, in which EISI provided
investment management services. Payments for these services totaled $200,000,
$768,000 and $72,000 for the periods October 25, 1997 through December 31,
1997, January 1, 1997 through October 24, 1997 and August 14, 1996 through
December 31, 1996, respectively.
Golden American has a guaranty agreement with Equitable Life, an affiliate.
In consideration of an annual fee, payable June 30, Equitable Life guarantees
to Golden American that it will make funds available, if needed, to Golden
American to pay the contractual claims made under the provisions of Golden
American's life insurance and annuity contracts. The agreement is not, and
nothing contained therein or done pursuant thereto by Equitable Life shall be
deemed to constitute, a direct or indirect guaranty by Equitable Life of the
payment of any debt or other obligation, indebtedness or liability, of any
kind or character whatsoever, of Golden American. The agreement does not
guarantee the value of the underlying assets held in separate accounts in
which funds of variable life insurance and variable annuity policies have
been invested. The calculation of the annual fee is based on risk based
capital. As Golden American's risk based capital level was above required
amounts, no annual fee was payable in 1998 or in 1997.
Golden American provides certain advisory, computer and other resources and
services to Equitable Life. Revenues for these services, which reduced
general expenses incurred by Golden American, totaled $5,833,000 for the year
ended December 31, 1998 ($1,338,000 and $2,992,000 for the periods October
25, 1997 through December 31, 1997 and January 1, 1997 through October 24,
1997, respectively). No services were provided by Golden American in 1996.
The Companies have a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. Under this
agreement, the Companies incurred expenses of $1,058,000 for the year ended
December 31, 1998 ($13,000 and $16,000 for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
respectively).
First Golden provides resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies, totaled
$75,000 in 1998.
For the year ended December 31, 1998, the Companies had premiums, net of
reinsurance, for variable products from four affiliates, Locust Street
Securities, Inc., Vestax Securities Corporation, DSI and Multi-Financial
Securities Corporation of $122,900,000, $44,900,000, $13,600,000 and
$13,400,000, respectively. The Companies had premiums, net reinsurance, for
variable products from three affiliates, Locust Street Securities, Inc.,
Vestax Securities Corporation and DSI of $9,300,000, $1,900,000 and
$2,100,000 respectively, for the period October 25, 1997 through December 31,
1997 ($16,900,000, $1,200,000 and $400,000 for the period January 1, 1997
through October 24, 1997, respectively).
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan
agreement with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware
corporation and affiliate, to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Under this agreement which became
effective January 1, 1998 and expires December 31, 2007, Golden American and
ING AIH can borrow up to $65,000,000 from one another. Prior to lending funds
to ING AIH, Golden American must obtain the approval of the State of Delaware
Department of Insurance. Interest on any Golden American borrowings is
charged at the rate of ING AIH's cost of funds for the interest period plus
0.15%. Interest on any ING AIH borrowings is charged at a rate based on the
prevailing interest rate of U.S. commercial paper available for purchase with
a similar duration. Under this agreement, Golden American incurred interest
expense of $1,765,000 in 1998. At December 31, 1998, Golden American did not
have any borrowings or receivables from ING AIH under this agreement.
LINE OF CREDIT: Golden American maintained a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-
term cash requirements. Under this agreement which became effective December
1, 1996 and expired December 31, 1997, Golden American could borrow up to
$25,000,000. Interest on any borrowings was charged at the rate of
Equitable's monthly average aggregate cost of short-term funds plus 1.00%.
Under this agreement, Golden American incurred interest expense of $211,000
for the year ended December 31, 1998 ($213,000 for the period October 25,
1997 through December 31, 1997, $362,000 for the period January 1, 1997
through October 24, 1997 and $85,000 for the period August 14, 1996 through
December 31, 1996). The outstanding balance was paid by a capital
contribution.
SURPLUS NOTES: On December 30, 1998, Golden American issued a 7.25% surplus
note in the amount of $60,000,000 to Equitable Life. The note matures on
December 29, 2028. The note and related accrued interest is subordinate to
payments due to policyholders, claimant and beneficiary claims, as well as
debts owed to all other classes of debtors, other than surplus note holders,
of Golden American. Any payment of principal and/or interest made is subject
to the prior approval of the Delaware Insurance Commissioner. Golden American
incurred no interest in 1998.
On December 17, 1996, Golden American issued an 8.25% surplus note in the
amount of $25,000,000 to Equitable. The note matures on December 17, 2026.
The note and related accrued interest is subordinate to payments due to
policyholders, claimant and beneficiary claims, as well as debts owed to all
other classes of debtors of Golden American. Any payment of principal made is
subject to the prior approval of the Delaware Insurance Commissioner. Golden
American incurred interest totaling $2,063,000 in 1998 ($344,000 and
$1,720,000 for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively). On December 17,
1996, Golden American contributed the $25,000,000 to First Golden acquiring
200,000 shares of common stock (100% of outstanding stock) of First Golden.
STOCKHOLDER'S EQUITY: On September 23, 1996, EIC Variable, Inc. contributed
$50,000,000 of Preferred Stock to the Companies' additional paid-in capital.
During 1998, Golden American received $122,500,000 of capital contributions
from its Parent.
11. COMMITMENTS AND CONTINGENCIES
- ------------------------------------------------------------------------------
CONTINGENT LIABILITY: In a transaction that closed on September 30, 1992,
Bankers Trust acquired from Mutual Benefit, in accordance with the terms of
an Exchange Agreement, all of the issued and outstanding capital stock of
Golden American and DSI and certain related assets for consideration with an
aggregate value of $13,200,000 and contributed them to BT Variable. The
transaction involved settlement of pre-existing claims of Bankers Trust
against Mutual Benefit. The ultimate value of these claims has not yet been
determined by the Superior Court of New Jersey and, prior to August 13, 1996,
was contingently supported by a $5,000,000 note payable from Golden American
and a $6,000,000 letter of credit from Bankers Trust. Bankers Trust estimated
the contingent liability due from Golden American amounted to $439,000 at
August 13, 1996. At August 13, 1996, the balance of the escrow account
established to fund the contingent liability was $4,293,000.
On August 13, 1996, Bankers Trust made a cash payment to Golden American in
an amount equal to the balance of the escrow account less the $439,000
contingent liability discussed above. In exchange, Golden American
irrevocably assigned to Bankers Trust all of Golden American's rights to
receive any amounts to be disbursed from the escrow account in accordance
with the terms of the Exchange Agreement. Bankers Trust also irrevocably
agreed to make all payments becoming due under the Golden American note and
to indemnify Golden American for any liability arising from the note.
REINSURANCE: At December 31, 1998, the Companies had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under variable contracts. The
Companies remain liable to the extent reinsurers do not meet their
obligations under the reinsurance agreements. Reinsurance ceded in force for
life mortality risks were $111,552,000 and $96,686,000 at December 31, 1998
and 1997, respectively. At December 31, 1998, the Companies have a net
receivable of $7,470,000 for reserve credits, reinsurance claims or other
receivables from these reinsurers comprised of $439,000 for claims
recoverable from reinsurers, $543,000 for a payable for reinsurance premiums
and $7,574,000 for a receivable from an unaffiliated reinsurer. Included in
the accompanying financial statements are net considerations to reinsurers of
$4,797,000, $326,000, $1,871,000, $875,000 and $600,000 and net policy
benefits recoveries of $2,170,000, $461,000, $1,021,000, $654,000 and
$1,267,000 for the year ended December 31, 1998 and for the periods October
25, 1997 through December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996 through August
13, 1996, respectively.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial
statements are presented net of the effects of the treaty which increased
income by $1,022,000, $265,000, $335,000, $10,000 and $56,000 for the year
ended December 31, 1998 and for the periods October 25, 1997 through December
31, 1997, January 1, 1997 through October 24, 1997, August 14, 1996 through
December 31, 1996 and January 1, 1996 through August 13, 1996, respectively.
GUARANTY FUND ASSESSMENTS: Assessments are levied against the Companies by
life and health guaranty associations in most states in which the Companies
are licensed to cover losses of policyholders of insolvent or rehabilitated
insurers. In some states, these assessments can be partially recovered
through a reduction in future premium taxes. The Companies cannot predict
whether and to what extent legislative initiatives may affect the right to
offset. The associated cost for a particular insurance company can vary
significantly based upon its fixed account premium volume by line of business
and state premiums as well as its potential for premium tax offset. The
Companies have established an undiscounted reserve to cover such assessments
and regularly reviews information regarding known failures and revises its
estimates of future guaranty fund assessments. Accordingly, the Companies
accrued and charged to expense an additional $1,123,000 for the year ended
December 31, 1998, $141,000 for the period October 25, 1997 through December
31, 1997, $446,000 for the period January 1, 1997 through October 24, 1997,
$291,000 for the period August 14, 1996 through December 31, 1996 and
$480,000 for the period January 1, 1996 through August 13, 1996. At December
31, 1998, the Companies have an undiscounted reserve of $2,446,000 to cover
estimated future assessments (net of related anticipated premium tax credits)
and has established an asset totaling $586,000 for assessments paid which may
be recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments,
based upon previous premiums, and known insolvencies at this time.
LITIGATION: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits. In some
class action and other lawsuits involving insurers, substantial damages have
been sought and/or material settlement payments have been made. The Companies
currently believe no pending or threatened lawsuits exist that are reasonably
likely to have a material adverse impact on the Companies.
VULNERABILITY FROM CONCENTRATIONS: The Companies have various concentrations
in its investment portfolio (see Note 3 for further information). The
Companies' asset growth, net investment income and cash flow are primarily
generated from the sale of variable products and associated future policy
benefits and separate account liabilities. Substantial changes in tax laws
that would make these products less attractive to consumers and extreme
fluctuations in interest rates or stock market returns which may result in
higher lapse experience than assumed could cause a severe impact to the
Companies' financial condition. Two broker/dealers generated 27% of the
Companies' sales (53% by two broker/dealers during 1997).
LEASES: The Companies lease their home office space, certain other equipment
and capitalized computer software under operating leases which expire through
2018. During the year ended December 31, 1998 and for the periods October 25,
1997 through December 31, 1997, January 1, 1997 through October 24, 1997,
August 14, 1996 through December 31, 1996 and January 1, 1996 through August
13, 1996, rent expense totaled $1,241,000, $39,000, $331,000, $147,000 and
$247,000, respectively. At December 31, 1998, minimum rental payments due
under all non-cancelable operating leases with initial terms of one year or
more are: 1999 - $1,528,000; 2000 - $1,429,000; 2001 - $1,240,000; 2002 -
$1,007,000; 2003 - $991,000 and 2004 and thereafter - $5,363,000.
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies have
established a revolving note payable effective July 27, 1998 and expiring
July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). The note was approved
by the Boards of Directors of Golden American and First Golden on August 5,
1998 and September 29, 1998, respectively. The total amount the Companies may
have outstanding is $85,000,000, of which Golden American and First Golden
have individual credit sublimits of $75,000,000 and $10,000,000,
respectively. The note accrues interest at an annual rate equal to: (1) the
cost of funds for the Bank for the period applicable for the advance plus
0.25% or (2) a rate quoted by the Bank to the Companies for the advance. The
terms of the agreement require the Companies to maintain the minimum level of
Company Action Level Risk Based Capital as established by applicable state
law or regulation. During the year ended December 31, 1998, the Companies
incurred interest expense of $352,000. At December 31, 1998, the Companies
did not have any borrowings under this agreement.
<PAGE>
<PAGE>
APPENDIX A
[Two-column format]
NET SINGLE PREMIUM FACTOR
The net single premium factor is based on the age, sex and
underwriting class of the insured(s). It decreases as an
insured's age increases. As a result, the variable insurance
amount will decrease in relationship to the policy's investment
value as the insured's age increases. Also, net single premium
factors may be higher for a woman than for a man of the same age.
A table of minimum net single premium factors is included in the
policy.
TABLES OF ILLUSTRATIVE MINIMUM
NET SINGLE PREMIUM FACTORS
SINGLE LIFE, MALE, AGE 35,
NON-SMOKER
POLICY YEAR NSP FACTOR
----------- ----------
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
POLICY YEAR NSP FACTOR
----------- ----------
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
A-1
<PAGE>
<PAGE>
