As filed with the Securities and Exchange Commission on December 15, 2000
Registration No. 333-95457
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
Registration Statement under The Securities Act of 1933
Amendment No. 3
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 6355 41-0991508
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
1475 Dunwoody Drive
West Chester, PA 19380
(610) 425-3400
(Address and Telephone Number of registrant's principal executive office)
Linda E. Senker, Esq. COPY TO:
Golden American Life Insurance Company Stephen E. Roth, Esq.
1475 Dunwoody Drive Sutherland Asbill & Brennan LLP
West Chester, PA 19380 1275 Pennsylvania Avenue, N.W.
(610) 425-4139 Washington, D.C. 20004-2404
(Name and Address of Agent for Service
of Process)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practical after the effective date of the Registration Statement.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box ................................................ [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box [ ]
____________________________________________________________________________
Pursuant to Rule 429 under the Securities Act of 1933, a prospectus herein
also relates to Registration Statement Nos. 333-28743, 333-51949, 333-65009
and 333-76945.
Calculation of Registration Fee
____________________________________________________________________________
Proposed Maximum Proposed Amount of
Title of Securities Amount Being Offering Price Maximum Aggregate Registration
Being Registered Registered (1) Per Unit (1) Offering Price(1) Fee(2)
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Annuity Contracts
Annuity Contracts
(Interests in N/A N/A $5,057,320,000 $1,391,268
Fixed Account)
(1) The maximum aggregate offering price is estimated solely for the purpose
of determining the registration fee. The amount to be registered and
the proposed maximum offering price per unit are not applicable since
these securities are not issued in predetermined amounts or units.
(2) Previously paid. Amounts previously registered in connection with File
Nos. 333-28743, 333-51949, 333-65009, 333-76945 and 333-95457 were
$100,320,000, $350,000,000, $1,050,000,000, $630,000,000 and $2,927,000,000,
respectively at registration fees of $30,400, $103,250, $309,750, $175,140
and $772,728, respectively.
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The registrant hereby amends this registration statement statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission acting
pursuant to said section 8(a), may determine.
PART I
EXPLANATORY NOTE
This Registration Statement contains four separate Profiles and Prospectuses
for the GoldenSelect PREMIUM PLUS Contract. This Amendment to the Registration
Statement contains two forms of the Profile, Prospectus and Statement of
Additional Information which relate to Form Four and Form Five only and does
not supercede or replace the other forms of Prospectuses and Statements of
Additional Information described below.
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| | FORM 1 | FORM 2 | FORM 3 | FORM 4 | FORM 5 |
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|PROFILE, | ORIG. DB DESC. | NEW DB DESC. | NEW DB DESC. | NEW SPECIAL FUNDS| NEW SPECIAL FUNDS|
|PROSPECTUS|3 Optional Riders|3 Optional Riders |3 Optional Riders | DESC. | DESC. |
|AND SAI | 32 PORTFOLIOS | 32 PORTFOLIOS | 32 PORTFOLIOS | 32 PORTFOLIOS | 37 PORTFOLIOS |
| | | | (Galaxy) | | (Galaxy) |
|----------|-----------------|------------------|------------------|------------------|------------------|
The Form One prospectus describes the GoldenSelect PREMIUM PLUS Contract in its
original form and three death benefit options. The Form One Profile and
Prospectus contains disclosure regarding death benefit options available under
the original contract. Form One is no longer offered because Form Two has now
been approved in all states. It was last filed with the Securities Exchange
Commission as part of Registrant's Post-Effective Amendment No. 2 on
September 13, 2000.
The Form Two Profile and Prospectus contains updated disclosure regarding death
benefit options, including an additional fourth death benefit option.
Other than this difference, Form One and Form Two are substantially similar.
This form is currently available in all states and will be used until all states
have approved Form Four. It was last filed with the Securities Exchange
Commission as part of Registrant's Post-Effective Amendment No. 2 on
September 13, 2000.
The Form Three Profile and Prospectus describes the GoldenSelect Premium Plus
Contract (named GoldenSelect PREMIUM PLUS featuring The Galaxy VIP Fund) which
is offered in a distinct distribution channel. It includes disclosure regarding
the Galaxy VIP Funds which are not available under Form Two. Other than this
difference, Form Three and Form Two are the same. This Form will be used until
Form Five is approved in all states. It was last filed with the Securities
Exchange Commission as part of Registrant's Post Effective Amendment No. 1 on
April 26, 2000.
The Form Four Profile and Prospectus expands the category of "Special Funds"
to include certain investment portfolios that, due to their volatility, are
excluded from the death benefit and living benefit guarantees that might
otherwise be provided, and creates a new category of investment portfolios
called,"Restricted Funds", to which allocations may be limited. Other than
these differences, Form Two and Form Four are substantially similar. Both Form
Two and Form Four will be used until all state approvals are received for Form
Four.
The Form Five Profile and Prospectus and Statement of Additional Information
describes the GoldenSelect PREMIUM PLUS Contract (named GoldenSelect PREMIUM
PLUS featuring The Galaxy VIP Fund) which is offered in a distinct distribution
channel. It includes disclosure regarding the Galaxy VIP Funds which are not
available under Form Four. Other than this difference, Form Four and Form Five
are the same. Both Form Three and Form Five will be used until all state
approvals are received for Form Five.
The Profiles and Prospectuses filed herein do not contain all of the
information permitted by Securities and Exchange Commission Regulations.
Therefore, this Registration Statement on Form S-1 for Golden American Life
Insurance Company ("Golden American") incorporates by reference the Statements
of Additional Information for Forms Four and Five, and Part C (Other
Information) contained in the Registration Statement on Form N-4 (Post-
Effective Amendment No. 13, File Nos. 333-28755, 811-5626, filed
contemporaneously with this Amendment to the Registration Statement on
Form S-1, on or about the date hereof) for Golden American Separate Account B.
This information may be otained free of charge from Golden American Life
Insurance Company by calling Customer Service at 800-366-0066.
PROFILE AND PROSPECTUS OF
GOLDENSELECT PREMIUM PLUS/R/
(FORM FOUR)
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| PROFILE AND PROSPECTUS FOR GOLDENSELECT PREMIUM PLUS/R/
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| Deferred Combination Variable and Fixed Annuity Contract, DECEMBER 29, 2000
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| Golden American Life Insurance Company
| Separate Account B of Golden American Life Insurance Company
| ING VARIABLE ANNUITIES
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
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PROFILE OF
GOLDENSELECT PREMIUM PLUS/R/
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
DECEMBER 29, 2000
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This Profile is a summary of some of the more important points that
you should know and consider before purchasing the Contract. The
Contract is more fully described in the full prospectus which
accompanies this Profile. Please read the prospectus carefully.
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1.THE ANNUITY CONTRACT
The Contract offered in this prospectus is a deferred combination
variable and fixed annuity contract between you and Golden American Life
Insurance Company. The Contract features a minimum 4% credit to each
premium you pay. The Contract provides a means for you to invest on a
tax-deferred basis in (i) one or more of 32 mutual fund investment
portfolios through our Separate Account B and/or (ii) in a fixed account
of Golden American with guaranteed interest periods. The 32 mutual fund
portfolios are listed on page 3 below. We currently offer guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years in the fixed
account. We set the interest rates in the fixed account (which will
never be less than 3%) periodically. We may credit a different interest
rate for each interest period. The interest you earn in the fixed
account as well as your principal is guaranteed by Golden American as
long as you do not take your money out before the maturity date for the
applicable interest period. If you withdraw your money from the fixed
account more than 30 days before the applicable maturity date, we will
apply a market value adjustment. A market value adjustment could
increase or decrease your contract value and/or the amount you take out.
Generally, the investment portfolios are designed to offer a better
return than the fixed account. However, this is NOT guaranteed. You may
not make any money, and you can even lose the money you invest.
Subject to state availability, you may elect one of three optional riders
offering specified benefits featured in the prospectus for the Contract.
The three optional benefit riders are listed on page below. The
optional benefit riders can provide protection under certain
circumstances in the event that unfavorable investment performance has
lowered your contract value below certain targeted growth. These riders
do not guarantee the performance of your investment portfolios. Separate
charges are assessed for the optional riders. You should carefully
analyze and completely evaluate each rider before you purchase any. Be
aware that the benefit provided by any of the riders will be affected by
certain later actions you may take - such as withdrawals and transfers.
The riders are not available to Contracts issued before January 1, 2000.
To find out about availability, check with our Customer Service Center.
PREMIUM PLUS PROFILE PROSPECTUS BEGINS AFTER
PP4SF-108892 PAGE 11 OF THIS PROFILE
The Contract, like all deferred variable annuity contracts, has two
phases: the accumulation phase and the income phase. The accumulation
phase is the period between the contract date and the date on which you
start receiving the annuity payments under your Contract. The amounts
you accumulate during the accumulation phase will determine the amount of
annuity payments you will receive. The income phase begins on the
annuity start date, which is the date you start receiving regular annuity
payments from your Contract. You determine (1) the amount and frequency
of premium payments, (2) the investments, (3) transfers between
investments, (4) the type of annuity to be paid after the accumulation
phase, (5) the beneficiary who will receive the death benefits, (6) the
type of death benefit, and (7) the amount and frequency of withdrawals.
2.YOUR ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity payments are the periodic payments you will begin receiving on
the annuity start date. You may choose one of the following annuity
payment options:
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ANNUITY OPTIONS
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Option 1 Income for a fixed Payments are made for a specified number of
period years to you or your beneficiary.
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Option 2 Income for life with Payments are made for the rest of your life
a period certain or longer for a specified period such as 10
or 20 years or until the total amount used
to buy this option has been repaid. This
option comes with an added guarantee that
payments will continue to your beneficiary
for the remainder of such period if you
should die during the period.
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Option 3 Joint life income Payments are made for your life and the life
of another person (usually your spouse).
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Option 4 Annuity plan Any other annuitization plan that we choose
to offer on the annuity start date.
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Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments
under Option 4 may be fixed or variable. If variable and subject to the
Investment Company Act of 1940, it will comply with the requirements of
such Act. Once you elect an annuity option and begin to receive
payments, it cannot be changed.
3.PURCHASE (BEGINNING OF THE ACCUMULATION PHASE)
You may purchase the Contract with an initial payment of $10,000 or more
($1,500 for a qualified Contract) up to and including age 85. You may
make additional payments of $500 or more ($250 for a qualified Contract)
at any time before you turn 85 during the accumulation phase. Under
certain circumstances, we may waive the minimum initial and additional
premium payment requirement. Any initial or additional premium payment
that would cause the contract value of all annuities that you maintain
with us to exceed $1,000,000 requires our prior approval. Each time you
make a premium payment, we will add a credit of at least 4% of each
premium payment to your contract value. Within 1 year after any credit
is added, it may be deducted from your contract value under certain
circumstances which are described in the prospectus for the Contract.
After 1 year, a credit added to your contract value becomes permanent.
PP4SF-108892 2 PREMIUM PLUS PROFILE
Who may purchase this Contract? The Contract may be purchased by
individuals as part of a personal retirement plan (a "non-qualified
Contract"), or as a Contract that qualifies for special tax treatment
when purchased as either an Individual Retirement Annuity (IRA) or in
connection with a qualified retirement plan (each a "qualified
Contract").
IRAs and other qualified plans already have the tax-deferral feature
found in this Contract. For an additional cost, the Contract provides
other benefits including death benefits and the ability to receive a
lifetime income. See "Expenses" in this profile.
The Contract is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term
purposes. The tax-deferred feature is more attractive to people in high
federal and state tax brackets. You should not buy this Contract if you
are looking for a short-term investment or if you cannot risk getting
back less money than you put in.
4.THE INVESTMENT PORTFOLIOS
You can direct your money, and the credit we add, into (1) the fixed
account with guaranteed interest periods of 6 months, and 1, 3, 5, 7 and
10 years, and/or (2) into any one or more of the following 32 mutual fund
investment portfolios through our Separate Account B. The investment
portfolios are described in the prospectuses for the GCG Trust, the PIMCO
Variable Insurance Trust, the Warburg Pincus Trust, ING Variable
Insurance Trust and the Prudential Series Fund. Keep in mind that while
an investment in the fixed account earns a fixed interest rate, an
investment in any investment portfolio, depending on market conditions,
may cause you to make or lose money. The investment portfolios available
under your Contract are:
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Strategic Equity Series
Limited Maturity Bond Series Diversified Mid-Cap Series Special Situations Series
Global Fixed Income Series Managed Global Series Mid-Cap Growth Series
Fully Managed Series Large Cap Value Series Small Cap Series
Total Return Series All Cap Series Growth Series
Asset Allocation Growth Series Research Series Real Estate Series
Equity Income Series Capital Appreciation Series Hard Assets Series
Investors Series Growth and Income Series Developing World Series
Value Equity Series Capital Growth Series
THE PIMCO VARIABLE INSURANCE TRUST ING VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio ING Global Brand Names Fund
PIMCO StocksPLUS Growth
and Income Portfolio PRUDENTIAL SERIES FUND
Prudential Jennison Portfolio
THE WARBURG PINCUS TRUST SP Jennison International Growth Portfolio
International Equity Portfolio
Restricted Funds. We may designate any investment option as a Restricted
Fund and limit the amount you may allocate or transfer to a Restricted
Fund. We may establish any such limitation, at our discretion, as a
percentage of premium or contract value or as a specified dollar amount
and change the limitation at any time. Currently, we have not designated
any investment option as a Restricted Fund. We may, with 30 days notice
to you, designate any investment portfolio as a Restricted Fund or change
the limitations on existing contracts with respect to new premiums added
to such investment portfolio and also with respect to new transfers to
such investment portfolio. For more detailed information, see "Restricted
Funds" in the prospectus for the Contract.
PP4SF-108892 3 PREMIUM PLUS PROFILE
5.EXPENSES
The Contract has insurance features and investment features, and there
are charges related to each. For the insurance features, the Company
deducts a mortality and expense risk charge, an asset-based
administrative charge and an annual contract administrative charge of
$40. We deduct the mortality and expense risk charge and the asset-based
administrative charges daily directly from your contract value in the
investment portfolios. The mortality and expense risk charge (depending
on the death benefit you choose) and the asset-based administrative
charge, on an annual basis, are as follows:
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STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
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Mortality & Expense Risk Charge...... 1.30% 1.55% 1.65% 1.75%
Asset-Based Administrative Charge.... 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total........................ 1.45% 1.70% 1.80% 1.90%
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If you choose to purchase one of the optional benefit riders we offer, we
will deduct a separate quarterly charge for the rider on each quarterly
contract anniversary and pro rata when the rider terminates. We deduct
the rider charges directly from your contract value in the investment
portfolios; if the value in the investment portfolios is insufficient,
rider charges will be deducted from the fixed account. The rider charges
are as follows:
OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
-------------- ----------------
10 Year............ 0.125% of the MGAB Charge Base*(0.50% annually)
20 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Base Rate Quarterly Charge
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7%................. 0.125% of the MGIB Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
Each investment portfolio has charges for investment management fees and
other expenses. These charges, which vary by investment portfolio,
currently range from 0.56% to 1.75% annually (see following table) of the
portfolio's average daily net asset balance.
If you withdraw money from your Contract, or if you begin receiving
annuity payments, we may deduct a premium tax of 0%-3.5% to pay to your
state.
We deduct a surrender charge if you surrender your Contract or withdraw
an amount exceeding the free withdrawal amount. The free withdrawal
amount in any year is 10% of your contract value on the date of the
withdrawal less any prior withdrawals during that contract year. The
following table shows the schedule of the surrender charge that will
apply. The surrender charge is a percent of each premium payment
withdrawn.
PP4SF-108892 4 PREMIUM PLUS PROFILE
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+
SINCE PREMIUM PAYMENT | | | | | | | | |
SURRENDER CHARGE 8%| 8%| 8%| 8%| 7%| 6%| 5%| 3%| 1%| 0%
The following table is designed to help you understand the Contract
charges. The "Total Annual Insurance Charges" column is divided into
two: one part reflects the maximum mortality and expense risk charge,
(based on the Max 7 Enhanced Death Benefit), the asset-based
administrative charge, the annual contract administrative charge as 0.05%
(based on an average contract value of $77,000), and the highest optional
rider charge as 0.75% in most cases, assuming the rider base is equal to
the initial premium and the rider base increases by 7% each year. The
second part reflects the same insurance charges, but without any rider
charges. The "Total Annual Investment Portfolio Charges" column reflects
the portfolio charges for each portfolio and are based on actual expenses
as of December 31, 1999, except for (i) portfolios that commenced
operations during 2000 where the charges have been estimated, and (ii)
newly formed portfolios where the charges have been estimated. The
column "Total Annual Charges" reflects the sum of the previous two
columns. The columns under the heading "Examples" show you how much you
would pay under the Contract for a 1-year period and for a 10-year
period.
As required by the Securities and Exchange Commission, the examples
assume that you invested $1,000 and received a $40 credit in a Contract
that earns 5% annually and that you withdraw your money at the end of
Year 1 or at the end of Year 10 (based on the Max 7 Enhanced Death
Benefit). For Years 1 and 10, the examples show the total annual charges
assessed during that time and assume that you have elected the Max 7
Enhanced Death Benefit. For these examples, the premium tax is assumed
to be 0%.
PP4SF-108892 5 PREMIUM PLUS PROFILE
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EXAMPLES:
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TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
----------------- --------------- ---------------- ----------------
W/ THE W/O TOTAL W/ THE W/O W/ THE W/O W/ THE W/O
HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
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THE GCG TRUST
Liquid Asset 2.70% 1.95% 0.56% 3.26% 2.51% $114 $106 $370 $296
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Limited Maturity Bond 2.70% 1.95% 0.57% 3.27% 2.52% $114 $107 $371 $297
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Global Fixed Income 2.70% 1.95% 1.60% 4.30% 3.55% $125 $117 $463 $397
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Fully Managed 2.70% 1.95% 0.97% 3.67% 2.92% $118 $111 $408 $337
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Total Return 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
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Asset Allocation Growth 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
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Equity Income 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Investors 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
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Value Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Rising Dividends 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Diversified Mid-Cap 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
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Managed Global 2.70% 1.95% 1.25% 3.95% 3.20% $121 $114 $433 $364
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Large Cap Value 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
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All Cap 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
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Research 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
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Capital Appreciation 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Growth and Income 2.70% 1.95% 1.11% 3.81% 3.06% $120 $112 $421 $351
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Capital Growth 2.70% 1.95% 1.05% 3.75% 3.00% $119 $112 $415 $345
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Strategic Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Special Situations 2.70% 1.95% 1.11% 3.81% 3.06% $120 $112 $421 $351
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Mid-Cap Growth 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
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Small Cap 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Growth 2.70% 1.95% 1.04% 3.74% 2.99% $119 $111 $414 $344
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Real Estate 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Hard Assets 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
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Developing World 2.70% 1.95% 1.75% 4.45% 3.70% $126 $119 $476 $411
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The PIMCO Variable Insurance Trust
PIMCO High Yield Bond 2.70% 1.95% 0.75% 3.45% 2.70% $116 $108 $388 $315
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PIMCO StocksPLUS
Growth and Income 2.70% 1.95% 0.65% 3.35% 2.60% $115 $107 $379 $305
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The Warburg Pincus Trust
International Equity 2.70% 1.95% 1.33% 4.02% 3.27% $122 $114 $439 $371
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ING Variable Insurance Trust
ING Global Brand
Names 2.70% 1.95% 1.23% 3.93% 3.18% $121 $113 $431 $362
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The Prudential Series Fund
Prudential Jennison 2.70% 1.95% 1.03% 3.73% 2.98% $119 $111 $413 $343
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SP Jennison International
Growth 2.70% 1.95% 1.64% 4.34% 3.59% $125 $118 $467 $401
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The "Total Annual Investment Portfolio Charges" column above reflects
current expense reimbursements for applicable investment portfolios. For
more detailed information, see "Fees and Expenses" in the prospectus for
the Contract.
PP4SF-108892 6 PREMIUM PLUS PROFILE
6.TAXES
Under a qualified Contract, your premiums are generally pre-tax
contributions and accumulate on a tax-deferred basis. Premiums and
earnings are generally taxed as income when you make a withdrawal or
begin receiving annuity payments, presumably when you are in a lower tax
bracket.
Under a non-qualified Contract, premiums are paid with after-tax dollars,
and any earnings will accumulate tax-deferred. You will be taxed on
these earnings, but not on premiums, when you withdraw them from the
Contract.
For owners of most qualified Contracts, when you reach age 70 1/2 (or, in
some cases, retire), you will be required by federal tax laws to begin
receiving payments from your annuity or risk paying a penalty tax. In
those cases, we can calculate and pay you the minimum required
distribution amounts at your request.
If you are younger than 59 1/2 when you take money out, in most cases,
you will be charged a 10% federal penalty tax on the taxable earnings
withdrawn.
7.WITHDRAWALS
You can withdraw your money at any time during the accumulation phase.
You may elect in advance to take systematic withdrawals which are
described on page. Withdrawals above the free withdrawal amount may be
subject to a surrender charge. We will apply a market value adjustment
if you withdraw your money from the fixed account more than 30 days
before the applicable maturity date. Income taxes and a penalty tax may
apply to amounts withdrawn.
8.PERFORMANCE
The value of your Contract will fluctuate depending on the investment
performance of the portfolio(s) you choose. The following chart shows
average annual total returns for each portfolio that was in operation for
the entire year of 1999. These numbers reflect the deduction of the
mortality and expense risk charge (based on the Max 7 Enhanced Death
Benefit), the asset-based administrative charge, the annual contract fee
and the maximum optional benefit rider charge on a rider base that
accumulates at 7%, but do not reflect deductions for any surrender
charges. If surrender charges were reflected, they would have the effect
of reducing performance. Please keep in mind that past performance is
not a guarantee of future results.
PP4SF-108892 7 PREMIUM PLUS PROFILE
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CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998
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Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.65% 9.94%
Strategic Equity(2) 52.53% -1.61%
- --------------------------------------------------------------------------------
Managed by Alliance Capital Management L.P.
Capital Growth(2) 22.52% 9.25%
- --------------------------------------------------------------------------------
Managed by Baring International Investment Limited
Developing World(2) 57.89% --
Global Fixed Income -10.91% 9.13%
Hard Assets(2) 20.43% -31.31%
- --------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- --
Managed Global(3) 59.44% 26.18%
Small Cap(3) 47.05% 18.05%
- --------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.96% -0.93%
- --------------------------------------------------------------------------------
Managed by Fidelity Management & Research Company
Asset Allocation Growth -- --
Diversified Mid-Cap -- --
- --------------------------------------------------------------------------------
Managed by ING Investment Management, LLC
Limited Maturity Bond -1.34% 4.26%
Liquid Asset 2.19% 2.49%
- --------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.00% 23.75%
Growth and Income -- --
Special Situations -- --
- --------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.08% 11.36%
- --------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 74.88% 19.83%
Research 21.23% 20.06%
Total Return 0.84% 8.88%
- --------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(4) -6.19% -15.56%
- --------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- --
Investors -- --
- --------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -3.16% 5.63%
Fully Managed 4.32% 3.31%
- --------------------------------------------------------------------------------
Managed By Pacific Investment Management Company
PIMCO High Yield Bond 0.49% --
PIMCO StocksPLUS Growth and Income 16.96% --
- --------------------------------------------------------------------------------
Managed by Credit Suisse Asset Management, LLC
International Equity 49.80% 2.79%
- --------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V.
ING Global Brand Names -- --
- --------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- --
SP Jennison International Growth -- --
- --------------------------------------------------------------------------------
- -----------------------
(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
PP4SF-108892 8 PREMIUM PLUS PROFILE
9. DEATH BENEFIT
The death benefit is payable when the first of the following persons
dies: the contract owner, joint owner, or annuitant (if a contract owner
is not an individual). Assuming you are the contract owner, if you die
during the accumulation phase, your beneficiary will receive a death
benefit unless the beneficiary is your surviving spouse and elects to
continue the Contract. The death benefit paid depends on the death
benefit you have chosen. The death benefit value is calculated at the
close of the business day on which we receive written notice and due
proof of death, as well as required claim forms, at our Customer Service
Center. If your beneficiary elects to delay receipt of the death benefit
until a date after the time of your death, the amount of the benefit
payable in the future may be affected. If you die after the annuity
start date and you are the annuitant, your beneficiary will receive the
death benefit you chose under the annuity option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
THE FOLLOWING IS A DESCRIPTION OF THE DEATH BENEFIT OPTIONS FOR CONTRACT
OWNERS PURCHASING CONTRACTS ON OR AFTER JANUARY 1, 2001. IF YOU PURCHASED
YOUR CONTRACT PRIOR TO THAT DATE, PLEASE SEE APPENDIX E FOR A DESCRIPTION
OF THE CALCULATION OF DEATH BENEFITS APPLICABLE TO YOUR CONTRACT.
You may choose one of the following Death Benefits: (i) the Standard
Death Benefit, (ii) the Annual Ratchet Enhanced Death Benefit, (iii) the
(7% Solution Enhanced Death Benefit or (iv) the Max 7 Enhanced Death
Benefit. The Annual Ratchet Enhanced Death Benefit , the 7% Solution
Enhanced Death Benefit, and the Max 7 Enhanced Death Benefit are
available only if the contract owner or the annuitant (if the contract
owner is not an individual) is not more than 79 years old at the time of
purchase. The Annual Ratchet, 7% Solution, and Max 7 Enhanced Death
Benefits may not be available where a Contract is held by joint owners.
Base Death Benefit. We use the Base Death Benefit to help determine the
minimum death benefit payable under each of the Enhanced Death Benefit
options described below. You do not elect the Base Death Benefit. The
Base Death Benefit is equal to the greater of:
1) the contract value minus any credits added within 1 year prior to
death; and
2) the cash surrender value.
The STANDARD DEATH BENEFIT equals the SUM of 1) and 2), less 3) where:
1) is the contract value allocated to Special Funds;
2) is the Standard Minimum Guaranteed Death Benefit for amounts
allocated to non-Special Funds as further described in the
prospectus; and
3) is any credits added within 1 year prior to death.
ENHANCED DEATH BENEFIT OPTIONS. Under the Enhanced Death Benefit options,
if you die before the annuity start date, your beneficiary will receive
the greater of the Base Death Benefit and the Enhanced Death Benefit
option elected. For purposes of calculating the Enhanced Death Benefits,
certain investment portfolios and the Fixed Account are designated as
"Special Funds". In addition to the Fixed Account, the investment
portfolios designated currently as Special Funds are the Liquid Asset
Portfolio and the Limited Maturity Bond Portfolio. Selecting a Special
Fund may limit or reduce the enhanced death benefit. You will
automatically receive the Standard Death Benefit unless you elect one of
the enhanced death benefit options. The enhanced death benefit options
are available only at the time you purchase your Contract. The enhanced
death benefit options are not available where a Contract is owned by
joint owners. Once you choose a death benefit, it cannot be changed. We
may in the future stop or suspend offering any of the enhanced death
benefit options to new Contracts. A change in ownership of the Contract
may affect the amount of the death benefit and the enhanced death
benefit. The MGWB rider may also affect the death benefit. See "Minimum
Guaranteed Withdrawal Benefit (MGWB) Rider -- Death Benefit during
Automatic Periodic Benefit Status."
Each of the enhanced death benefit options is based on a minimum
guaranteed death benefit for that option. Please see "Death Benefit
Choices" in the prospectus for details on the calculation of the minimum
PP4SF-108892 9 PREMIUM PLUS PROFILE
guaranteed death benefit for each enhanced death benefit and further
details on the effect of withdrawals and transfers on the calculation of
the enhanced death benefits.
The ANNUAL RATCHET ENHANCED DEATH BENEFIT equals the greater of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
Annual Ratchet Minimum Guaranteed Death Benefit for amounts
allocated to Non-Special Funds, less any credits added within 1
year prior to death as further described in the prospectus.
The 7% SOLUTION ENHANCED DEATH BENEFIT, equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
7% Solution Minimum Guaranteed Death Benefit for amounts allocated
to Non-Special Funds, less any credits added within 1 year prior
to death as further described in the prospectus.
The MAX 7 ENHANCED DEATH BENEFIT equals the greater of the 7% Solution
Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit option, the 7% Solution Enhanced Death Benefit and the
Annual Ratchet Enhanced Death Benefit are calculated in the same manner
as if each were the elected benefit.
Note: In all cases described above, the amount of the death benefit
could be reduced by premium taxes owed and withdrawals not
previously deducted. The enhanced death benefits may not be
available in all states.
We may, with 30 days notice to you, designate any investment portfolio as
a Special Fund on existing contracts with respect to new premiums added
to such investment portfolio and also with respect to new transfers to
such investment portfolio. Keep in mind that selecting a Special Fund may
limit or reduce the Enhanced Death Benefit.
For the period during which a portion of the contract value is allocated
to a Special Fund, we may, at our discretion, reduce the mortality and
expense risk charge attributable to that portion of the contract value.
The reduced mortality and expense risk charge will be applicable only
during the period contract value is allocated to a Special Fund.
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after you receive
it, you will receive a refund of the adjusted contract value. We
determine your contract value at the close of business on the day we
receive your written refund request. For purposes of the refund during
the free look period, (i) we adjust your contract value for any market
value adjustment (if you have invested in the fixed account), (ii) then
we exclude any credit initially applied, and (iii) then we include a
refund of any charges deducted from your contract value. Because of the
market risks associated with investing in the portfolios and the
potential positive or negative effect of the market value adjustment, the
contract value returned may be greater or less than the premium payment
you paid. Some states require us to return to you the amount of the paid
premium, excluding any credit, (rather than the contract value) in which
case you will not be subject to investment risk during the free look
period. Also, in some states, you may be entitled to a longer free look
period.
TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You can
make transfers among your investment portfolios and your investment in
the fixed account as frequently as you wish without any current tax
implications. The minimum amount for a transfer is $100. There is
currently no charge for transfers, and we do not limit the number of
transfers allowed. The Company may, in the future, charge a $25 fee for
any transfer after the twelfth transfer in a contract year or limit the
number of transfers allowed. Keep in mind that if you transfer or
otherwise withdraw your money from the fixed account more than 30
PP4SF-108892 10 PREMIUM PLUS PROFILE
days before the applicable maturity date, we will apply a market value
adjustment. A market value adjustment could increase or decrease your
contract value and/or the amount you transfer or withdraw. Keep in mind
that transfers between Special Funds and Non-Special Funds will impact
your death benefit and benefits under an optional benefit rider, if any.
Also, a transfer to a Restricted Fund will not be permitted to the extent
that it would increase the contract value in the Restricted Fund to more
than the applicable limits following the transfer. Transfers from
Restricted Funds are not limited. If the result of multiple transfers is
to lower the percentage of total contract value in the Restricted Fund,
the reallocation will be permitted even if the percentage of contract
value in the Restricted Fund is greater than the limit. See "Restricted
Funds" in the prospectus for more information.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
See "Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in
the prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one
of three optional benefit riders for an additional charge. You may not
add more than one of these three riders to your Contract. There is a
separate charge for each rider. Once elected, the riders generally may
not be cancelled. This means once added the rider may not be removed and
charges will be assessed regardless of the performance of your Contract.
The following describes the optional riders for contract owners
purchasing Contracts on or after January 1, 2001. If you purchased your
Contract prior to that date, please see Appendix F for a description of
the calculation of the optional rider benefits applicable under your
Contract.
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is
an optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on
a specified date is below the MGAB rider guarantee. When added at
issue, the MGAB rider guarantees that your contract value will at
least equal your initial premium payment plus credits at the end of
ten years, or, at least equal two times your initial premium payment
plus credits at the end of twenty years, depending on the waiting
period you select, reduced pro rata for withdrawals and certain
transfers. The MGAB rider offers a ten-year option and a twenty-year
option, of which you may purchase only one. Investment in Special
Funds may limit or reduce the benefits provided under the rider. As
is more fully described in the prospectus, rider benefits are
generally based on the contract value for allocations to Special
Funds. The MGAB rider may offer you protection in the event of a lower
contract value that may result from unfavorable investment performance
of your Contract. There are exceptions, conditions, eligibility
requirements, and important considerations associated with the MGAB
rider. See "Optional Riders" in the prospectus for more complete
information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is
an optional benefit which guarantees a minimum amount of income that
will be available to you upon annuitization, regardless of fluctuating
market conditions. Ordinarily, the amount of income that will be
available to you upon annuitization is based upon your contract value,
the annuity option you selected and the guaranteed or then current
income factors in effect. If you purchase the MGIB rider, the minimum
amount of income that will be available to you upon annuitization on
the MGIB Benefit Date is the greater of the amounts that are
ordinarily available to you under your Contract and the MGIB annuity
benefit, which is based on your MGIB Base, the MGIB annuity option you
selected and the MGIB guaranteed income factors specified in your
rider. Your MGIB Base generally depends on the amount of premiums you
pay during the first five contract years after you purchase the rider,
the credit(s) applied, and when you pay the premiums, accumulated at
the MGIB rate, less adjustments for withdrawals and transfers.
Investment in Special Funds may limit or reduce the benefits provided
under the rider. As is more fully described in the prospectus, rider
benefits are generally based on the contract value for allocations to
Special Funds. There are exceptions, conditions, eligibility
requirements, and important considerations associated with the MGIB
rider. You should read the prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider
is an optional benefit which guarantees that you will receive annual
periodic payments, which, when added together, equal all premium
payments and credits paid during the first two contract years, less
adjustments for any prior withdrawals and adjusted by transfers to
Special Funds. If your contract value is reduced to zero, your
PP4SF-108892 11 PREMIUM PLUS PROFILE
periodic payments will be 7% of your Eligible Payment Amount every
year. (Of course, any applicable income and penalty taxes will apply
to amounts withdrawn.) Your original Eligible Payment Amount is
your premium payments and credits received during the first two contract
years. Withdrawals that you make in excess of the above periodic
payment amount may substantially reduce the guarantee. Investment in
Special Funds may limit or reduce the benefits provided under the
rider. As is more fully described in the prospectus, rider benefits
are generally based on the contract value for allocations to Special
Funds. There are exceptions, conditions, eligibility requirements,
and important considerations associated with the MGWB rider. You
should read the prospectus for more complete information.
ADDITIONAL FEATURES. This Contract has other features you may be
interested in. These include:
Dollar Cost Averaging. This is a program that allows you to invest
a fixed amount of money in the investment portfolios each month. It
may give you a lower average cost per unit over time than a single one-
time purchase. Dollar cost averaging requires regular investments
regardless of fluctuating price levels, and does not guarantee profits
or prevent losses in a declining market. This option is currently
available only if you have $1,200 or more in the Limited Maturity Bond
or the Liquid Asset investment portfolios or in the fixed account with
either a 6-month or 1-year guaranteed interest period. Transfers from
the fixed account under this program will not be subject to a market
value adjustment. If you invest in Restricted Funds, your ability to
dollar cost average may be limited. Please see "Transfers Among Your
Investments" in the prospectus for more complete information.
Systematic Withdrawals. During the accumulation phase, you can
arrange to have money sent to you at regular intervals throughout the
year. Within limits these withdrawals will not result in any surrender
charge. Withdrawals from your money in the fixed account under this
program are not subject to a market value adjustment. Of course, any
applicable income and penalty taxes will apply on amounts withdrawn. .
If you invest in Restricted Funds, your systematic withdrawals may be
affected. Please see "Withdrawals" in the prospectus for more
complete information.
Automatic Rebalancing. If your contract value is $10,000 or more,
you may elect to have the Company automatically readjust the money
between your investment portfolios periodically to keep the blend you
select. Investments in the fixed account are not eligible for
automatic rebalancing. If you invest in Restricted Funds, automatic
rebalancing may be affected. Please see "Transfers Among Your
Investments" in the prospectus for more complete information.
11. INQUIRIES
If you need more information after reading this profile and the
prospectus, please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
PP4SF-108892 12 PREMIUM PLUS PROFILE
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT PREMIUM PLUS/R/
- --------------------------------------------------------------------------------
December 29, 2000
This prospectus describes GoldenSelect Premium Plus, a group and
individual deferred variable annuity contract (the "Contract")
offered by Golden American Life Insurance Company ("Golden
American," the "Company," "we" or "our"). The Contract is available
in connection with certain retirement plans that qualify for special
federal income tax treatment ("qualified Contracts") as well as
those that do not qualify for such treatment ("non-qualified
Contracts").
The Contract provides a means for you to invest your premium
payments and credits in one or more of 32 mutual fund investment
portfolios. You may also allocate premium payments and credits to
our Fixed Account with guaranteed interest periods. Your contract
value will vary daily to reflect the investment performance of the
investment portfolio(s) you select and any interest credited to your
allocations in the Fixed Account. The investment portfolios
available under your Contract and the portfolio managers are listed
on the back of this cover.
We will credit your Fixed Interest Allocation(s) with a fixed
rate of interest. We set the interest rates periodically. We will
not set the interest rate to be less than a minimum annual rate of
3%. You may choose guaranteed interest periods of 6 months, and 1,
3, 5, 7 and 10 years. The interest earned on your money as well as
your principal is guaranteed as long as you hold them until the
maturity date. If you take your money out from a Fixed Interest
Allocation more than 30 days before the applicable maturity date, we
will apply a market value adjustment ("Market Value Adjustment").
A Market Value Adjustment could increase or decrease your contract
value and/or the amount you take out. You bear the risk that you
may receive less than your principal if we take a Market Value
Adjustment. For Contracts sold in some states, not all Fixed
Interest Allocations or subaccounts are available. You have a right
to return a Contract within 10 days after you receive it for a
refund of the adjusted contract value less credits we added (which
may be more or less than the premium payments you paid), or if
required by your state, the original amount of your premium payment.
Longer free look periods apply in some states and in certain
situations.
This prospectus provides information that you should know before
investing and should be kept for future reference. A Statement of
Additional Information ("SAI"), dated, 2000, has been filed with the
Securities and Exchange Commission ("SEC"). It is available without
charge upon request. To obtain a copy of this document, write to
our Customer Service Center at P.O. Box 2700, West Chester,
Pennsylvania 19380 or call (800) 366-0066, or access the SEC's
website (http://www.sec.gov). The table of contents of the SAI is
on the last page of this prospectus and the SAI is made part of this
prospectus by reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE EXPENSES FOR A CONTRACT PROVIDING A PREMIUM CREDIT, AS THIS CONTRACT
DOES, MAY BE HIGHER THAN FOR CONTRACTS NOT PROVIDING A PREMIUM
CREDIT. OVER TIME, AND UNDER CERTAIN CIRCUMSTANCES, THE AMOUNT OF
THE PREMIUM CREDIT MAY BE MORE THAN OFFSET BY THE ADDITIONAL FEES AND
CHARGES ASSOCIATED WITH THE PREMIUM CREDIT.
AN INVESTMENT IN THE SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO
VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE
INSURANCE TRUST OR THE PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS
TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL SERIES FUND.
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF THIS COVER.
- --------------------------------------------------------------------------------
PP4SF-108892
The investment portfolios available under your Contract and the
portfolio managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE)
Developing World Series
Global Fixed Income Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
FIDELITY MANAGEMENT & RESEARCH COMPANY
Asset Allocation Growth Series
Diversified Mid-Cap Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
Growth and Income Series
Special Situations Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
THE PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
CREDIT SUISSE ASSET MANAGEMENT, LLC
International Equity Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
SP Jennison International Growth Portfolio
The above mutual fund investment portfolios are purchased and
held by corresponding divisions of our Separate Account B. We refer
to the divisions as "subaccounts" and the money you place in the
Fixed Account's guaranteed interest periods as "Fixed Interest
Allocations" in this prospectus.
PP4SF-108892
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms 1
Fees and Expenses 2
Performance Information 11
Accumulation Unit 11
Net Investment Factor 11
Condensed Financial Information 11
Financial Statements 11
Performance Information 11
Golden American Life Insurance Company 12
The Trusts 13
Golden American Separate Account B 13
The Investment Portfolios 14
Investment Objectives 14
Investment Management Fees 17
Restricted Funds 18
The Fixed Interest Allocation 19
Selecting a Guaranteed Interest Period 20
Guaranteed Interest Rates 20
Transfers from a Fixed Interest Allocation 20
Withdrawals from a Fixed Interest Allocation 21
Market Value Adjustment 21
Special Funds 22
The Annuity Contract 23
Contract Date and Contract Year 23
Annuity Start Date 23
Contract Owner 23
Annuitant 24
Beneficiary 24
Purchase and Availability of the Contract 25
Crediting of Premium Payments 25
Additional Credit to Premium 26
Administrative Procedures 27
Contract Value 27
Cash Surrender Value 28
Surrendering to Receive the Cash Surrender Value 28
The Subaccounts 28
Addition, Deletion or Substitution of Subaccounts and
Other Changes 28
The Fixed Account 29
Optional Riders 29
Rider Date 29
No Cancellation 29
Termination 29
Minimum Guaranteed Accumulation Benefit Rider 29
Minimum Guaranteed Income Benefit Rider 31
Minimum Guaranteed Withdrawal Benefit Rider 34
Other Contracts 36
Other Important Provisions 36
PP4SF-108892 i
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TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Withdrawals 36
Regular Withdrawals 37
Systematic Withdrawals 37
IRA Withdrawals 38
Transfers Among Your Investments 39
Transfers by Third Parties 40
Dollar Cost Averaging 40
Automatic Rebalancing 42
Death Benefit Choices 42
Death Benefit During the Accumulation Phase 42
Standard Death Benefit 43
Enhanced Death Benefits 43
Death Benefit During the Income Phase 45
Continuation after Death -- Spouse 45
Continuation after Death -- Non Spouse 46
Required Distributions upon Contract Owner's Death 46
Charges and Fees 47
Charge Deduction Subaccount 47
Charges Deducted from the Contract Value 47
Surrender Charge 47
Waiver of Surrender Charge for Extended Medical Care 47
Free Withdrawal Amount 47
Surrender Charge for Excess Withdrawals 48
Premium Taxes 48
Administrative Charge 48
Transfer Charge 48
Charges Deducted from the Subaccounts 48
Mortality and Expense Risk Charge 48
Asset-Based Administrative Charge 49
Optional Rider Charges 49
Trust Expenses 50
The Annuity Options 50
Annuitization of Your Contract 50
Selecting the Annuity Start Date 51
Frequency of Annuity Payments 51
The Annuity Options 51
Income for a Fixed Period 51
Income for Life with a Period Certain 51
Joint Life Income 51
Annuity Plan 52
Payment When Named Person Dies 52
Other Contract Provisions 52
Reports to Contract Owners 52
Suspension of Payments 52
In Case of Errors in Your Application 52
Assigning the Contract as Collateral 52
Contract Changes-Applicable Tax Law 53
Free Look 53
PP4SF-108892 ii
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TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Group or Sponsored Arrangements 53
Selling the Contract 53
Other Information 54
Voting Rights 54
State Regulation 54
Legal Proceedings 54
Legal Matters 55
Experts 55
Federal Tax Considerations 55
More Information About Golden American 62
Financial Statements of Golden American Life Insurance
Company 95
Statement of Additional Information
Table of Contents 125
Appendix A
Condensed Financial Information A1
Appendix B
Market Value Adjustment Examples B1
Appendix C
Surrender Charge for Excess Withdrawals Example C1
Appendix D
Withdrawal Adjustment for 7% Solution Death Benefit Examples D1
Appendix E
Death Benefits for Contract Owners Who Purchased Contracts
Prior to January 1, 2001 E1
Appendix F
Optional Rider Benefits for Contract Owners Who Purchased
Contracts Prior to January 1, 2001 F1
PP4SF-108892 iii
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INDEX OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following special terms are used throughout this prospectus.
Refer to the page(s) listed for an explanation of each term:
SPECIAL TERM PAGE
Accumulation Unit 11
Annual Ratchet Enhanced Death Benefit 44
Annuitant 24
Annuity Start Date 23
Cash Surrender Value 28
Max 7 Enhanced Death Benefit 45
Contract Date 23
Contract Owner 23
Contract Value 27
Contract Year 23
Fixed Interest Allocation 19
Free Withdrawal Amount 47
Market Value Adjustment 21
Net Investment Factor 11
Non-Special Fund 30
Restricted Fund 18
Rider Date 29
7% Solution Enhanced Death Benefit 44
Special Fund 22
Standard Death Benefit 43
The following terms as used in this prospectus have the same or
substituted meanings as the corresponding terms currently used in the
Contract:
TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE
CONTRACT
Accumulation Unit Value Index of Investment Experience
Annuity Start Date Annuity Commencement Date
Contract Owner Owner or Certificate Owner
Contract Value Accumulation Value
Transfer Charge Excess Allocation Charge
Fixed Interest Allocation Fixed Allocation
Free Look Period Right to Examine Period
Guaranteed Interest Period Guarantee Period
Subaccount(s) Division(s)
Net Investment Factor Experience Factor
Regular Withdrawals Conventional Partial Withdrawals
Withdrawals Partial Withdrawals
PP4SF-108892 1
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FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+
SINCE PREMIUM PAYMENT | | | | | | | | |
SURRENDER CHARGE 8%| 8%| 8%| 8%| 7%| 6%| 5%| 3%| 1%| 0%
Transfer Charge:............. $25 per transfer if you make more than
12 transfers in a contract year.**
* If you invested in a Fixed Interest Allocation, a Market Value
Adjustment may apply to certain transactions. This may increase
or decrease your contract value and/or your transfer or surrender
amount.
** We currently do not impose this charge, but may do so in the future.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE*
Administrative Charge....................... $40
(We waive this charge if the total of your premium payments is
$100,000 or more or if your contract value at the end of a contract
year is $100,000 or more.)
* We deduct this charge on each contract anniversary and on
surrender.
SEPARATE ACCOUNT ANNUAL CHARGES*
- -----------------------------------------------------------------------------------------------
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
- -----------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge...... 1.30% 1.55% 1.65% 1.75%
Asset-Based Administrative Charge.... 0.15% 0.15% 0.15% 0.15%
----- ----- ----- -----
Total........................ 1.45% 1.70% 1.80% 1.90%
- -----------------------------------------------------------------------------------------------
*As a percentage of average daily assets in each subaccount. The
Separate Account Annual Charges are deducted daily.
PP4SF-108892 2
OPTIONAL RIDER CHARGES*
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year.......... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year.......... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Base Rate Quarterly Charge
-------------- ----------------
7%............... 0.125% of the MGIB Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
* We deduct optional rider charges from the subaccounts in which
you are invested on each quarterly contract anniversary and pro
rata on termination of the Contract; if the value in the
subaccounts is insufficient, the optional rider charges will be
deducted from the Fixed Interest Allocation nearest maturity.
(1)The MGAB Charge Base is the total of premiums and credits
added during the two year period commencing on the rider date if
you purchase the rider on the contract date, or, your contract
value on the rider date plus premiums and credits added during the
two year period commencing on the rider date if you purchased the
rider after the contract date, reduced pro rata for all
withdrawals taken while the MGAB rider is in effect, and reduced
pro rata for transfers made during the three year period before
the MGAB Benefit Date. The MGAB Charge Base is tracked separately
for Special and Non-Special Funds, based on initial allocation of
premium (or contract value), subsequent allocation of eligible
premium, withdrawals and transfers. Withdrawals and transfers may
reduce the Charge Base by more than the amount withdrawn or
transferred.
(2)The MGIB Charge Base generally depends on the amount of
premiums you pay during the first five contract years after you
purchase the rider, and the credit(s) applied, when you pay the
premiums, and less a pro rata deduction for any withdrawal made
while the MGIB rider is in effect. The MGIB Charge Base is tracked
separately for Special and Non-Special Funds, based on initial
allocation of premium (or contract value), subsequent allocation
of eligible premium, withdrawals and transfers. Withdrawals and
transfers between Special and Non-Special Funds may reduce the
MGIB Charge Base by more than the amount withdrawn or transferred.
(3)The MGWB Eligible Payment Amount is (i) the total of
premiums and credit paid during the 2-year period commencing on
the rider date if you purchase the rider on the contract date; or
(ii) your contract value on the rider date plus subsequent
premiums and credits received during the two-year period
commencing on the rider date.
PP4SF-108892 3
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
- --------------------------------------------------------------------------------
Liquid Asset 0.56% 0.00% 0.56%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.56% 0.01% 0.57%
- --------------------------------------------------------------------------------
Global Fixed Income 1.60% 0.00% 1.60%
- --------------------------------------------------------------------------------
Fully Managed 0.96% 0.01% 0.97%
- --------------------------------------------------------------------------------
Total Return 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Asset Allocation Growth 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Equity Income 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Value Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Rising Dividends 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Diversified Mid-Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Managed Global 1.25% 0.00% 1.25%
- --------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Research 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Capital Appreciation 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Growth and Income 1.10% 0.01% 1.11%
- --------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
- --------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Special Situations 1.10% 0.01% 1.11%
- --------------------------------------------------------------------------------
Mid-Cap Growth 0.91% 0.00% 0.91%
- --------------------------------------------------------------------------------
Small Cap 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Growth 1.04% 0.00% 1.04%
- --------------------------------------------------------------------------------
Real Estate 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Hard Assets 0.96% 0.00% 0.96%
- --------------------------------------------------------------------------------
Developing World 1.75% 0.00% 1.75%
- --------------------------------------------------------------------------------
(1)Fees decline as the total assets of certain combined
portfolios increase. See the prospectus for the GCG Trust for
more information.
(2)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, 1999, except for (i)
portfolios that commenced operations in 2000 and (ii) newly
formed portfolios where the charges have been estimated.
(3)Total Expenses are based on actual expenses for the fiscal
year ended December 31, 1999.
PP4SF-108892 4
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1)
- --------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.50% 0.75%
PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65%
- --------------------------------------------------------------------------------
(1)PIMCO has contractually agreed to reduce total annual
portfolio operating expenses to the extent they would exceed,
due to the payment of organizational expenses and Trustees'
fees, 0.65% and 0.75% for the High Yield Bond and the
StocksPLUS Growth and Income Portfolios, respectively, of
average daily net assets. Without such reductions, total
annual operating expenses for the fiscal year ended December
31, 1999 would have remained unchanged for both Portfolios.
Under the Expense Limitation Agreement, PIMCO may recoup any
such waivers and reimbursements in future periods, not
exceeding three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit. The fees
expressed are restated as of April 1, 2000.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES(1)
- --------------------------------------------------------------------------------
International Equity 1.00% 0.32% 1.32%
- --------------------------------------------------------------------------------
(1) Total expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio):
- ------------------------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT 12B-1 FEE(3) EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1)(2) FEE WAIVER REIMBURSEMENT(1)(2) REIMBURSEMENT(1)(2)
- ------------------------------------------------------------------------------------------------------------
ING Global Brand Names 0.30% 0.15% 0.78% 1.23%
- ------------------------------------------------------------------------------------------------------------
(1)Since the portfolio had not commenced operations as of
December 31, 1999, expenses as shown are based on estimates of
the portfolio's operating expenses for the portfolio's first
fiscal year.
(2)ING Mutual Funds Management Co. LLC, the investment manager,
has entered into an expense limitation contract with the
portfolio, under which it will limit expenses of the portfolio
as shown, excluding interest, taxes, brokerage, and
extraordinary expenses through December 31, 2000. Fee waiver
and/or reimbursements by the investment manager may vary in
order to achieve such contractually obligated Total Expenses.
Without this contract, and based on estimates for the fiscal
year ending December 31, 2000, total expenses are estimated to
be 2.03% for the portfolio.
(3)Pursuant to a Plan of Distribution adopted by the portfolio
under Rule 12b-1 under the Investment Company Act of 1940, as
amended, the portfolio pays its distributor an annual fee of
up to 0.25% of average daily net assets attributable to
portfolio shares. The distribution fee may be used by the
distributor for the purpose of financing any activity which is
primarily intended to result in the sale of shares of the
portfolio. For more information see the portfolio's Statement
of Additional Information.
PP4SF-108892 5
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES(2) EXPENSE(2)
- --------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
- --------------------------------------------------------------------------------
SP Jennison International 0.85% 0.25% 0.54% 1.64%
Growth
- --------------------------------------------------------------------------------
(1)The 12b-1 fees for the Prudential Jennison Portfolio and the
SP Jennison International Growth Portfolio are imposed to
enable the portfolios to recover certain sales expenses,
including compensation to broker-dealers, the cost of printing
prospectuses for delivery to prospective investors and
advertising costs for the portfolio. Over a long period of
time, the total amount of 12b-1 fees paid may exceed the
amount of sales charges imposed by the product.
(2)Since the SP Jennison International Portfolio had not
commenced operations as of December 31, 1999, expenses as
shown are based on estimates of the portfolio's operating
expenses for the portfolio's first fiscal year.
The purpose of the foregoing tables is to help you understand the various
costs and expenses that you will bear directly and indirectly. See the
prospectuses of the GCG Trust, the PIMCO Variable Insurance Trust,
Warburg Pincus Trust, ING Variable Insurance Trust and the Prudential
Series Fund for additional information on management or advisory fees and
in some cases on other portfolio expenses.
Premium taxes (which currently range from 0% to 3.5% of premium payments)
may apply, but are not reflected in the tables above or in the examples
below.
EXAMPLES:
The following four examples are designed to show you the expenses you
would pay on a $1,000 investment, plus a credit of $40, that earns 5%
annually. Each example assumes election of the Max 7 Enhanced Death
Benefit. The examples reflect the deduction of a mortality and expense
risk charge, an asset-based administrative charge, and the annual
contract administrative charge as an annual charge of 0.05% of assets
(based on an average contract value of $77,000). In addition, Examples 1
and 2 assume you elected an optional benefit rider with the highest
charge 0.75% annually where the rider base is equal to the initial
premium and increases by 7% annually, and assume the rider charge is
assessed each quarter on a base equal to the hypothetical $1,000 premium
increasing at 7% per year (the assumed net rate for Liquid Asset and
Limited Maturity Bond portfolios). The annual charge of 0.75% results
from the assumption of a 7% annual increase in the rider base but only a
5% earnings increase in the contract value before expenses. Thus, 0.75%
represents an annual charge over the 10-year period which is equivalent
to an increasing charge of 0.125% per quarter over the same period.
Each example also assumes that any applicable expense reimbursements of
underlying portfolio expenses will continue for the periods shown. If
the Standard Death Benefit, the Annual Ratchet Enhanced Death Benefit or
7% Solution Enhanced Death Benefit is elected instead of the Max 7
Enhanced Death Benefit used in the examples, the actual expenses will be
less than those represented in the examples. Note that surrender charges
may apply if you choose to annuitize your Contract within the first 5
contract years, and under certain circumstances, within the first 9
contract years. Thus, in the event you annuitize your Contract under
circumstances which require a surrender charge, you should refer to
Examples 1 and 3 below which assume applicable surrender charges.
PP4SF-108892 6
Example 1:
If you surrender your Contract at the end of the applicable time period
and elected an optional benefit rider with the highest charge, you would
pay the following expenses for each $1,000 invested:
--------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------
THE GCG TRUST
Liquid Asset $114 $184 $247 $370
--------------------------------------------------------------
Limited Maturity Bond $114 $185 $248 $371
--------------------------------------------------------------
Global Fixed Income $125 $216 $298 $463
--------------------------------------------------------------
Fully Managed $118 $197 $267 $408
--------------------------------------------------------------
Total Return $118 $195 $264 $403
--------------------------------------------------------------
Asset Allocation $119 $198 $269 $412
--------------------------------------------------------------
Equity Income $118 $197 $267 $407
--------------------------------------------------------------
Investors $119 $198 $269 $412
--------------------------------------------------------------
Value Equity $118 $197 $267 $407
--------------------------------------------------------------
Rising Dividends $118 $197 $267 $407
--------------------------------------------------------------
Diversified Mid-Cap $119 $198 $269 $412
--------------------------------------------------------------
Managed Global $121 $205 $281 $433
--------------------------------------------------------------
Large Cap Value $119 $198 $269 $412
--------------------------------------------------------------
All Cap $119 $198 $269 $412
--------------------------------------------------------------
Research $118 $195 $264 $403
--------------------------------------------------------------
Capital Appreciation $118 $197 $267 $407
--------------------------------------------------------------
Growth and Income $120 $201 $274 $421
--------------------------------------------------------------
Capital Growth $119 $199 $271 $415
--------------------------------------------------------------
Strategic Equity $118 $197 $267 $407
--------------------------------------------------------------
Special Situations $120 $201 $274 $421
--------------------------------------------------------------
Mid-Cap Growth $118 $195 $264 $403
--------------------------------------------------------------
Small Cap $118 $197 $267 $407
--------------------------------------------------------------
Growth $119 $199 $271 $414
--------------------------------------------------------------
Real Estate $118 $197 $267 $407
--------------------------------------------------------------
Hard Assets $118 $197 $267 $407
--------------------------------------------------------------
Developing World $126 $220 $305 $476
--------------------------------------------------------------
THE PIMCO TRUST
PIMCO High Yield Bond $116 $190 $256 $388
--------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $115 $187 $252 $379
--------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $122 $207 $284 $439
--------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $121 $205 $280 $431
--------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $119 $199 $270 $413
--------------------------------------------------------------
SP Jennison
International Growth $125 $217 $299 $467
--------------------------------------------------------------
PP4SF-108892 7
Example 2:
If you do not surrender your Contract at the end of the applicable time
period and elected an optional benefit rider with the highest charge, you
would pay the following expenses for each $1,000 invested:
--------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------
THE GCG TRUST
Liquid Asset $34 $104 $177 $370
--------------------------------------------------------------
Limited Maturity Bond $34 $105 $178 $371
--------------------------------------------------------------
Global Fixed Income $45 $136 $228 $463
--------------------------------------------------------------
Fully Managed $38 $117 $197 $408
--------------------------------------------------------------
Total Return $38 $115 $194 $403
--------------------------------------------------------------
Asset Allocation $39 $118 $199 $412
--------------------------------------------------------------
Equity Income $38 $117 $197 $407
--------------------------------------------------------------
Investors $39 $118 $199 $412
--------------------------------------------------------------
Value Equity $38 $117 $197 $407
--------------------------------------------------------------
Rising Dividends $38 $117 $197 $407
--------------------------------------------------------------
Diversified Mid-Cap $39 $118 $199 $412
--------------------------------------------------------------
Managed Global $41 $125 $211 $433
--------------------------------------------------------------
Large Cap Value $39 $118 $199 $412
--------------------------------------------------------------
All Cap $39 $118 $199 $412
--------------------------------------------------------------
Research $38 $115 $194 $403
--------------------------------------------------------------
Capital Appreciation $38 $117 $197 $407
--------------------------------------------------------------
Growth and Income $40 $121 $204 $421
--------------------------------------------------------------
Capital Growth $39 $119 $201 $415
--------------------------------------------------------------
Strategic Equity $38 $117 $197 $407
--------------------------------------------------------------
Special Situations $40 $121 $204 $421
--------------------------------------------------------------
Mid-Cap Growth $38 $115 $194 $403
--------------------------------------------------------------
Small Cap $38 $117 $197 $407
--------------------------------------------------------------
Growth $39 $119 $201 $414
--------------------------------------------------------------
Real Estate $38 $117 $197 $407
--------------------------------------------------------------
Hard Assets $38 $117 $197 $407
--------------------------------------------------------------
Developing World $46 $140 $235 $476
--------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $36 $110 $186 $388
--------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $35 $107 $182 $379
--------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $42 $127 $214 $439
--------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $41 $125 $210 $431
--------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $39 $119 $200 $413
--------------------------------------------------------------
SP Jennison
International Growth $45 $137 $229 $467
--------------------------------------------------------------
PP4SF-108892 8
Example 3:
If you surrender your Contract at the end of the applicable time period
and did not elect any optional benefit rider, you would pay the following
expenses for each $1,000 invested:
--------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------
THE GCG TRUST
Liquid Asset $106 $161 $209 $296
--------------------------------------------------------------
Limited Maturity Bond $107 $162 $209 $297
--------------------------------------------------------------
Global Fixed Income $117 $193 $261 $397
--------------------------------------------------------------
Fully Managed $111 $174 $230 $337
--------------------------------------------------------------
Total Return $110 $172 $227 $331
--------------------------------------------------------------
Asset Allocation $111 $175 $232 $341
--------------------------------------------------------------
Equity Income $111 $174 $229 $336
--------------------------------------------------------------
Investors $111 $175 $232 $341
--------------------------------------------------------------
Value Equity $111 $174 $229 $336
--------------------------------------------------------------
Rising Dividends $111 $174 $229 $336
--------------------------------------------------------------
Diversified Mid-Cap $111 $175 $232 $341
--------------------------------------------------------------
Managed Global $114 $183 $244 $364
--------------------------------------------------------------
Large Cap Value $111 $175 $232 $341
--------------------------------------------------------------
All Cap $111 $175 $232 $341
--------------------------------------------------------------
Research $110 $172 $227 $331
--------------------------------------------------------------
Capital Appreciation $111 $174 $229 $336
--------------------------------------------------------------
Growth and Income $112 $178 $237 $351
--------------------------------------------------------------
Capital Growth $112 $176 $234 $345
--------------------------------------------------------------
Strategic Equity $111 $174 $229 $336
--------------------------------------------------------------
Special Situations $112 $178 $237 $351
--------------------------------------------------------------
Mid-Cap Growth $110 $172 $227 $331
--------------------------------------------------------------
Small Cap $111 $174 $229 $336
--------------------------------------------------------------
Growth $111 $176 $233 $344
--------------------------------------------------------------
Real Estate $111 $174 $229 $336
--------------------------------------------------------------
Hard Assets $111 $174 $229 $336
--------------------------------------------------------------
Developing World $119 $198 $269 $411
--------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $108 $167 $219 $315
--------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $107 $164 $214 $305
--------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $114 $185 $248 $371
--------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $113 $182 $243 $362
--------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $111 $176 $233 $343
--------------------------------------------------------------
SP Jennison
International Growth $118 $194 $263 $401
--------------------------------------------------------------
PP4SF-108892 9
Example 4:
If you do not surrender your Contract at the end of the applicable time
period and did not elect any optional benefit rider, you would pay the
following expenses for each $1,000 invested:
--------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------
THE GCG TRUST
Liquid Asset $26 $ 81 $139 $296
--------------------------------------------------------------
Limited Maturity Bond $27 $ 82 $139 $297
--------------------------------------------------------------
Global Fixed Income $37 $113 $191 $397
--------------------------------------------------------------
Fully Managed $31 $ 94 $160 $337
--------------------------------------------------------------
Total Return $30 $ 92 $157 $331
--------------------------------------------------------------
Asset Allocation $31 $ 95 $162 $341
--------------------------------------------------------------
Equity Income $31 $ 94 $159 $336
--------------------------------------------------------------
Investors $31 $ 95 $162 $341
--------------------------------------------------------------
Value Equity $31 $ 94 $159 $336
--------------------------------------------------------------
Rising Dividends $31 $ 94 $159 $336
--------------------------------------------------------------
Diversified Mid-Cap $31 $ 95 $162 $341
--------------------------------------------------------------
Managed Global $34 $103 $174 $364
--------------------------------------------------------------
Large Cap Value $31 $ 95 $162 $341
--------------------------------------------------------------
All Cap $31 $ 95 $162 $341
--------------------------------------------------------------
Research $30 $ 92 $157 $331
--------------------------------------------------------------
Capital Appreciation $31 $ 94 $159 $336
--------------------------------------------------------------
Growth and Income $32 $ 98 $167 $351
--------------------------------------------------------------
Capital Growth $32 $ 96 $164 $345
--------------------------------------------------------------
Strategic Equity $31 $ 94 $159 $336
--------------------------------------------------------------
Special Situations $32 $ 98 $167 $351
--------------------------------------------------------------
Mid-Cap Growth $30 $ 92 $157 $331
--------------------------------------------------------------
Small Cap $31 $ 94 $159 $336
--------------------------------------------------------------
Growth $31 $ 96 $163 $344
--------------------------------------------------------------
Real Estate $31 $ 94 $159 $336
--------------------------------------------------------------
Hard Assets $31 $ 94 $159 $336
--------------------------------------------------------------
Developing World $39 $118 $199 $411
--------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $28 $ 87 $149 $315
--------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $27 $ 84 $144 $305
--------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $34 $105 $178 $371
--------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $33 $102 $173 $362
--------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $31 $ 96 $163 $343
--------------------------------------------------------------
SP Jennison
International Growth $38 $114 $193 $401
--------------------------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN
SUBJECT TO THE TERMS OF YOUR CONTRACT.
PP4SF-108892 10
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each
subaccount of Separate Account B has its own accumulation unit value. The
accumulation units are valued each business day that the New York Stock
Exchange is open for trading. Their values may increase or decrease from
day to day according to a Net Investment Factor, which is primarily based
on the investment performance of the applicable investment portfolio.
Shares in the investment portfolios are valued at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain
charges under the Contract and the investment performance of the
subaccount. The Net Investment Factor is calculated for each subaccount
as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
2) We add to (1) the amount of any dividend or capital gains
distribution declared for the subaccount and reinvested in such
subaccount. We subtract from that amount a charge for our taxes,
if any.
3) We divide (2) by the net asset value of the subaccount at the end
of the preceding business day.
4) We then subtract the applicable daily mortality and expense risk
charge and the daily asset-based administrative charge from the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each
subaccount of Golden American Separate Account B offered in this
prospectus and (ii) the total investment value history of each such
subaccount are presented in Appendix A Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 1999 are included in the Statement of Additional
Information. The unaudited consolidated financial statements of Golden
American for the nine months ended September 30, 2000 and audited consolidated
financial statements of Golden American for the years ended December 31,
1999, 1998 and 1997 are included in this prospectus.
PERFORMANCE INFORMATION
From time to time, we may advertise or include in reports to contract
owners performance information for the subaccounts of Separate Account B,
including the average annual total return performance, yields and other
nonstandard measures of performance. Such performance data will be
computed, or accompanied by performance data computed, in accordance with
standards defined by the SEC.
Except for the Liquid Asset subaccount, quotations of yield for the
subaccounts will be based on all investment income per unit (contract
value divided by the accumulation unit) earned during a given 30-day
period, less expenses accrued during such period. Information on
standard total average annual return performance will include average
annual rates of total return for 1, 5 and 10 year periods, or lesser
periods depending on how long Separate Account B has been investing in
the portfolio. We may show other total returns for periods of less than
one year. Total return figures will be based on the actual historic
performance of the subaccounts of Separate Account B, assuming an
investment at the beginning of the period when the separate account first
invested in the portfolios, withdrawal of the investment at the end of
the period, adjusted to reflect the deduction of all applicable portfolio
and current contract charges. We may also show rates of total return on
amounts invested at the beginning of the period with no withdrawal at the
end of the period. Total return figures which assume no withdrawals at
the end of the period will reflect all recurring charges, but will not
reflect the surrender charge. Quotations of average annual return for
the
PP4SF-108892 11
Managed Global subaccount take into account the period before
September 3, 1996, during which it was maintained as a subaccount of
Golden American Separate Account D. In addition, we may present historic
performance data for the investment portfolios since their inception
reduced by some or all of the fees and charges under the Contract. Such
adjusted historic performance includes data that precedes the inception
dates of the subaccounts of Separate Account B. This data is designed to
show the performance that would have resulted if the Contract had been in
existence before the separate account began investing in the portfolios.
Current yield for the Liquid Asset subaccount is based on income received
by a hypothetical investment over a given 7-day period, less expenses
accrued, and then "annualized" (i.e., assuming that the 7-day yield would
be received for 52 weeks). We calculate "effective yield" for the Liquid
Asset subaccount in a manner similar to that used to calculate yield, but
when annualized, the income earned by the investment is assumed to be
reinvested. The "effective yield" will thus be slightly higher than the
"yield" because of the compounding effect of earnings. We calculate
quotations of yield for the remaining subaccounts on all investment
income per accumulation unit earned during a given 30-day period, after
subtracting fees and expenses accrued during the period, assuming no
surrender and the selection of the Max 7 Enhanced Death Benefit and the
MGIB optional benefit rider.
We may compare performance information for a subaccount to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue
Money Market Institutional Averages, or any other applicable market
indices, (ii) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services (a widely used
independent research firm which ranks mutual funds and other investment
companies), or any other rating service, and (iii) the Consumer Price
Index (measure for inflation) to determine the real rate of return of an
investment in the Contract. Our reports and promotional literature may
also contain other information including the ranking of any subaccount
based on rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services or by similar
rating services.
Performance information reflects only the performance of a hypothetical
contract and should be considered in light of other factors, including
the investment objective of the investment portfolio and market
conditions. Please keep in mind that past performance is not a guarantee
of future results.
- --------------------------------------------------------------------------------
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 based in The Netherlands. 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,
which is authorized to sell annuities in New York and Delaware. Golden
American's consolidated financial statements appear in this prospectus.
Equitable of Iowa is the holding company for Golden American, Directed
Services, Inc., 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, a portfolio
manager of the GCG Trust. ING also owns Baring International Investment
Limited, another portfolio manager of the GCG Trust and ING Investment
Management Advisors B.V., a portfolio manager of the ING Variable
Insurance Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
PP4SF-108892 12
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate
accounts funding variable annuity and variable life insurance policies
offered by Golden American and other affiliated insurance companies. The
GCG Trust may also sell its shares to separate accounts of insurance
companies not affiliated with Golden American. Pending SEC approval,
shares of the GCG Trust may also be sold to certain qualified pension and
retirement plans. The address of the GCG Trust is 1475 Dunwoody Drive,
West Chester, PA 19380.
The PIMCO Variable Insurance Trust is also a mutual fund whose shares are
available to separate accounts of insurance companies, including Golden
American, for both variable annuity contracts and variable life insurance
policies and to qualified pension and retirement plans. The address of
the PIMCO Variable Insurance Trust is 840 Newport Center Drive, Suite
300, Newport Beach, CA 92660.
The Warburg Pincus Trust is also a mutual fund whose shares are available
to separate accounts of life insurance companies, including Golden
American and Equitable Life Insurance Company of Iowa, and to certain
qualified and retirement plans. The address of the Warburg Pincus Trust
is 153 East 53rd Street, New York, NY 10022.
ING Variable Insurance Trust is also a mutual fund whose shares are
offered to separate accounts funding variable annuity contracts offered
by Golden American. Pending SEC approval, shares of ING Variable
Insurance Trust may also be sold to variable annuity and variable life
insurance policies offered by other insurance companies, both affiliated
and unaffiliated with Golden American. The address of ING Variable
Insurance Trust is 1475 Dunwoody Drive, West Chester, PA 19380.
The Prudential Series Fund, Inc. is also a mutual fund whose shares are
available to separate accounts funding variable annuity and variable life
insurance polices offered by The Prudential Insurance Company of America,
its affiliated insurers and other life insurance companies not affiliated
with Prudential, including Golden American. The address of the
Prudential Series Fund is 751 Broad Street, Newark, NJ 07102.
In the event that, due to differences in tax treatment or other
considerations, the interests of contract owners of various contracts
participating in the Trusts conflict, we, the Boards of Trustees of the
GCG Trust, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust,
and the ING Variable Insurance Trust, the Board of Directors of the
Prudential Series Fund, and the management of Directed Services, Inc.,
Pacific Investment Management Company, Credit Suisse Asset Management,
LLC, ING Mutual Funds Management Co. LLC, The Prudential Insurance
Company of America and any other insurance companies participating in the
Trusts will monitor events to identify and resolve any material conflicts
that may arise.
YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, THE PIMCO
VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE
INSURANCE TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING
PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE
INVESTING.
- --------------------------------------------------------------------------------
GOLDEN AMERICAN SEPARATE ACCOUNT B
- --------------------------------------------------------------------------------
Golden American Separate Account B ("Separate Account B") was established
as a separate account of the Company on July 14, 1988. It is registered
with the SEC as a unit investment trust under the Investment Company Act
of 1940 as amended (the "1940 Act"). Separate Account B is a separate
investment account used for our variable annuity contracts. We own all
the assets in Separate Account B but such assets are kept separate from
our other accounts.
Separate Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust, the
PIMCO Variable Insurance Trust, the Warburg Pincus Trust, the ING
Variable Insurance Trust or the Prudential Series Fund. Each investment
portfolio has its own distinct investment objectives and policies.
Income, gains and losses, realized or unrealized, of a portfolio are
credited to or charged against the corresponding subaccount of Separate
Account B without regard to any
PP4SF-108892 13
other income, gains or losses of the Company. Assets equal to the reserves
and other contract liabilities with respect to each are not chargeable with
liabilities arising out of any other business of the Company. They may,
however, be subject to liabilities arising from subaccounts whose assets
we attribute to other variable annuity contracts supported by Separate
Account B. If the assets in Separate Account B exceed the required reserves
and other liabilities, we may transfer the excess to our general account.
We are obligated to pay all benefits and make all payments provided under
the Contracts.
We currently offer other variable annuity contracts that invest in
Separate Account B but are not discussed in this prospectus. Separate
Account B may also invest in other investment portfolios which are not
available under your Contract. Under certain circumstances, we may make
certain changes to the subaccounts. For more information, see "The
Annuity Contract -- Addition, Deletion, or Substitution of Subaccounts
and Other Changes."
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section
below. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO
ANY INVESTMENT PORTFOLIO, AND YOU MAY LOSE YOUR PRINCIPAL.
INVESTMENT OBJECTIVES
The investment objective of each investment portfolio is set forth below.
You should understand that there is no guarantee that any portfolio will
meet its investment objectives. Meeting objectives depends on various
factors, including, in certain cases, how well the portfolio managers
anticipate changing economic and market conditions. Separate Account B
also has other subaccounts investing in other portfolios which are not
available to the Contract described in this prospectus. YOU CAN FIND
MORE DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE
PROSPECTUSES FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE TRUST, THE
WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL
SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset 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
instrumentalities, bank obligations,
commercial paper and short-term corporate
debt securities. All securities will
mature in less than one year.
--------------------------------------------------------
Limited Maturity Seeks highest current income consistent
Bond 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 Seeks high total return.
Invests primarily in high-grade fixed
income securities, both foreign and
domestic.
--------------------------------------------------------
PP4SF-108892 14
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Fully Managed 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.
--------------------------------------------------------
Total Return Seeks above-average income (compared to a
portfolio entirely invested in equity
securities) consistent with the prudent
employment of capital. Growth of capital
and income is a secondary goal.
Invests primarily in a combination of
equity and fixed income securities.
--------------------------------------------------------
Asset Allocation Seeks to maximize total return over the
Growth long- term by allocating assets among
stocks, bonds, short-term instruments and
other investments.
Allocates investments primarily in a
neutral mix over time of 70% of its assets
in stocks, 25% of its assets in bonds, and
5% of its assets in short-term and money
market investments.
--------------------------------------------------------
Equity Income 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.
--------------------------------------------------------
Investors Seeks long-term growth of capital. Current
income is a secondary objective.
Invests primarily in equity securities of
U.S. companies and to a lesser degree,
debt securities.
--------------------------------------------------------
Value Equity 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.
--------------------------------------------------------
Rising Dividends 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."
--------------------------------------------------------
Diversified Mid-Cap Seeks long-term capital growth.
Normally invests at least 65% of its total
assets in common stocks of companies with
medium market capitalizations.
--------------------------------------------------------
Managed Global Seeks capital appreciation. Current income
is only an incidental consideration.
Invests primarily in common stocks traded
in securities markets throughout the world.
--------------------------------------------------------
Large Cap Value Seeks long-term growth of capital and
income.
Invests primarily in equity and equity-
related securities of companies with market
capitalization greater than $1 billion.
--------------------------------------------------------
All Cap Seeks capital appreciation through
investment in securities which the
portfolio manager believes have above-
average capital appreciation potential.
Invests primarily in equity securities of
U.S. companies of any size.
--------------------------------------------------------
PP4SF-108892 15
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Research 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.
--------------------------------------------------------
Capital Seeks long-term capital growth.
Appreciation
Invests primarily in equity securities
believed by the portfolio manager to be
undervalued.
--------------------------------------------------------
Growth and Income Seeks long-term capital growth and current
income.
Normally invests up to 75% of its assets in
equity securities selected primarily for
their growth potential and at least 25% of
its assets in securities the portfolio
manager believes have income potential.
--------------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of
companies where the potential for change
(earnings acceleration) is significant.
--------------------------------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks of
medium- and small-sized companies.
--------------------------------------------------------
Special Situations Seeks capital appreciation.
Invests primarily in common stocks selected
for their capital appreciation potential.
The Portfolio emphasizes "special
situation" companies that the portfolio
manager believes have been overlooked or
undervalued by other investors.
--------------------------------------------------------
Mid-Cap Growth 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.
--------------------------------------------------------
Small Cap 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.
--------------------------------------------------------
Growth 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.
--------------------------------------------------------
Real Estate Seeks capital appreciation. Current income
is a secondary objective.
Invests primarily in publicly traded real
estate equity securities.
--------------------------------------------------------
Hard Assets 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.
--------------------------------------------------------
PP4SF-108892 16
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of
companies in developing or emerging
countries.
--------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Seeks to maximize total return, consistent
Bond with preservation of capital and prudent
investment management.
Invests 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 Seeks to achieve a total return which
Growth and Income exceeds the total return performance of the
S&P 500.
Invests primarily in common stocks,
options, futures, options on futures and
swaps.
--------------------------------------------------------
THE WARBURG PINCUS TRUST
International Seeks long-term appreciation.
Equity
Invests primarily in a broadly diversified
portfolio of equity securities of companies
that have their principal business
activities outside of the United States.
--------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Seeks to provide investors with long-term
Names Fund capital appreciation.
Invests at least 65% of its total assets in
equity securities of companies that have a
well recognized franchise, a global
presence and derive most of their revenues
from sales of consumer goods.
--------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have
shown growth in earnings and sales, high
return on equity and assets or other strong
financial data and are also attractively
valued in the opinion of the manager.
Dividend income from investments will be
incidental.
--------------------------------------------------------
SP Jennison Seeks long-term growth of capital.
International Growth
Invests primarily in equity-related
securities of issuers located in at least
five different foreign countries.
--------------------------------------------------------
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio
of the GCG Trust. The GCG Trust pays Directed Services a monthly fee for
its investment advisory and management services. The monthly fee is
based on the average daily net assets of an investment portfolio, and in
some cases, the combined total assets of certain grouped portfolios.
Directed Services provides or procures, at its own expense, the services
necessary for the operation of the portfolio, including retaining
portfolio managers to manage the assets of the various portfolios.
Directed Services (and not the GCG Trust) pays each portfolio manager a
monthly fee for managing the assets of a portfolio, based on the annual
rates of the average daily net assets of a portfolio. For a list of the
portfolio managers, see the front cover of this prospectus. Directed
Services does not bear
PP4SF-108892 17
the expense of brokerage fees and other transactional expenses for securities,
taxes (if any) paid by a portfolio, interest on borrowing, fees and expenses
of the independent trustees, and extraordinary expenses, such as litigation or
indemnification expenses.
Pacific Investment Management Company ("PIMCO") serves as investment
advisor to each portfolio of the PIMCO Variable Insurance Trust. PIMCO
provides the overall business management and administrative services
necessary for each portfolio's operation. PIMCO provides or procures, at
its own expense, the services and information necessary for the proper
conduct of business and ordinary operation of each portfolio. The PIMCO
Variable Insurance Trust pays PIMCO a monthly advisory fee and a separate
monthly administrative fee per year, each fee based on the average daily
net assets of each of the investment portfolios, for managing the assets
of the portfolios and for administering the PIMCO Variable Insurance
Trust. PIMCO does not bear the expense of brokerage fees and other
transactional expenses for securities, taxes (if any) paid by a
portfolio, interest on borrowing, fees and expense of the independent
trustees, and extraordinary expenses, such as litigation or
indemnification expenses.
Credit Suisse Asset Management, LLC serves as the investment advisor of
the Warburg Pincus Trust. The Warburg Trust pays Credit Suisse Asset
Management a monthly advisory fee based on the average daily net assets
of the investment portfolio and also procures the services necessary for
the operation of its portfolios. The Warburg Trust pays monthly
administrative fees to two co-administrators for administrative services,
one of which is an affiliate of Credit Suisse Asset Management. The
monthly administrative fee is based on the portfolio's average daily net
assets. Credit Suisse Asset Management does not bear any portfolio
expenses.
ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall
manager of ING Variable Insurance Trust. ING MFMC supervises all aspects
of the Trust's operations and provides investment advisory services to
the portfolios of the Trust, including engaging portfolio managers, as
well as monitoring and evaluating the management of the assets of each
portfolio by its portfolio manager. ING MFMC, as well as each portfolio
manager it engages, is a wholly owned indirect subsidiary of ING Groep
N.V.
The Prudential Insurance Company of America ("Prudential") and its
subsidiary, Prudential Investments Fund Management LLC ("PIFM") serve as
the overall investment advisers to the Prudential Series Fund.
Prudential and PIFM are responsible for the management of the Prudential
Series Fund and provide investment advice and related services. For the
Prudential Jennison Portfolio and SP Jennison International Growth
Portfolio, Prudential and PIFM engage Jennison Associates LLC to serve as
sub-adviser and to provide day-to-day management. Prudential and PIFM
pay the sub-adviser out of the fee they receive from the Prudential
Series Fund.
Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. In addition, three
portfolios deduct a distribution or 12b-1 fee, which is used to finance
any activity that is primarily intended to result in the sale of shares
of the applicable portfolio. For 1999, total portfolio fees and charges
ranged from 0.56% to 1.75%. See "Fees and Expenses" in this prospectus.
We may receive compensation from the investment advisors, administrators
and distributors or directly from the portfolios in connection with
administrative, distribution or other services and cost savings
attributable to our services. It is anticipated that such compensation
will be based on assets of the particular portfolios attributable to the
Contract. The compensation paid by advisors, administrators or
distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
RESTRICTED FUNDS
We may designate any investment option as a Restricted Fund and limit the
amount you may allocate or transfer to a Restricted Fund. We may
establish any such limitation, at our discretion, as a percentage of
premium or contract value or as a specified dollar amount and change the
limitation at any time. Currently, we have not designated any investment
option as a Restricted Fund. We may, with 30 days notice to you,
designate any investment portfolio as a Restricted Fund or change the
limitations on existing contracts with
PP4SF-108892 18
respect to new premiums added to such investment portfolio and also with
respect to new transfers to such investment portfolio. If a change is
made with regard to designation as a Restricted Fund or applicable
limitations, such change will apply only to transactions effected after
such change.
We limit your investment in the Restricted Funds on both an aggregate
basis for all Restricted Funds and for each individual Restricted Fund.
The aggregate limits for investment in all Restricted Funds are expressed
as a percentage of contract value, percentage of premium and maximum
dollar amount. Currently, your investment in two or more Restricted
Funds would be subject to each of the following three limitations: no
more than 30 percent of contract value, up to 100 percent of each premium
and no more than $999,999,999. We may change these limits, in our
discretion, for new contracts, premiums, transfers or withdrawals.
We also limit your investment in each individual Restricted Fund. The
limits for investment in each Restricted Fund are expressed as a
percentage of contract value, percentage of premium and maximum dollar
amount. Currently, the limits for investment in an individual Restricted
Fund are the same as the aggregate limits set forth above. We may change
these limits, in our discretion, for new contracts, premiums, transfers
or withdrawals.
We monitor the aggregate and individual limits on investments in
Restricted Funds for each transaction (e.g. premium payments,
reallocations, withdrawals, dollar cost averaging). If the contract
value in the Restricted Fund has increased beyond the applicable limit
due to market growth, we will not require the reallocation or withdrawal
of contract value from the Restricted Fund. However, if an aggregate
limit has been exceeded, withdrawals must be taken either from the
Restricted Funds or taken pro-rata from all investment options in which
contract value is allocated, so that the percentage of contract value in
the Restricted Funds following the withdrawal is less than or equal to
the percentage of contract value in the Restricted Funds prior to the
withdrawal.
We will not permit a transfer to the Restricted Funds to the extent that
it would increase the contract value in the Restricted Fund or in all
Restricted Funds to more than the applicable limits set forth above. We
will not limit transfers from Restricted Funds. If the result of
multiple reallocations is to lower the percentage of total contract value
in Restricted Funds, the reallocation will be permitted even if the
percentage of contract value in a Restricted Fund is greater than its
limit.
Please see "Withdrawals" and "Transfers Among Your Investments" in this
prospectus for more information on the effect of Restricted Funds.
- --------------------------------------------------------------------------------
THE FIXED INTEREST ALLOCATION
- --------------------------------------------------------------------------------
You may allocate premium payments and transfer your contract value to the
guaranteed interest periods of our Fixed Account at any time during the
accumulation period. Every time you allocate money to the Fixed Account,
we set up a Fixed Interest Allocation for the guaranteed interest period
you select. We currently offer guaranteed interest periods of 6 months,
1, 3, 5, 7 and 10 years, although we may not offer all these periods in
the future. You may select one or more guaranteed interest periods at any
one time. We will credit your Fixed Interest Allocation with a
guaranteed interest rate for the interest period you select, so long as
you do not withdraw money from that Fixed Interest Allocation before the
end of the guaranteed interest period. Each guaranteed interest period
ends on its maturity date which is the last day of the month in which the
interest period is scheduled to expire.
If you surrender, withdraw, transfer or annuitize your investment in a
Fixed Interest Allocation more than 30 days before the end of the
guaranteed interest period, we will apply a Market Value Adjustment to
the transaction. A Market Value Adjustment could increase or decrease
the amount you surrender, withdraw, transfer or annuitize, depending on
current interest rates at the time of the transaction. YOU BEAR THE RISK
THAT YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF WE APPLY A MARKET VALUE
ADJUSTMENT.
Assets supporting amounts allocated to the Fixed Account are available to
fund the claims of all classes of our customer, contract owners and other
creditors. Interests under your Contract relating to the Fixed
PP4SF-108892 19
Account are registered under the Securities Act of 1933, but the Fixed
Account is not registered under the 1940 Act.
SELECTING A GUARANTEED INTEREST PERIOD
You may select one or more Fixed Interest Allocations with specified
guaranteed interest periods. A guaranteed interest period is the period
that a rate of interest is guaranteed to be credited to your Fixed
Interest Allocation. We may at any time decrease or increase the number
of guaranteed interest periods offered. In addition, we may offer DCA
Fixed Interest Allocations, which are 6-month and 1-year Fixed Interest
Allocations available exclusively in connection with our dollar cost
averaging program. For more information on DCA Fixed Interest
Allocations, see "Transfers Among Your Investments -- Dollar Cost
Averaging."
Your contract value in the Fixed Account is the sum of your Fixed
Interest Allocations and the interest credited as adjusted for any
withdrawals (including any Market Value Adjustment applied to such
withdrawal), transfers or other charges we may impose. Your Fixed
Interest Allocation will be credited with the guaranteed interest rate in
effect for the guaranteed interest period you selected when we receive
and accept your premium or reallocation of contract value. We will
credit interest daily at a rate which yields the quoted guaranteed
interest rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is
guaranteed as long as you do not take your money out until its maturity
date. We do not have a specific formula for establishing the guaranteed
interest rates for the different guaranteed interest periods. We
determine guaranteed interest rates at our sole discretion. To find out
the current guaranteed interest rate for a guaranteed interest period you
are interested in, please contact our Customer Service Center or your
registered representative. The determination may be influenced by the
interest rates on fixed income investments in which we may invest with
the amounts we receive under the Contracts. We will invest these amounts
primarily in investment-grade fixed income securities (i.e., rated by
Standard & Poor's rating system to be suitable for prudent investors)
although we are not obligated to invest according to any particular
strategy, except as may be required by applicable law. You will have no
direct or indirect interest in these investments. We will also consider
other factors in determining the guaranteed interest rates, including
regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We
cannot predict the level of future interest rates but no Fixed Interest
Allocation will ever have a guaranteed interest rate of less than 3% per
year.
We may from time to time at our discretion offer interest rate specials
for new premiums that are higher than the current base interest rate then
offered. Renewal rates for such rate specials will be based on the base
interest rate and not on the special rates initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to
one or more new Fixed Interest Allocations with new guaranteed interest
periods, or to any of the subaccounts of Separate Account B. We will
transfer amounts from your Fixed Interest Allocations starting with the
guaranteed interest period nearest its maturity date until we have
honored your transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract
value remaining in a Fixed Interest Allocation to less than $100, we will
treat such transfer request as a request to transfer the entire contract
value in such Fixed Interest Allocation. Transfers from a Fixed Interest
Allocation may be subject to a Market Value Adjustment. If you have a
special Fixed Interest Allocation that was offered exclusively with our
dollar cost averaging program, cancelling dollar cost averaging will
cause a transfer of the entire contract value in such Fixed Interest
Allocation to the Liquid Asset subaccount, and such a transfer will be
subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer
amounts from the applicable Fixed Interest Allocation to the subaccounts
and/or to new Fixed Interest Allocations with guaranteed interest
PP4SF-108892 20
periods of any length we are offering at that time. You may not, however,
transfer amounts to any Fixed Interest Allocation with a guaranteed
interest period that extends beyond the annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed
Interest Allocations, or earlier if required by state law, we will send
you a notice of the guaranteed interest periods that are available. You
must notify us which subaccounts or new guaranteed interest periods you
have selected before the maturity date of your Fixed Interest
Allocations. If we do not receive timely instructions from you, we will
transfer the contract value in the maturing Fixed Interest Allocation to
a new Fixed Interest Allocation with a guaranteed interest period that is
the same as the expiring guaranteed interest period. If such guaranteed
interest period is not available or would go beyond the annuity start
date, we will transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does not
go beyond the annuity start date. If no such guaranteed interest period
is available, we will transfer the contract value to a subaccount
specially designated by the Company for such purpose. Currently we use
the Liquid Asset subaccount for such purpose.
Please be aware that the benefit we pay under certain optional benefit
riders will be adjusted by any transfers you make to and from the Fixed
Interest Allocations during specified periods while the rider is in
effect. See "Optional Riders."
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your
contract value in any Fixed Interest Allocation. You may make systematic
withdrawals of only the interest earned during the prior month, quarter
or year, depending on the frequency chosen, from a Fixed Interest
Allocation under our systematic withdrawal option. Systematic
withdrawals from a Fixed Interest Allocation are not permitted if such
Fixed Interest Allocation is currently participating in the dollar cost
averaging program. A withdrawal from a Fixed Interest Allocation may be
subject to a Market Value Adjustment and, in some cases, a surrender
charge. Be aware that withdrawals may have federal income tax
consequences, including a 10% penalty tax, as well as state income tax
consequences.
If you tell us the Fixed Interest Allocation from which your withdrawal
will be made, we will assess the withdrawal against that Fixed Interest
Allocation. If you do not, we will assess your withdrawal against the
subaccounts in which you are invested, unless the withdrawal exceeds the
contract value in the subaccounts. If there is no contract value in
those subaccounts, we will deduct your withdrawal from your Fixed
Interest Allocations starting with the guaranteed interest periods
nearest their maturity dates until we have honored your request.
Please be aware that the benefit we pay under any of the optional riders
will be reduced by any withdrawals you make from the Fixed Interest
Allocations during the period while the rider is in effect. See
"Optional Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on
your contract value. We will apply a Market Value Adjustment (i)
whenever you withdraw or transfer money from a Fixed Interest Allocation
(unless made within 30 days before the maturity date of the applicable
guaranteed interest period, or under the systematic withdrawal or dollar
cost averaging program) and (ii) if on the annuity start date a
guaranteed interest period for any Fixed Interest Allocation does not end
on or within 30 days of the annuity start date.
We determine the Market Value Adjustment by multiplying the amount you
withdraw, transfer or apply to an income plan by the following factor:
N/365
((1+I)/(1+J+.0050)) -1
PP4SF-108892 21
Where,
o "I" is the Index Rate for a Fixed Interest Allocation on the
first day of the guaranteed interest period;
o "J" is equal to the following:
(1) If calculated for a Fixed Interest Allocation of 1 year or
more, then "J" is the Index Rate for a new Fixed Interest
Allocation with a guaranteed interest period equal to the
time remaining (rounded up to the next full year except in
Pennsylvania) in the guaranteed interest period;
(2) If calculated for a Fixed Interest Allocation of 6 months,
then "J" is the lesser of the Index Rate for a new Fixed
Interest Allocation with (i) a 6 month guaranteed interest
period, or (ii) a 1 year guaranteed interest period, at the
time of calculation; and
o "N" is the remaining number of days in the guaranteed interest
period at the time of calculation.
The Index Rate is the average of the Ask Yields for U.S. Treasury Strips
as quoted by a national quoting service for a period equal to the
applicable guaranteed interest period. The average currently is based on
the period starting from the 22nd day of the calendar month two months
prior to the month of the Index Rate determination and ending the 21st
day of the calendar month immediately before the month of determination.
We currently calculate the Index Rate once each calendar month but have
the right to calculate it more frequently. The Index Rate will always be
based on a period of at least 28 days. If the Ask Yields are no longer
available, we will determine the Index Rate by using a suitable and
approved, if required, replacement method.
A Market Value Adjustment may be positive, negative or result in no
change. In general, if interest rates are rising, you bear the risk that
any Market Value Adjustment will likely be negative and reduce your
contract value. On the other hand, if interest rates are falling, it is
more likely that you will receive a positive Market Value Adjustment that
increases your contract value. In the event of a full surrender,
transfer or annuitization from a Fixed Interest Allocation, we will add
or subtract any Market Value Adjustment from the amount surrendered,
transferred or annuitized. In the event of a partial withdrawal,
transfer or annuitization, we will add or subtract any Market Value
Adjustment from the total amount withdrawn, transferred or annuitized in
order to provide the amount requested. If a negative Market Value
Adjustment exceeds your contract value in the Fixed Interest Allocation,
we will consider your request to be a full surrender, transfer or
annuitization of the Fixed Interest Allocation.
Several examples which illustrate how the Market Value Adjustment works
are included in Appendix B.
- --------------------------------------------------------------------------------
SPECIAL FUNDS
- --------------------------------------------------------------------------------
We use the term Special Funds in the discussion of the enhanced death
benefit options and the optional riders. The Special Funds currently
include the Liquid Asset subaccount, Limited Maturity Bond subaccount and
the Fixed Interest Allocations. The Company may, at any time, designate
new and/or existing subaccounts as a Special Fund with 30 days notice
with respect to new premiums added or transfers to such subaccounts.
Such subaccounts will include those that, due to their
volatility, are excluded from the death benefit and living benefit
guarantees that may otherwise be provided.
PP4SF-108892 22
- --------------------------------------------------------------------------------
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
The Contract described in this prospectus is a deferred combination
variable and fixed annuity contract. The Contract provides a means for
you to invest in one or more of the available mutual fund portfolios of
the GCG Trust, the PIMCO Variable Insurance Trust, the Warburg Pincus
Trust, the ING Variable Annuity Trust and the Prudential Series Funds
through Separate Account B. It also provides a means for you to invest
in a Fixed Interest Allocation through the Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each
12-month period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments
under your Contract. The Contract, like all deferred variable annuity
contracts, has two phases: the accumulation phase and the income phase.
The accumulation phase is the period between the contract date and the
annuity start date. The income phase begins when you start receiving
regular annuity payments from your Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another
annuitant is named in the application. You have the rights and options
described in the Contract. One or more persons may own the Contract. If
there are multiple owners named, the age of the oldest owner will
determine the applicable death benefit if such death benefit is available
for multiple owners.
The death benefit becomes payable when you die. In the case of a sole
contract owner who dies before the income phase begins, we will pay the
beneficiary the death benefit when due. The sole contract owner's estate
will be the beneficiary if no beneficiary has been designated or the
beneficiary has predeceased the contract owner. In the case of a joint
owner of the Contract dying before the income phase begins, we will
designate the surviving contract owner as the beneficiary. This will
override any previous beneficiary designation.
If the contract owner is a trust and a beneficial owner of the trust has
been designated, the beneficial owner will be treated as the contract
owner for determining the death benefit. If a beneficial owner is
changed or added after the contract date, this will be treated as a
change of contract owner for determining the death benefit. If no
beneficial owner of the Trust has been designated, the availability of
enhanced death benefits will be based on the age of the annuitant at the
time you purchase the Contract.
JOINT OWNER. For non-qualified Contracts only, joint owners may be
named in a written request before the Contract is in effect. Joint
owners may independently exercise transfers and other transactions
allowed under the Contract. All other rights of ownership must be
exercised by both owners. Joint owners own equal shares of any benefits
accruing or payments made to them.
All rights of a joint owner end at death of that owner if the other joint
owner survives. The entire interest of the deceased joint owner in the
Contract will pass to the surviving joint owner and the death benefit
will be payable. Joint owners may only select the Standard Death Benefit
option. Upon adding an additional owner to a contract which was issued
with an Enhanced Death Benefit option, generally, your death benefit will
be changed automatically to a Standard Death Benefit and your mortality
and expense risk charges will be lowered correspondingly to that which is
charged under the Standard Death Benefit Option. Also note that if any
owner's age is 86 or greater, even the standard death benefit guarantee
will also be lost. Note that returning a Contract to single owner status
will not restore any Enhanced Death Benefit. Unless otherwise specified,
the term "age" when used for joint owners shall mean the age of the
oldest owner.
Any addition or deletion of a joint owner is treated as a change of owner
which may affect the amount of the death benefit. See "Change of
Contract Owner or Beneficiary" below. If you have elected an enhanced
death
PP4SF-108892 23
benefit, and you add a joint owner, if the older joint owner is
attained age 85 or under, the enhanced death benefit from the date of
change will end, and the Standard Death Benefit will apply. For all
death benefit options, if the older joint owner's attained age is 86 or
over on the date of the ownership change, the death benefit will be the
cash surrender value.
ANNUITANT
The annuitant is the person designated by you to be the measuring life in
determining annuity payments. The annuitant's age determines when the
income phase must begin and the amount of the annuity payments to be
paid. You are the annuitant unless you choose to name another person.
The annuitant may not be changed after the Contract is in effect.
The contract owner will receive the annuity benefits of the Contract if
the annuitant is living on the annuity start date. If the annuitant dies
before the annuity start date and a contingent annuitant has been named,
the contingent annuitant becomes the annuitant (unless the contract owner
is not an individual, in which case the death benefit becomes payable).
If there is no contingent annuitant when the annuitant dies before the
annuity start date, the contract owner will become the annuitant. The
contract owner may designate a new annuitant within 60 days of the death
of the annuitant.
If there is no contingent annuitant when the annuitant dies before the
annuity start date and the contract owner is not an individual, we will
pay the designated beneficiary the death benefit then due. If a
beneficiary has not been designated, or if there is no designated
beneficiary living, the contract owner will be the beneficiary. If the
annuitant was the sole contract owner and there is no beneficiary
designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies
and any contract owner is not an individual, distribution rules under
federal tax law will apply. You should consult your tax adviser for more
information if you are not an individual.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary is
the person who receives any death benefit proceeds and who becomes the
successor contract owner if the contract owner (or the annuitant if the
contract owner is other than an individual) dies before the annuity start
date. We pay death benefits to the primary beneficiary (unless there are
joint owners, in which case death proceeds are payable to the surviving
owner(s)).
If the beneficiary dies before the annuitant or the contract owner, the
death benefit proceeds are paid to the contingent beneficiary, if any. If
there is no surviving beneficiary, we pay the death benefit proceeds to
the contract owner's estate.
One or more persons may be a beneficiary or contingent beneficiary. In
the case of more than one beneficiary, we will assume any death benefit
proceeds are to be paid in equal shares to the surviving beneficiaries.
You have the right to change beneficiaries during the annuitant's
lifetime unless you have designated an irrevocable beneficiary. When an
irrevocable beneficiary has been designated, you and the irrevocable
beneficiary may have to act together to exercise some of the rights and
options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's
lifetime, you may transfer ownership of a non-qualified Contract. A
change in ownership may affect the amount of the death benefit, the
guaranteed minimum death benefit, and/or the death benefit option applied
to the contract. The new owner's age, as of the date of the change, will
be used as the basis for determining which option to use. The new owner's
death will determine when a death benefit is payable.
If you have elected the Standard Death Benefit option, the minimum
guaranteed death benefit will continue if the new owner is age 85 or
under on the date of the ownership change. For all other death benefit
options,
PP4SF-108892 24
if the new owner is age 79 or under on the date that ownership
changes, the minimum guaranteed death benefit will continue. If the new
owner is age 80 to 85, the enhanced death benefit will end, and the death
benefit will become the Standard Death Benefit. The mortality and
expense risk charge will reflect this change in death benefit. For all
death benefit options, if the new owner's attained age is 86 or over on
the date of the ownership change, the death benefit will be the cash
surrender value. Please note that once a death benefit has been changed
due to a change in owner, a subsequent change to a younger owner will not
restore any Enhanced Death Benefits.
You may also change the beneficiary. All requests for changes must be in
writing and submitted to our Customer Service Center in good order. The
change will be effective as of the day you sign the request. The change
will not affect any payment made or action taken by us before recording
the change.
PURCHASE AND AVAILABILITY OF THE CONTRACT
We will issue a Contract only if both the annuitant and the contract
owner are not older than age 85.
The initial premium payment must be $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $500 or more ($250 for
qualified Contracts) at any time after the free look period before you
turn age 85. Under certain circumstances, we may waive the minimum
premium payment requirement. We may also change the minimum initial or
additional premium requirements for certain group or sponsored
arrangements. An initial or additional premium payment that would cause
the contract value of all annuities that you maintain with us to exceed
$1,000,000 requires our prior approval.
IRAs and other qualified plans already have the tax-deferral feature
found in this Contract. For an additional cost, the Contract provides
other benefits including death benefits and the ability to receive a
lifetime income. See "Fees and Expenses" in this prospectus.
CREDITING OF PREMIUM PAYMENTS
We will process your initial premium and credit within 2 business days
after receipt, if the application and all information necessary for
processing the Contract are complete. Subsequent premium payments and
credits will be processed within 1 business day if we receive all
information necessary. In certain states we also accept initial and
additional premium payments by wire order. Wire transmittals must be
accompanied by sufficient electronically transmitted data. We may retain
your initial premium payment for up to 5 business days while attempting
to complete an incomplete application. If the application cannot be
completed within this period, we will inform you of the reasons for the
delay. We will also return the premium payment immediately unless you
direct us to hold the premium payment until the application is completed.
We will allocate your initial payment according to the instructions you
specified. If a subaccount is not available or requested in error, we
will make inquiry about a replacement subaccount. If we are unable to
reach you or your representative, we will consider the application
incomplete. For initial premium payments, the payment will be credited
at the accumulation unit value next determined after we receive your
premium payment and the completed application. Once the completed
application is received, we will allocate the payment to the subaccounts
and/or Fixed Interest Allocation specified by you within 2 business days.
We will make inquiry to discover any missing information related to
subsequent payments. We will allocate the subsequent payment(s) pro rata
according to the current variable subaccount allocation unless you
specify otherwise. Any fixed allocation(s) will not be considered in the
pro rata calculations. If a subaccount is no longer available or
requested in error, we will allocate the subsequent payment(s)
proportionally among the other subaccount(s) in your current allocation
or your allocation instructions. For any subsequent premium payments, the
payment and credit will be credited at the accumulation unit value next
determined after receipt of your premium payment and instructions.
Once we allocate your premium payment and credit to the subaccounts
selected by you, we convert the premium payment and credit into
accumulation units. We divide the amount of the premium payment and
credit allocated to a particular subaccount by the value of an
accumulation unit for the subaccount to
PP4SF-108892 25
determine the number of accumulation units of the subaccount to be held in
Separate Account B with respect to your Contract. The net investment results
of each subaccount vary with its investment performance.
If your premium payment was transmitted by wire order from your broker-
dealer, we will follow one of the following two procedures after we
receive and accept the wire order and investment instructions. The
procedure we follow depends on state availability and the procedures of
your broker-dealer.
(1)If either your state or broker-dealer do not permit us to
issue a Contract without an application, we reserve the right to
rescind the Contract if we do not receive and accept a properly
completed application or enrollment form within 5 days of the
premium payment. If we do not receive the application or form
within 5 days of the premium payment, we will refund the contract
value plus any charges we deducted, and the Contract will be
voided. Some states require that we return the premium paid, in
which case we will comply.
(2)If your state and broker-dealer allow us to issue a Contract
without an application, we will issue and mail the Contract to you
or your representative, together with an Application
Acknowledgement Statement for your execution. Until our Customer
Service Center receives the executed Application Acknowledgement
Statement, neither you nor the broker-dealer may execute any
financial transactions on your Contract unless they are requested
in writing by you. We may require additional information before
complying with your request (e.g., signature guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Separate Account B or the Fixed Account be allocated with
the added credit to a subaccount specially designated by the Company
(currently, the Liquid Asset subaccount) during the free look period.
After the free look period, we will convert your contract value (your
initial premium and credit plus any earnings less any expenses) into
accumulation units of the subaccounts you previously selected. The
accumulation units will be allocated based on the accumulation unit value
next computed for each subaccount. Initial premiums designated for Fixed
Interest Allocations will be allocated with the added credit to a Fixed
Interest Allocation with the guaranteed interest period you have chosen;
however, in the future we may allocate the premiums and credits to the
specially designated subaccount during the free look period.
ADDITIONAL CREDIT TO PREMIUM
A credit will be added to your contract value based on each premium
payment. The credit will be added proportionally to each subaccount and
Fixed Interest Allocation as the premium payment is allocated. The
credit is a minimum of 4% of the premium payment. We may increase the
credit at our discretion. If we increase the credit we may reduce it
also at our discretion, but we will not reduce it below the minimum
credit of 4%, and we will give at least 30 days' notice of any planned
reduction.
The credit constitutes earnings (and not premiums paid by you) for
federal tax purposes.
We have submitted an application to the Securities and Exchange Commission
for exemptive relief with regard to the deduction of the premium credit under
the circumstances described below. Pending receipt of an exemptive order, we
will not deduct the credit from payments made to you or your beneficiary, other
than deducting the value of the credit on the day we receive your refund request
from amounts paid to you where you return your Contract within the free look
period. Once an exemptive order has been issued, we will deduct the credit as
described below.
In any of the following circumstances, we deduct a credit from the amount
we pay to you or your beneficiary:
(1)If you return your Contract within the free look period, we
will deduct the credit from the refund amount;
(2)If a death benefit becomes payable, we will deduct any
credits added to your contract within 1 year prior to death; and
PP4SF-108892 26
(3)If we waive any surrender charge, we will deduct any credit
added to your contract value within 1 year.
If we deduct a credit from any amount we pay to you, we will deduct the
full dollar amount of the credit. You will retain any gains, and you
will also bear any losses, that are attributable to the credit we deduct.
Once we have waived any surrender charge, we will not add any additional
credit to any additional premium you pay on or after the date of any such
waiver.
While no specific charge is made for the premium credit, the surrender charges
are higher and the surrender charge period longer than under our products
not offering a premium credit. Also, the mortality and expense risk
charge is higher than that charged under other products providing comparable
features, but no premium credit. We may use a portion of the surrender
charge and mortality and expense risk charge to help recover the cost of
providing the premium credit. In addition, there may be circumstances under
which the contract owner may be worse off from having received a premium
credit. For example, this could occur if the contract owner returns the
contract during the applicable free look, period. Upon a free look, we
recapture the premium credit that had been credited. If the state law provides
that contract value is returned on a free look and if the performance of the
applicable subaccounts has been negative during that period, we will return
the contract value less the premium credit. The negative performance
associated with the premium credit will reduce the contract value more than
if the premium credit had not been applied.
ADMINISTRATIVE PROCEDURES
We may accept a request for Contract service in writing, by telephone, or
other approved electronic means, subject to our administrative
procedures, which vary depending on the type of service requested and may
include proper completion of certain forms, providing appropriate
identifying information, and/or other administrative requirements. We
will process your request at the contract value next determined only
after you have met all administrative requirements.
CONTRACT VALUE
We determine your contract value on a daily basis beginning on the
contract date. Your contract value is the sum of (a) the contract value
in the Fixed Interest Allocations, and (b) the contract value in each
subaccount in which you are invested.
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in
your Fixed Interest Allocation is the sum of premium payments and credits
allocated to the Fixed Interest Allocation under the Contract, plus
contract value transferred to the Fixed Interest Allocation, plus
credited interest, minus any transfers and withdrawals from the Fixed
Interest Allocation (including any Market Value Adjustment applied to
such withdrawal), contract fees (including, in some cases, fees for
optional benefit riders) and premium taxes.
CONTRACT VALUE IN THE SUBACCOUNTS. On the contract date, the contract
value in the subaccount in which you are invested is equal to the initial
premium paid and added credit that was designated to be allocated to the
subaccount. On the contract date, we allocate your contract value to each
subaccount and/or a Fixed Interest Allocation specified by you, unless
the Contract is issued in a state that requires the return of premium
payments during the free look period, in which case, the portion of your
initial premium and added credit not allocated to a Fixed Interest
Allocation may be allocated to a subaccount specially designated by the
Company during the free look period for this purpose (currently, the
Liquid Asset subaccount).
On each business day after the contract date, we calculate the amount of
contract value in each subaccount as follows:
(1)We take the contract value in the subaccount at the end of
the preceding business day.
(2)We multiply (1) by the subaccount's Net Investment Factor
since the preceding business day.
(3)We add (1) and (2).
PP4SF-108892 27
(4)We add to (3) any additional premium payments and credits,
and then add or subtract any transfers to or from that subaccount.
(5)We subtract from (4) any withdrawals and any related charges,
and then subtract any contract fees (including any rider charges)
and premium taxes.
CASH SURRENDER VALUE
The cash surrender value is the amount you receive when you surrender the
Contract. The cash surrender value will fluctuate daily based on the
investment results of the subaccounts in which you are invested and
interest credited to Fixed Interest Allocations and any Market Value
Adjustment. We do not guarantee any minimum cash surrender value. On
any date during the accumulation phase, we calculate the cash surrender
value as follows: we start with your contract value, then we adjust for
any Market Value Adjustment, and then we deduct any surrender charge, any
charge for premium taxes, the annual contract administrative fee (unless
waived), any optional benefit rider charges, and any other charges
incurred but not yet deducted.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
You may surrender the Contract at any time while the annuitant is living
and before the annuity start date. A surrender will be effective on the
date your written request and the Contract are received at our Customer
Service Center. We will determine and pay the cash surrender value at
the price next determined after receipt of all paperwork required in
order for us to process your surrender. Once paid, all benefits under
the Contract will be terminated. For administrative purposes, we will
transfer your money to a specially designated subaccount (currently the
Liquid Asset subaccount) prior to processing the surrender. This
transfer will have no effect on your cash surrender value. You may
receive the cash surrender value in a
single sum payment or apply it under one or more annuity options.
We will usually pay the cash surrender value within 7 days.
Consult your tax adviser regarding the tax consequences associated with
surrendering your Contract. A surrender made before you reach age 59 1/2
may result in a 10% tax penalty. See "Federal Tax Considerations" for
more details.
THE SUBACCOUNTS
Each of the 32 subaccounts of Separate Account B offered under this
prospectus invests in an investment portfolio with its own distinct
investment objectives and policies. Each subaccount of Separate Account
B invests in a corresponding portfolio of the GCG Trust, a corresponding
portfolio of the PIMCO Variable Insurance Trust, a corresponding
portfolio of the Warburg Pincus Trust, a corresponding portfolio of the
ING Variable Insurance Trust, or a corresponding portfolio of the
Prudential Series Fund.
ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES
We may make additional subaccounts available to you under the Contract.
These subaccounts will invest in investment portfolios we find suitable
for your Contract.
We may amend the Contract to conform to applicable laws or governmental
regulations. If we feel that investment in any of the investment
portfolios has become inappropriate to the purposes of the Contract, we
may, with approval of the SEC (and any other regulatory agency, if
required) substitute another portfolio for existing and future
investments. If you elected the dollar cost averaging, systematic
withdrawals or automatic rebalancing programs or if you have other
outstanding instructions, and we substitute or otherwise eliminate a
portfolio which is subject to those instructions, we will execute your
instructions using the substituted or proposed replacement portfolio,
unless you request otherwise.
We also reserve the right to: (i) deregister Separate Account B under the
1940 Act; (ii) operate Separate Account B as a management company under
the 1940 Act if it is operating as a unit investment trust; (iii) operate
Separate Account B as a unit investment trust under the 1940 Act if it is
operating as a managed separate account; (iv) restrict or eliminate any
voting rights as to Separate Account B; and (v) combine Separate Account
B with other accounts.
PP4SF-108892 28
We will, of course, provide you with written notice before any of these
changes are effected.
THE FIXED ACCOUNT
The Fixed Account is a segregated asset account which contains the assets
that support a contract owner's Fixed Interest Allocations. See "The
Fixed Interest Allocations" for more information.
OPTIONAL RIDERS
Subject to state availability, you may elect one of three optional
benefit riders discussed below. You may not add more than one of these
three riders to your Contract. There is a separate charge for each
rider.
Once elected, the riders generally may not be cancelled. This means once
you add the rider you may not remove it, and charges will be assessed
regardless of the performance of your Contract. Please see "Charges and
Fees -- Optional Rider Charges" for information on rider charges.
The following describes the optional riders for contract owners
purchasing Contracts on or after January 1, 2001. If you purchased your
Contract prior to that date, please see Appendix F for a description of
the calculation of the optional rider benefits applicable under your
Contract.
THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD
ANALYZE EACH RIDER THOROUGHLY AND UNDERSTAND COMPLETELY BEFORE YOU SELECT
ANY. THE OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR
PREMIUM PAYMENTS AND DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC
INVESTMENT PORTFOLIO UNDER THE CONTRACT. YOU SHOULD CONSULT A QUALIFIED
FINANCIAL ADVISER IN EVALUATING THE RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR
CUSTOMER SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE
NUMBER IS (800) 366-0066.
RIDER DATE. We use the term rider date in the discussion of the optional
benefit riders below. The rider date is the date an optional benefit
rider becomes effective. The rider date is also the contract date if the
rider was purchased at the time the Contract is issued.
NO CANCELLATION. Once you purchase a rider, the rider may not be
cancelled, unless you cancel the Contract during the Contract's free look
period, surrender, annuitize or otherwise terminate the Contract which
automatically cancels any attached rider. Once the Contract continues
beyond the free look period, you may not at any time cancel the rider,
except with respect to a one-time right to cancel the twenty-year option
of the Minimum Guaranteed Accumulation Benefit rider under specified
conditions. The Company may, at its discretion, cancel and/or replace a
rider at your request in order to renew or reset a rider.
TERMINATION. The optional riders are "living benefits." This means that
the guaranteed benefits offered by the riders are intended to be
available to you while you are living and while your Contract is in the
accumulation phase. The optional riders automatically terminate (and all
benefits under the rider will cease) if you annuitize, surrender or
otherwise terminate your Contract or die (first owner to die if there are
multiple contract owners, or at death of annuitant if contract owner is
not a natural person), unless your spouse beneficiary elects to continue
the Contract, during the accumulation phase. The optional rider will
also terminate if there is a change in contract ownership (other than a
spousal beneficiary continuation on your death). Other circumstances
which may cause a particular optional rider to terminate automatically
are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is
an optional benefit which provides you with an MGAB benefit intended to
guarantee a minimum contract value at the end of a specified waiting
period. The MGAB is a one-time adjustment to your contract value in the
event your contract value on the MGAB Benefit Date is less than the MGAB
Base. The MGAB rider may offer you protection in the event your Contract
loses value during the MGAB waiting period. For a discussion of the
charges we deduct under the MGAB rider, see "Optional Rider Charges."
The MGAB rider offers a ten-year option and a twenty-year option, of
which you may purchase only one. The ten-year option has a waiting
period of ten years and, other than for allocations to Special Funds,
guarantees
PP4SF-108892 29
that your contract value at the end of ten years will at least
equal your initial premium payment plus credits, reduced pro rata for
withdrawals. Transfers made within 3 years prior to the MGAB Benefit Date
will also reduce the benefit pro rata. The twenty-year option has a
waiting period of twenty years and, other than allocations to Special
Funds, guarantees that your contract value at the end of twenty years
will at least equal two times your initial premium payment plus credits,
reduced pro rata for withdrawals, and reduced for transfers made within 3
years prior to the MGAB Benefit Date. If you add the 20 year option rider
after the contract date, any payment of premiums after the rider date,
and/or investments in the Special Funds, may prevent the MGAB Base from
doubling over the waiting period.On the MGAB Benefit Date, which is the
next business day after the applicable waiting period, we calculate your
Minimum Guaranteed Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1) WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a
calculation used to determine the MGAB. The MGAB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your annuity income, cash surrender
value and death benefits.
The MGAB Base is tracked separately for Special and Non-Special
Funds, based on the initial allocation of premium (or contract
value), subsequently allocated eligible premiums, withdrawals and
transfers. Contract value is used as the initial value if the
rider is added after the contract date. The aggregate MGAB Base
is used to determine the MGAB on the MGAB Benefit Date. THE
AGGREGATE MGAB BASE EQUALS THE SUM OF (1) THE LESSER OF THE MGAB
BASE ALLOCATED TO SPECIAL FUNDS AND THE CONTRACT VALUE IN THE
SPECIAL FUNDS; AND (2) THE MGAB BASE FOR NON-SPECIAL FUNDS. THUS,
INVESTING IN THE SPECIAL FUNDS MAY LIMIT THE MGAB BENEFIT.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base for Special and Non-
Special Funds is equal to your initial premium and credit, plus
any additional premium and credit added to your Contract during
the 2-year period after your rider date, reduced pro rata for
any withdrawals and reduced for any transfers made within the
last 3 years prior to the MGAB Benefit Date;
or
(ii)elected the twenty-year option, your MGAB Base for Special
and Non-Special Funds is equal to your initial premium and
credit, plus any additional premium and credit added to your
Contract during the 2-year period after your contract date,
accumulated at the MGAB Rate, reduced pro rata for any
withdrawals and reduced for any transfers made within the last
3 years prior to the MGAB Benefit Date. The MGAB Rate is the
annual effective rate of 3.5265%. Accumulation of eligible
additional premiums starts on the date the premium was
received.
Net transfers from Special Funds to Non-Special Funds will reduce
the MGAB Base and MGAB Charge Base allocated to Special Funds on a
pro-rata basis. If the transfer is made more than 3 years before
the Benefit Date, there will be a corresponding increase in the
MGAB Base for Non-Special Funds equal to the lesser of the
reduction in the MGAB Base for Special Funds and the net contract
value transferred.
Net transfers from Non-Special Funds to Special Funds will reduce
the MGAB Base and MGAB Charge Base allocated to Non-Special Funds
on a pro-rata basis. If the transfer is made more than 3 years
before the Benefit Date, there will be a corresponding increase in
the MGAB Base for Special Funds equal to the reduction in the MGAB
Base for Non-Special Funds.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus
premiums and credits added during the 2-year period after your
rider date. Withdrawals taken while the MGAB rider is in effect,
as well as transfers made
PP4SF-108892 30
within 3 years prior to the MGAB Benefit Date, will reduce the
value of your MGAB Base pro rata. This means that the MGAB Base
(and the MGAB Charge Base) will be reduced by the same percent
as the percent of contract value that was withdrawn (or transferred).
We will look to your contract value immediately before the withdrawal
or transfer when we determine this percent.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus,
the MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR AGGREGATE MGAB BASE. The contract value that we subtract
includes both the contract value in the subaccounts in which you
are invested and the contract value in your Fixed Interest
Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the
subaccounts in which you are invested pro rata based on the
proportion of your contract value in the subaccounts on that date,
unless you have previously given us other allocation instructions.
If you do not have an investment in any subaccount on the MGAB
Benefit Date, we will allocate the MGAB to the Liquid Asset
subaccount on your behalf. After the crediting of the MGAB, the
amount of your annuity income, cash surrender value and death
benefits will reflect the crediting of the MGAB to your contract
value to the extent the contract value is used to determine such
value.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on
the rider date if you choose the ten-year option and age 65 or younger on
the rider date if you choose the twenty-year option. The waiting period
must end at or before your annuity start date. The MGAB rider may be
purchased (i) on the contract date, and (ii) within 30 days following the
contract date. For contracts issued more than 30 days before the date
this rider first became available in your state, the Company may in its
discretion allow purchase of this rider during the 30-day period
preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract
date or added the MGAB rider within 30 days following the contract date,
the MGAB Benefit Date is your 10th contract anniversary for the ten-year
option or 20th contract anniversary for the twenty-year option. If you
added the MGAB rider during the 30-day period preceding your first
contract anniversary after the date of this prospectus, your MGAB Benefit
Date will be the first contract anniversary occurring after 10 years (for
the ten-year option) or 20 years (for the twenty-year option) after the
rider date. The MGAB rider is not available if the MGAB Benefit Date
would fall beyond the latest annuity start date.
CANCELLATION. If you elected the twenty-year option, you have a one-
time right to cancel the MGAB rider on your first contract anniversary
that is at least 10 years after the rider date. If you purchased the
MGAB rider during the 30-day period following the contract date, your one-
time right to cancel the rider occurs on the tenth anniversary of your
contract date. To cancel, you need to send written notice to our
Customer Service Center at least 30 days before such anniversary date.
If the MGAB rider is terminated before the MGAB Benefit Date, you will
not be credited with the MGAB and we will assess the pro rata portion of
the MGAB rider charge for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB) RIDER. The MGIB rider is an
optional benefit which guarantees that a minimum amount of annuity income
will be available to you if you annuitize on the MGIB Benefit Date,
regardless of fluctuating market conditions. The amount of the Minimum
Guaranteed Income Benefit will depend on the amount of premiums you pay
during the five contract years after you purchase the rider, the
credit(s) we add, the amount of contract value you allocate or transfer
to the Special Funds, the
PP4SF-108892 31
MGIB Rate, the adjustments for Special Fund
transfers, and any withdrawals you take while the rider is in effect.
For a discussion of the charges we deduct under the MGIB rider, see
"Optional Rider Charges." Ordinarily, the amount of income that will be
available to you on the annuity start date is based on your contract
value, the annuity option you selected and the guaranteed or income
factors in effect on the date you annuitize. If you purchase the MGIB
rider, the minimum amount of income that will be available to you upon
annuitization on the MGIB Benefit Date is the greatest of:
(i) your annuity income based on your contract value adjusted for
any Market Value Adjustment on the MGIB Benefit Date applied to
the guaranteed income factors specified in your Contract for
the annuity option you selected;
(ii) your annuity income based on your contract value adjusted
for any Market Value Adjustment on the MGIB Benefit Date
applied to the then current income factors in effect for the
annuity option you selected; and
(iii)the MGIB annuity income based on your MGIB Base on the
MGIB Benefit Date applied to the MGIB income factors specified
in your rider for the MGIB annuity option you selected. Prior
to applying the MGIB income factors, we will adjust the MGIB
Base for any surrender charges, premium tax recovery and Market
Value Adjustments that would otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your
right to receive payments under the MGIB rider on the MGIB Benefit Date.
Payments under the rider begin on the MGIB Benefit Date. We require a 10-
year waiting period before you can annuitize under the MGIB rider
benefit. The MGIB must be exercised in the 30-day period prior to the end
of the waiting period or any subsequent contract anniversary. At your request,
the Company may in its discretion extend the latest contract annuity start
date without extending the MGIB Benefit Date.
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we
calculate your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BENEFIT BASE. The MGIB Benefit Base
is only a calculation used to determine the MGIB. The MGIB Benefit
Base does not represent a contract value, nor does it guarantee
performance of the subaccounts in which you are invested. It is
also not used in determining the amount of your cash surrender
value and death benefits. Any reset of contract value under
provisions of the Contract or other riders will not increase the
MGIB Benefit Base or MGIB Benefit Base Maximum.
The MGIB Benefit Base is tracked separately for Special and Non-
Special Funds, based on initial allocation of eligible premium (or
contract value) and subsequently allocated eligible premiums,
withdrawals and transfers. Contract value is used as the initial
value if the rider is added after the contract date. The MGIB
Benefit Base equals the sum of (1) the contract value of Special
Funds, and (2) the MGIB Benefit Base for Non-Special Funds. Thus,
investing in the Special Funds may limit the MGIB benefit.
The MGIB Benefit Base is equal to the lesser of (a) and (b) where:
(i) is your initial premium and credit (or contract value on the
rider date if you purchased the MGIB rider after the contract
date), plus any eligible additional premiums and credits added
to your Contract, reduced pro rata by all withdrawals taken
while the MGIB rider is in effect, accumulated at the MGIB Rate
to the earlier of the oldest owner reaching age 80 and reaching
the MGIB Benefit Base Maximum, and at 0% thereafter; and
(ii)is the MGIB Benefit Base Maximum, which equals 200% of
allocated eligible premiums and credits, adjusted for
withdrawals and transfers.
PP4SF-108892 32
Eligible additional premium payments and credits are those added
more than 5 years before the earliest MGIB Benefit Date and are
included in the MGIB Benefit Base. Premiums and credits paid
after that are excluded from the MGIB Benefit Base.
Net transfers from Special Funds to Non-Special Funds will reduce
the MGIB Benefit Base and MGIB Benefit Base Maximum allocated to
Special Funds on a pro-rata basis. The resulting increase in the
MGIB Benefit Base for Non-Special Funds will equal the lesser of
the reduction in the MGIB Benefit Base for Special Funds and the
net contract value transferred. The increase in the MGIB Benefit
Base Maximum for Non-Special Funds equals the reduction in the
MGIB Benefit Base Maximum for Special Funds.
Net transfers from Non-Special Funds to Special Funds will reduce
the MGIB Benefit Base and MGIB Benefit Base Maximum allocated to
Non-Special Funds on a pro-rata basis. The resulting increase in
the MGIB Benefit Base and the MGIB Benefit Base Maximum for
Special Funds equals the reduction in the MGIB Benefit Base and
MGIB Benefit Base Maximum for Non-Special Funds. Transfers to one
or more Special Funds could reduce the MGIB Benefit.
The MGIB Rate is currently 7%. The Company may at its discretion
discontinue offering this rate. The MGIB Rate is an annual
effective rate.
2. Then we determine the MGIB annuity income by multiplying your MGIB
Base Base (adjusted for any Market Value Adjustment, surrender
charge and premium taxes) by the income factor, and then divide by
$1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Benefit Base using
the Table of Income Factors specified in the MGIB rider for the Income
Option you selected. The guaranteed factors contained in the MGIB rider
generally provide lower payout per $1,000 of value applied than the
guaranteed factors found in your Contract.
Then we compare the MGIB annuity income under the rider guarantee for
the option selected with the annuity income under your Contract guarantee
for the same option. The greater amount of income will be available to
you on the MGIB Benefit Date.
PURCHASE. To purchase the MGIB rider, you must be age 79 or younger
on the rider date and the ten-year waiting period must end at or prior to
the latest annuity start date. The MGIB rider must be purchased (i) on
the contract date, or (ii) within thirty days after the contract date.
For contracts issued more than 30 days before the date this rider first
became available in your state, the Company may in its discretion allow
purchase of this rider during the 30-day period preceding the first
contract anniversary after the date of this prospectus, or the date of
state approval, whichever is later. There is a ten year waiting period
before you can annuitize under the MGIB rider. This could reduce the
MGIB benefit.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract
date or added the MGIB rider within 30 days following the contract date,
the MGIB Benefit Date is the contract anniversary on or after the tenth
contract anniversary when you decide to exercise your right to annuitize
under the MGIB rider. If you added the MGIB rider at any other time,
your MGIB Benefit Date is the contract anniversary at least 10 years
after the rider date when you decide to exercise your right to annuitize
under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the
annuitant may not be changed except for the following exception. If an
annuitant who is not a contract owner dies prior to annuitization, a
PP4SF-108892 33
new annuitant may be named in accordance with the provisions of your
Contract. The MGIB Base is unaffected and continues to accumulate.
NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we
will provide you with notification which will include an estimate of the
amount of MGIB annuity benefit available if you choose to exercise. The
actual amount of the MGIB annuity benefit will be determined as of the
MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE
CONTRACT AT ANY TIME PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES
NOT RESTRICT YOUR RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES
THAT MAY BE HIGHER THAN THE MGIB ANNUITY BENEFIT.
THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU
ANNUITIZE YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE
PROVISIONS SET FORTH ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE
MORE FAVORABLE STREAM OF INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE
THE MGIB RIDER IS BASED ON CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF
LIFETIME INCOME THAT IT GUARANTEES MAY BE LESS THAN THE LEVEL THAT MIGHT
BE PROVIDED BY THE APPLICATION OF YOUR CONTRACT VALUE TO THE CONTRACT'S
APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER ALL OF YOUR OPTIONS AT
THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced
to zero you will receive periodic payments equal to all premium payments
and credits paid during the first two contract years (Eligible Payment
Amount) adjusted for any prior withdrawals. To maintain this guarantee,
withdrawals in any contract year may not exceed 7% of your adjusted
Eligible Payment Amount. If your contract value is reduced to zero, your
periodic payments will be 7% of your Eligible Payment Amount every year.
Payments continue until your MGWB Withdrawal Account is reduced to zero.
For a discussion of the charges we deduct under the MGWB rider, see
"Optional Rider Charges." Each payment you receive under the MGWB rider
will be taxed as a withdrawal and may be subject to a penalty tax. See
"Withdrawals" and "Federal Tax Considerations" for more information.
Your original Eligible Payment Amount depends on when you purchase the
MGWB rider and is:
(i) if you purchased the MGWB rider on the contract date, your
premium payments and credits received during the first two
contract years; or
(ii)if you purchased the MGWB rider after the contract date,
your contract value on the rider date, including any premiums
and credits received that day, and any subsequent premium
payments and credits received during the two-year period
commencing on the rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments under the MGWB rider. It does not represent a contract value,
nor does it guarantee performance of the subaccounts in which you are
invested. It will not affect your annuitization, surrender and death
benefits.
The MGWB Withdrawal Account is equal to the Eligible Payment Amount,
tracked separately for Special and Non-Special Funds, adjusted for any
withdrawals and transfers between Special and Non-Special Funds. THE
MGWB WITHDRAWAL ACCOUNT EQUALS THE SUM OF (A) THE MGWB WITHDRAWAL ACCOUNT
ALLOCATED TO NON-SPECIAL FUNDS, AND (B) THE LESSER OF (1) THE MGWB
WITHDRAWAL ACCOUNT ALLOCATED TO SPECIAL FUNDS AND (2) THE CONTRACT VALUE
IN THE SPECIAL FUNDS. THUS, INVESTING IN THE SPECIAL FUNDS MAY LIMIT THE
MGWB WITHDRAWAL ACCOUNT.
Withdrawals of up to 7% per year of the Eligible Payment Amount will
reduce the value of your MGWB Withdrawal Account by the dollar amount of
the withdrawal for Non-Special Funds and pro-rata for Special Funds,
based on the source of the withdrawal. Any withdrawals greater than the
7% per year of the Eligible Payment Amount will cause a reduction in the
MGWB Withdrawal Account of the Special and Non-Special Funds, by the
proportion that the withdrawal bears to the contract value in Special and
Non-Special Funds, respectively, at the time of the withdrawal. If a
single withdrawal involves both Special and Non-Special Funds and causes
the 7% to be exceeded, the withdrawal will be treated as taken first from
Non-Special
PP4SF-108892 34
Funds. Any withdrawals greater than 7% per year of the
Eligible Payment Amount will also cause a reduction in the Eligible
Payment Amount by the proportion that the withdrawal bears to the
contract value at the time of the withdrawal. The MGWB Withdrawal
Account is also reduced by the amount of any periodic payments paid under
the MGWB rider once your contract value is zero. If a withdrawal reduces
the MGWB Withdrawal Account to zero, the MGWB rider terminates and no
further benefits are payable under the rider.Net transfers from Special
Funds to Non-Special Funds will reduce the MGWB Withdrawal Account
allocated to Special Funds on a pro-rata basis. The resulting increase in
the MGWB Withdrawal Account allocated to Non-Special Funds will equal the
lesser of the reduction in the MGWB Withdrawal Account for Special Funds
and the net contract value transferred.
Net transfers from Non-Special Funds to Special Funds will reduce the
MGWB Withdrawal Account allocated to Non-Special Funds on a pro-rata
basis. The resulting increase in the MGWB Withdrawal Account allocated to
Special Funds equals the reduction in the MGWB Withdrawal Account for Non-
Special Funds.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in
any amount permitted under your Contract so long as your contract value
is greater than zero. See "Withdrawals." However, making any
withdrawals in any year greater than 7% per year of the Eligible Payment
Amount will reduce the Eligible Payment Amount for future withdrawals and
payments under the MGWB rider by the proportion that the withdrawal bears
to the contract value at the time of the withdrawal. The MGWB rider will
remain in force and you may continue to make withdrawals each year so
long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii)your latest allowable annuity start date has not been
reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue
the contract), changed the ownership of the Contract or
surrendered the Contract.
The standard Contract provision limiting withdrawals to no more than 90%
of the cash surrender value is not applicable under the MGWB rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event
your contract value is reduced to zero your Contract is given what we
refer to as Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been
reached;
(iii)you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract
or surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will
pay you the annual MGWB periodic payments, beginning on the next contract
anniversary, equal to the lesser of the remaining MGWB Withdrawal Account
or 7% annually of your Eligible Payment Amount until the earliest of (i)
your contract's latest annuity start date, (ii) the death of the owner;
or (iii) until your MGWB Withdrawal Account is exhausted. We will reduce
the MGWB Withdrawal Account by the amount of each payment. Once your
Contract is given Automatic Periodic Benefit Status, we will not accept
any additional premium payments in your Contract and the Contract will
not provide any benefits except those provided by the MGWB rider. Any
other rider terminates. Your Contract will remain in Automatic Periodic
Benefit Status until the earliest of (i) payment of all MGWB periodic
payments (ii) payment of the Commuted Value (defined below) or (iii) the
owner's death has occurred.
PP4SF-108892 35
On the contract's latest annuity start date, in lieu of making the
remaining MGWB periodic payments, we will pay you the Commuted Value of
your MGWB periodic payments remaining. We may, at our option, extend
your annuity start date in order to continue the MGWB periodic payments.
The Commuted Value is the present value of any then remaining MGWB
periodic payments at the current interest rate plus 0.50%. The current
interest rate will be determined by the average of the Ask Yields for
U.S. Treasury Strips as quoted by a national quoting service for
period(s) applicable to the remaining payments. Once the last MGWB
periodic payment is made or we pay you the Commuted Value, your Contract
and the MGWB rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have
never withdrawn more than 7% per year of the Eligible Payment Amount and
you elected the 7% Solution Enhanced Death Benefit in your Contract (or
you elected the Max 7 Enhanced Death Benefit resulting in the 7% Solution
Enhanced Death Benefit as the actual death benefit), the death benefit
otherwise payable under the terms of your Contract will remain in force
during any Automatic Periodic Benefit Status. In determining the amount
of the death benefit during the Automatic Periodic Benefit Status we deem
your contract value to be zero and treat the MGWB periodic payments as
withdrawals. In all other cases, the death benefit payable during
Automatic Periodic Benefit Status is your MGWB Withdrawal Account which
equals the sum of the remaining MGWB periodic payments. If you elected
the Max 7 Enhanced Death Benefit, then the 7% Solution and the Annual
Ratchet components shall each be calculated as if each were the elected
death benefit option.
PURCHASE. To purchase the MGWB rider, you must be age 80 or younger on
the rider date. The MGWB rider must be purchased (i) on the contract
date, or (ii) within 30 days after the contract date. For contracts
issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow purchase
of this rider during the 30-day period preceding the first contract
anniversary after the date of this prospectus, or the date of state
approval, whichever is later.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the same
portfolios of the Trusts. These contracts have different charges that
could effect their performance, and may offer different benefits more
suitable to your needs. To obtain more information about these other
contracts, contact our Customer Service Center or your registered
representative.
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "Death Benefit
Choices," "Charges and Fees," "The Annuity Options" and "Other Contract
Provisions" in this prospectus for information on other important
provisions in your Contract.
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WITHDRAWALS
- --------------------------------------------------------------------------------
Any time during the accumulation phase and before the death of the
contract owner, you may withdraw all or part of your money. Keep in mind
that if you request a withdrawal for more than 90% of the cash surrender
value, we will treat it as a request to surrender the Contract. If any
single withdrawal or the sum of withdrawals exceeds the Free Withdrawal
Amount, you will incur a surrender charge. The Free Withdrawal Amount in
any Contract year is 10% of your contract value on the date of the
withdrawal less any withdrawals during that contract year.
You need to submit to us a written request specifying the Fixed Interest
Allocations or subaccounts from which amounts are to be withdrawn,
otherwise the withdrawal will be made on a pro rata basis from all of the
subaccounts in which you are invested. If there is not enough contract
value in the subaccounts, we will deduct the balance of the withdrawal
from your Fixed Interest Allocations starting with the guaranteed
interest periods nearest their maturity dates until we have honored your
request. We will apply a Market Value Adjustment to any withdrawal from
your Fixed Interest Allocation taken more than 30 days before its
PP4SF-108892 36
maturity date. We will determine the contract value as of the close of
business on the day we receive your withdrawal request at our Customer
Service Center. The contract value may be more or less than the premium
payments made.
If the aggregate percentage cap on allocations to the Restricted Funds
has been exceeded, any subsequent withdrawals must be taken so that the
percentage of contract value in the Restricted Funds following the
withdrawal would not be greater than the percentage of contract value in
the Restricted Funds prior to the withdrawal. If a requested withdrawal
would cause the percentage cap to be exceeded, the amount of the
withdrawal in excess of the cap would be taken pro-rata from all variable
subaccounts.
For administrative purposes, we will transfer your money to a specially
designated subaccount (currently, the Liquid Asset subaccount) prior to
processing the withdrawal. This transfer will not affect the withdrawal
amount you receive.
Please be aware that the benefit we pay under certain optional benefit
riders will be reduced by any withdrawals you take while the rider is in
effect. See "Optional Riders."
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each
withdrawal must be a minimum of $100. We will apply a Market Value
Adjustment to any regular withdrawal from a Fixed Interest Allocation
that is taken more than 30 days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1)
from the contract value in the subaccounts in which you are invested, or
(2) from the interest earned in your Fixed Interest Allocations.
Systematic withdrawals may be taken monthly, quarterly or annually. If
you have contract value allocated to one or more Restricted Funds, and
you elect to receive systematic withdrawals from the subaccounts in which
you are invested, the systematic withdrawals must be taken pro-rata from
all subaccounts in which contract value is invested. If you do not have
contract value allocated to a Restricted Fund and choose systematic
withdrawals on a non-pro-rata basis, we will monitor the withdrawals
annually. If you subsequently allocate contract value to one or more
Restricted Funds, we will require you to take your systematic withdrawals
on a pro-rata basis from all subaccounts in which contract value is
invested.
You decide when you would like systematic payments to start as long as it
is at least 28 days after your contract date. You also select the date
on which the systematic withdrawals will be made, but this date cannot be
later than the 28th day of the month. If you have elected to receive
systematic withdrawals but have not chosen a date, we will make the
withdrawals on the same calendar day of each month as your contract date.
If your contract date is after the 28th day of the month, your systematic
withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount
of your systematic withdrawal can either be (1) a fixed dollar amount or
(2) an amount based on a percentage of your contract value. Both forms
of systematic withdrawals are subject to the following maximum, which is
calculated on each withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
PP4SF-108892 37
If your systematic withdrawal is a fixed dollar amount and the amount to
be withdrawn would exceed the applicable maximum percentage of your
contract value on any withdrawal date, we will automatically reduce the
amount withdrawn so that it equals such percentage. Thus, your fixed
dollar systematic withdrawals will never exceed the maximum percentage.
If you want fixed dollar systematic withdrawals to exceed the maximum
percentage and are willing to incur associated surrender charges,
consider the Fixed Dollar Systematic Withdrawal Feature which you may add
to your regular fixed dollar systematic withdrawal program.
If your systematic withdrawal is based on a percentage of your contract
value and the amount to be withdrawn based on that percentage would be
less than $100, we will automatically increase the amount to $100 as long
as it does not exceed the maximum percentage. If the systematic
withdrawal would exceed the maximum percentage, we will send the amount,
and then automatically cancel your systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to
interest earnings during the prior month, quarter, or year, depending on
the frequency you chose. Systematic withdrawals are not subject to a
Market Value Adjustment, unless you have added the Fixed Dollar
Systematic Withdrawal Feature discussed below and the payments exceed
interest earnings. Systematic withdrawals from Fixed Interest
Allocations under the Fixed Dollar Systematic Withdrawal Feature are
available only in connection with Section 72(q) and 72(t) distributions.
A Fixed Interest Allocation may not participate in both the systematic
withdrawal option and the dollar cost averaging program at the same time.
You may change the amount or percentage of your systematic withdrawal
once each contract year or cancel this option at any time by sending
satisfactory notice to our Customer Service Center at least 7 days before
the next scheduled withdrawal date. If you submit a subsequent premium
payment after you have applied for systematic withdrawals, we will not
adjust future withdrawals under the systematic withdrawal program unless
you specifically request that we do so. The systematic withdrawal option
may commence in a contract year where a regular withdrawal has been taken
but you may not change the amount or percentage of your withdrawals in
any contract year during which you have previously taken a regular
withdrawal. You may not elect the systematic withdrawal option if you
are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed
Dollar Systematic Withdrawal Feature to your regular fixed dollar
systematic withdrawal program. This feature allows you to receive a
systematic withdrawal in a fixed dollar amount regardless of any
surrender charges or Market Value Adjustments. Systematic withdrawals
from Fixed Interest Allocations under the Fixed Dollar Systematic
Withdrawal Feature are available only in connection with Section 72(q)
and 72(t) distributions. You choose the amount of the fixed systematic
withdrawals, which may total up to a maximum of 10% of your contract
value as determined on the day we receive your election of this feature.
The maximum limit will not be recalculated when you make additional
premium payments, unless you instruct us to do so. We will assess a
surrender charge on the withdrawal date if the withdrawal exceeds the
maximum limit as calculated on the withdrawal date. We will assess a
Market Value Adjustment on the withdrawal date if the withdrawal from a
Fixed Interest Allocation exceeds your interest earnings on the
withdrawal date. We will apply the surrender charge and any Market Value
Adjustment directly to your contract value (rather than to the
withdrawal) so that the amount of each systematic withdrawal remains
fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the
maximum. Such withdrawals are subject to surrender charges and Market
Value Adjustments when they exceed the applicable maximum percentage.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2
during the current calendar year, you may elect to have distributions
made to you to satisfy requirements imposed by federal tax law. IRA
withdrawals provide payout of amounts required to be distributed by the
Internal Revenue Service rules governing mandatory distributions under
qualified plans. We will send you a notice before your distributions
commence. You may elect to take IRA withdrawals at that time, or at a
later date. You may not elect IRA withdrawals and participate in
systematic withdrawals at the same time. If you do not elect to take IRA
PP4SF-108892 38
withdrawals, and distributions are required by federal tax law,
distributions adequate to satisfy the requirements imposed by federal tax
law may be made. Thus, if you are participating in systematic
withdrawals, distributions under that option must be adequate to satisfy
the mandatory distribution rules imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or
annual basis. Under this option, you may elect payments to start as
early as 28 days after the contract date. You select the day of the
month when the withdrawals will be made, but it cannot be later than the
28th day of the month. If no date is selected, we will make the
withdrawals on the same calendar day of the month as the contract date.
You may request that we calculate for you the amount that is required to
be withdrawn from your Contract each year based on the information you
give us and various choices you make. For information regarding the
calculation and choices you have to make, see the SAI. The minimum
dollar amount you can withdraw is $100. When we determine the required
IRA withdrawal amount for a taxable year based on the frequency you
select, if that amount is less than $100, we will pay $100. At any time
where the IRA withdrawal amount is greater than the contract value, we
will cancel the Contract and send you the amount of the cash surrender
value.
You may change the payment frequency of your IRA withdrawals once each
contract year or cancel this option at any time by sending satisfactory
notice to our Customer Service Center at least 7 days before the next
scheduled withdrawal date.
An IRA withdrawal in excess of the amount allowed under systematic
withdrawals will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH
TAKING WITHDRAWALS. You are responsible for determining that withdrawals
comply with applicable law. A withdrawal made before the taxpayer
reaches age 59 1/2 may result in a 10% penalty tax. See "Federal Tax
Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
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You may transfer your contract value among the subaccounts in which you
are invested and your Fixed Interest Allocations at the end of the free
look period until the annuity start date. We currently do not charge you
for transfers made during a contract year, but reserve the right to
charge $25 for each transfer after the twelfth transfer in a contract
year. We also reserve the right to limit the number of transfers you may
make and may otherwise modify or terminate transfer privileges if
required by our business judgment or in accordance with applicable law.
We will apply a Market Value Adjustment to transfers from a Fixed
Interest Allocation taken more than 30 days before its maturity date,
unless the transfer is made under the dollar cost averaging program.
Keep in mind that transfers between Special Funds and other investment
portfolios may negatively impact your death benefit or rider benefits.
If you allocate contract value to an investment option that has been
designated as a Restricted Fund, your ability to transfer contract value
to the Restricted Fund may be limited. A transfer to the Restricted
Funds will not be permitted to the extent that it would increase the
contract value in the Restricted Fund to more than the applicable limits
following the transfer. We do not limit transfers from Restricted Funds.
If the result of multiple reallocations is to lower the percentage of
total contract value in the Restricted Fund, the reallocation will be
permitted even if the percentage of contract value in the Restricted Fund
is greater than the limit.
Please be aware that the benefit we pay under an optional benefit rider
may be affected by certain transfers you make while the rider is in
effect. Transfers, including those involving Special Funds, may also
affect your optional rider base. See "The Annuity Contract -- Optional
Riders."
PP4SF-108892 39
Transfers will be based on values at the end of the business day in which
the transfer request is received at our Customer Service Center.
The minimum amount that you may transfer is $100 or, if less, your entire
contract value held in a subaccount or a Fixed Interest Allocation.
To make a transfer, you must notify our Customer Service Center and all
other administrative requirements must be met. Any transfer request
received after 4:00 p.m. eastern time or the close of the New York Stock
Exchange will be effected on the next business day. Separate Account B
and the Company will not be liable for following instructions
communicated by telephone or other approved electronic means that we
reasonably believe to be genuine. We require personal identifying
information to process a request for transfer made over the telephone or
over the internet.
TRANSFERS BY THIRD PARTIES
As a convenience to you, we currently allow you to give third parties the
right to effect transfers on your behalf. However, when the third party
makes transfers for many contract owners, the result can be simultaneous
transfers involving large amounts of contract values. Such transfers can
disrupt the orderly management of the investment portfolios available to
the Contract, can result in higher costs to contract owners, and may not
be compatible with the long term goals of contract owners. Therefore, we
may at any time exercise our business judgement and limit transfers made
by a third party. These limits may be based on, among other criteria,
the amount of the aggregate trade or the available investment options for which
third parties may make trades on behalf of multiple contract owners.
We may establish additional procedures or change existing procedures at
any time in the exercise of our business judgement.
DOLLAR COST AVERAGING
You may elect to participate in our dollar cost averaging program if you
have at least $1,200 of contract value in the (i) Limited Maturity Bond
subaccount or the Liquid Asset subaccount, or (ii) a Fixed Interest
Allocation with either a 6-month or a 1-year guaranteed interest period.
These subaccounts or Fixed Interest Allocations serve as the source
accounts from which we will, on a monthly basis, automatically transfer a
set dollar amount of money to other subaccounts selected by you. We also
may offer DCA Fixed Interest Allocations, which are 6-month and 1-year
Fixed Interest Allocations available exclusively for use with the dollar
cost averaging program. The DCA Fixed Interest Allocations require a
minimum premium payment of $1,200 directed into a DCA Fixed Interest
Allocation.
The dollar cost averaging program is designed to lessen the impact of
market fluctuation on your investment. Since we transfer the same dollar
amount to other subaccounts each month, more units of a subaccount are
purchased if the value of its unit is low and fewer units are purchased
if the value of its unit is high. Therefore, a lower than average value
per unit may be achieved over the long term. However, we cannot
guarantee this. When you elect the dollar cost averaging program, you
are continuously investing in securities regardless of fluctuating price
levels. You should consider your tolerance for investing through periods
of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar
amount you want transferred under this program. Each monthly transfer
must be at least $100. If your source account is the Limited Maturity
Bond subaccount, the Liquid Asset subaccount or a 1-year Fixed Interest
Allocation, the maximum amount that can be transferred each month is your
contract value in such source account divided by 12. If your source
account is a 6-month Fixed Interest Allocation, the maximum amount that
can be transferred each
PP4SF-108892 40
month is your contract value in such source account divided by 6. You may
change the transfer amount once each contract year. If you have a DCA Fixed
Interest Allocation, there is no minimum or maximum transfer amount; we will
transfer all your money allocated to that source account into the
subaccount(s) in equal payments over the selected 6-month or 1-year period.
The last payment will include earnings accrued over the course of the
selected period. If you make an additional premium payment into a Fixed
Interest Allocation subject to dollar cost averaging, the amount of your
transfers under the dollar cost averaging program remains the same, unless
you instruct us to increase the transfer amount.
Transfers from a Fixed Interest Allocation or a DCA Fixed Interest
Allocation under the dollar cost averaging program are not subject to a
Market Value Adjustment. However, if you terminate the dollar cost
averaging program for a DCA Fixed Interest Allocation and there is money
remaining in the DCA Fixed Interest Allocation, we will transfer the
remaining money to the Liquid Asset subaccount. Such transfer will
trigger a Market Value Adjustment if the transfer is made more than 30
days before the maturity date of the DCA Fixed Interest Allocation.
If you do not specify the subaccounts to which the dollar amount of the
source account is to be transferred, we will transfer the money to the
subaccounts in which you are invested on a proportional basis. The
transfer date is the same day each month as your contract date. If, on
any transfer date, your contract value in a source account is equal or
less than the amount you have elected to have transferred, the entire
amount will be transferred and the program will end. You may terminate
the dollar cost averaging program at any time by sending satisfactory
notice to our Customer Service Center at least 7 days before the next
transfer date. A Fixed Interest Allocation or DCA Fixed Interest
Allocation may not participate in the dollar cost averaging program and
in systematic withdrawals at the same time.
You are permitted to transfer contract value to a Restricted Fund,
subject to the limitations described above in this section and in "The
Investment Portfolios". Compliance with the individual and aggregate
Restricted Fund limits will be reviewed when the dollar cost averaging
program is established. Transfers under the dollar cost averaging
program must be within those limits. We will not review again your dollar
cost averaging election for compliance with the individual and aggregate
limits for investment in the Restricted Funds except in the case of the
transactions described below.
o Amount added to source account: If you add amounts to the
source account which would increase the amount to be
transferred under the dollar cost averaging program, we will
review the amounts to be transferred to ensure that the
individual and aggregate limits are not being exceeded. If
such limits would be exceeded, we will require that the dollar
cost averaging transfer amounts be changed to ensure that the
transfers are within the limits based on the then current
allocation of contract value to the Restricted Fund(s) and the
then current value of the amount designated to be transferred
to that Restricted Fund(s).
o Additional premium paid: Up to the individual Restricted Fund
percentage limit may be allocated to a Restricted Fund . If
more than the individual limit has been requested to be
allocated to a Restricted Fund, we will look at the aggregate
limit, subtract the current allocation to Restricted Funds, and
subtract the current value of amounts to be transferred under
the dollar cost averaging program to Restricted Funds. The
excess, if any, is the maximum that may be allocated pro-rata
to the Restricted Funds.
o Reallocation request is made while the dollar cost averaging
program is active: If the reallocation would increase the
amount allocated to Restricted Funds, the maximum that may be
so allocated is the individual Restricted Fund percentage
limit, less the current allocation to Restricted Funds and less
the current value of any remaining amounts to be transferred
under the dollar cost averaging program to the Restricted
Funds.
We may in the future offer additional subaccounts or withdraw any
subaccount or Fixed Interest Allocation to or from the dollar cost
averaging program, stop offering DCA Fixed Interest Allocations or
otherwise modify, suspend or terminate this program. Of course, such
change will not affect any dollar cost averaging programs in operation at
the time.
PP4SF-108892 41
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the
subaccounts of Separate Account B, you may elect to have your investments
in the subaccounts automatically rebalanced. You are permitted to
reallocate between Restricted and non-Restricted Funds, subject to the
limitations described above in this section and in "The Investment
Portfolios". If the reallocation would increase the amount allocated to
the Restricted Funds, the maximum that may be so allocated is the
individual Restricted Fund percentage limit, less the current allocation
to all Restricted Funds.
We will transfer funds under your Contract on a quarterly, semi-annual,
or annual calendar basis among the subaccounts to maintain the investment
blend of your selected subaccounts. The minimum size of any allocation
must be in full percentage points. Rebalancing does not affect any
amounts that you have allocated to the Fixed Account. The program may be
used in conjunction with the systematic withdrawal option only if
withdrawals are taken pro rata. Automatic rebalancing is not available
if you participate in dollar cost averaging. Automatic rebalancing will
not take place during the free look period.
To participate in automatic rebalancing, send satisfactory notice to our
Customer Service Center. We will begin the program on the last business
day of the period in which we receive the notice. You may cancel the
program at any time. The program will automatically terminate if you
choose to reallocate your contract value among the subaccounts or if you
make an additional premium payment or partial withdrawal on other than a
pro rata basis. Additional premium payments and partial withdrawals
effected on a pro rata basis will not cause the automatic rebalancing
program to terminate.
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DEATH BENEFIT CHOICES
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either the
annuitant (when a contract owner is not an individual), the contract
owner or the first of joint owners dies. Assuming you are the contract
owner, your beneficiary will receive a death benefit unless the
beneficiary is your surviving spouse and elects to continue the Contract.
The death benefit value is calculated at the close of the business day on
which we receive written notice and due proof of death, as well as any
required paperwork, at our Customer Service Center. If your beneficiary
elects to delay receipt of the death benefit until a date after the time
of death, the amount of the benefit payable in the future may be
affected. The proceeds may be received in a single sum or applied to any
of the annuity options. If we do not receive a request to apply the
death benefit proceeds to an annuity option, we will make a single sum
distribution. We will generally pay death benefit proceeds within 7 days
after our Customer Service Center has received sufficient information to
make the payment. For information on required distributions under
federal income tax laws, you should see "Required Distributions upon
Contract Owner's Death."
The following describes the death benefit options for contract owners
purchasing Contracts on or after January 1, 2001. If you purchased your
Contract prior to that date, please see Appendix E for a description of
the calculation of the death benefits applicable under your Contract.
You may choose one of the following Death Benefits: (a) the Standard
Death Benefit, (b) the 7% Solution Enhanced Death Benefit, (c) the Annual
Ratchet Enhanced Death Benefit or (d) the Max 7 Enhanced Death Benefit.
The 7% Solution Enhanced Death Benefit, the Annual Ratchet Enhanced Death
Benefit and the Max 7 Enhanced Death Benefit are available only if the
contract owner or the annuitant (if the contract owner is not an
individual) is not more than 79 years old at the time of purchase. The
7% Solution, Annual Ratchet and Max 7 Enhanced Death Benefits may not be
available where a Contract is held by joint owners.
Once you choose a death benefit, it cannot be changed. We may in the
future stop or suspend offering any of the Enhanced Death Benefit options
to new Contracts. A change in ownership of the Contract may affect the
amount of the death benefit and the Enhanced Death Benefit. The MGWB
rider may also affect the death benefit. See "Minimum Guaranteed
Withdrawal Benefit (MGWB) Rider -- Death Benefit during Automatic
PP4SF-108892 42
Periodic Benefit Status." The Enhanced Death Benefits are available only
at the time you purchase your Contract. The enhanced death benefits are
not available where a Contract is owned by joint owners.
The death benefit is payable when the first of the following persons
dies: the contract owner, joint owner, or annuitant (if a contract owner
is not an individual). Assuming you are the contract owner, if you die
during the accumulation phase, your beneficiary will receive a death
benefit unless the beneficiary is your surviving spouse and elects to
continue the Contract. The death benefit paid depends on the death
benefit you have chosen. The death benefit value is calculated at the
close of the business day on which we receive written notice and due
proof of death, as well as required claim forms, at our Customer Service
Center. If your beneficiary elects to delay receipt of the death benefit
until a date after the time of your death, the amount of the benefit
payable in the future may be affected. If you die after the annuity
start date and you are the annuitant, your beneficiary will receive the
death benefit you chose under the annuity option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
We use the Base Death Benefit to help determine the minimum death benefit
payable under each of the Enhanced Death Benefit options described below.
You do not elect the Base Death Benefit. The Base Death Benefit is equal
to the greater of:
1) the contract value minus any credits added within 1 year prior to
death; and
2) the cash surrender value.
The STANDARD DEATH BENEFIT equals the SUM of 1) and 2), less 3) where:
1) the contract value allocated to Special Funds;
2) the Standard Minimum Guaranteed Death Benefit for amounts
allocated to non-Special Funds; and
3) any credits added within 1 year prior to death.
The Standard Minimum Guaranteed Death Benefit equals:
1) the initial premium payment plus any credit, allocated to Special
and Non-Special Funds, respectively ;
2) increased by premium payments, plus any credits and adjusted for
transfers, allocated to Special and Non-Special Funds,
respectively, after issue; and
3) reduced by a pro-rata adjustment for any withdrawal or transfer
taken from the Special and Non-Special Funds, respectively.
In the event of transfers from Special to Non-Special funds, the increase
in the Minimum Guaranteed Death Benefit of the Non-Special Fund will
equal the lesser of the reduction in the Minimum Guaranteed Death Benefit
in the Special Fund and the contract value transferred. In the event of
transfers from Non-Special to Special Funds, the increase in the Minimum
Guaranteed Death Benefit of the Special Fund will equal the reduction in
the Minimum Guaranteed Death Benefit in the Non-Special Fund.
ENHANCED DEATH BENEFIT OPTIONS. Under the Enhanced Death Benefit options,
if you die before the annuity start date, your beneficiary will receive
the greater of the Base Death Benefit and the Enhanced Death Benefit
option elected. For purposes of calculating the Enhanced Death Benefits,
certain investment portfolios, and the Fixed Account are designated as
"Special Funds". In addition to the Fixed Account, the investment
portfolios designated currently as Special Funds are the Liquid Asset
Portfolio and the Limited Maturity Bond Portfolio.
We may, with 30 days notice to you, designate any investment portfolio as
a Special Fund on existing contracts with respect to new premiums added
to such investment portfolio and also with respect to new transfers to
such investment portfolio. Selecting a Special Fund may limit or reduce
the enhanced death benefit.
PP4SF-108892 43
For the period during which a portion of the contract value is allocated
to a Special Fund, we may at our discretion reduce the mortality and
expense risk charge attributable to that portion of the contract value.
The reduced mortality and expense risk charge will be applicable only
during that period.
The 7% SOLUTION ENHANCED DEATH BENEFIT, equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
7% Solution Minimum Guaranteed Death Benefit for Non-Special
Funds, less any credits added within 1 year prior to death.
The 7% Solution Minimum Guaranteed Death Benefit for Special and Non-
Special Funds equals the lesser of:
1) premiums, adjusted for withdrawals and transfers, accumulated at
7% until the earlier of attainment of age 80 or reaching the cap
(equal to 3 times all premium payment and credits, as reduced by
adjustments for withdrawals)and thereafter at 0%, and
2) the cap.
Withdrawals of up to 7% per year of cumulative premiums and premium credits
are referred to as special withdrawals. Special withdrawals reduce the 7%
Solution Minimum Guaranteed Death Benefit by the amount of contract value
withdrawn. For any other withdrawals (withdrawals in excess of the amount
available as a special withdrawal, a pro-rata adjustment to the 7% Solution
Minimum Guaranteed Death Benefit is made. The amount of the pro-rata adjustment
for withdrawals from Non-Special Funds will equal (a) times (b) divided by
(c): where (a) is the 7% Solution Minimum Guaranteed Death Benefit for
Non-Special Funds prior to the withdrawal; (b) is the contract value of the
withdrawal; and (c) is the contract value allocated to Non-Special Funds
before the withdrawal. The amount of the pro-rata adjustment for withdrawals
from Special Funds will equal (a) times (b) divided by (c): where (a) is the
7% Solution Minimum Guaranteed Death Benefit for Special Funds prior to the
withdrawal; (b) is the contract value of the withdrawal; and (c) is the
contract value allocated to Special Funds before the withdrawal. Please see
Appendix D for examples of the pro-rata withdrawal adjustment for withdrawals
other than special withdrawals.
Transfers from Special to Non-Special Funds will reduce the 7% Solution
Minimum Guaranteed Death Benefit and the cap for Special Funds on a pro-
rata basis. The resulting increase in the 7% Solution Minimum Guaranteed
Death Benefit in the Non-Special Funds will equal the lesser of the
reduction in the 7% Solution Minimum Guaranteed Death Benefit in the
Special Funds and the contract value transferred. The increase in the
cap for Non-Special Funds will equal the reduction in the cap for Special
Funds.
Transfers from Non-Special to Special Funds will reduce the 7% Solution
Minimum Guaranteed Death Benefit and the cap in the Non-Special Funds on
a pro-rata basis. The resulting increase in the 7% Solution Minimum
Guaranteed Death Benefit and the cap for the Special Funds will equal the
reduction in the 7% Solution Minimum Guaranteed Death Benefit and the cap
for the Non-Special Funds.
The ANNUAL RATCHET ENHANCED DEATH BENEFIT equals the greater of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
Annual Ratchet Minimum Guaranteed Death Benefit allocated to Non-
Special Funds, less any credits added within 1 year prior to
death.
The Annual Ratchet Minimum Guaranteed Death Benefit equals:
1) the initial premium, plus credit, allocated at issue to Special
and Non-Special Funds, respectively;
PP4SF-108892 44
2) increased dollar for dollar by any premium, plus credits,
allocated after issue to Special and Non-Special funds,
respectively;
3) for Non-Special Funds, adjusted on each anniversary that occurs on or
prior to
attainment of age 90 to the greater of the Annual Ratchet Minimum
Guaranteed Death Benefit for Non-Special Funds from the prior
anniversary (adjusted for new premiums, partial withdrawals
allocated to Non-Special Funds, and transfers between Special and
Non-Special Funds) and the current contract value allocated to Non-
Special Funds;
4) for Special Funds, adjusted on each anniversary that occurs on or
prior to
attainment of age 90 to the greater of the Annual Ratchet Minimum
Guaranteed Death Benefit for Special Funds from the prior
anniversary (adjusted for new premiums, partial withdrawals
allocated to Special Funds, and transfers between Special and Non-
Special Funds) and the current contract value allocated to Special
Funds.
Withdrawals reduce the Annual Ratchet Minimum Guaranteed Death Benefit on
a pro-rata basis, based on the amount withdrawn from the Special and Non-
Special Funds, respectively. The amount of the pro-rata adjustment for
withdrawals from Non-Special Funds will equal (a) times (b) divided by
(c): where (a) is the Annual Ratchet Minimum Guaranteed Death Benefit for
Non-Special Funds prior to the withdrawal; (b) is the contract value of
the withdrawal; and (c) is the contract value allocated to Non-Special
Funds before withdrawal. The amount of the pro-rata adjustment for
Special Funds will equal (a) times (b) divided by (c): where (a) is the
Annual Ratchet Minimum Guaranteed Death Benefit for Special Funds prior
to the withdrawal; (b) is the contract value of the withdrawal; and (c)
is the contract value allocated to Special Funds before the withdrawal.
Transfers from Special to Non-Special Funds will reduce the Annual
Ratchet Minimum Guaranteed Death Benefit for Special Funds on a pro-rata
basis. The resulting increase in the Annual Ratchet Minimum Guaranteed
Death Benefit in the Non-Special Funds will equal the lesser of the
reduction in the Annual Ratchet Minimum Guaranteed Death Benefit in the
Special Funds and the contract value transferred.
Transfers from Non-Special to Special Funds will reduce the Annual
Ratchet Minimum Guaranteed Death Benefit for Non-Special Funds on a pro-
rata basis. The resulting increase in the Annual Ratchet Minimum
Guaranteed Death Benefit for the Special Funds will equal the reduction
in the Annual Ratchet Minimum Guaranteed Death Benefit for the Non-
Special Funds.
The MAX 7 ENHANCED DEATH BENEFIT equals the greater of the 7% Solution
Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit option, the 7% Solution Enhanced Death Benefit and the
Annual Ratchet Enhanced Death Benefit are calculated in the same manner
as if each were the elected benefit.
Note: In all cases described above, the amount of the death benefit
could be reduced by premium taxes owed and withdrawals not
previously deducted. The enhanced death benefits may not be
available in all states.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date,
the Company will pay the beneficiary any certain benefit remaining under
the annuity in effect at the time.
CONTINUATION AFTER DEATH -- SPOUSE
If at the contract owner's death, the surviving spouse of the deceased
contract owner is the beneficiary and such surviving spouse elects to
continue the contract as his or her own the following will apply:
If the guaranteed death benefit as of the date we receive due proof of
death, minus the contract value also on that date, is greater than zero,
we will add such difference to the contract value. Such addition will be
allocated to the variable subaccounts in proportion to the contract value
in the subaccounts, unless we are
PP4SF-108892 45
directed otherwise. If there is no contract value in any subaccount, the
addition will be allocated to the Liquid Asset subaccount, or its successor.
The death benefits under each of the available options will continue
based on the surviving spouse's age on the date that
ownership changes.
At subsequent surrender, any surrender charge applicable to premiums paid
prior to the date we receive due proof of death of the contract owner
will be waived. Any premiums paid later will be subject to any
applicable surrender charge.
Any addition to contract value, as described above, is available only to
the spouse of the owner as of the date of death of the owner if such spouse
under the provisions of the contract elects to continue the contract as his
or her own.
CONTINUATION AFTER DEATH -- NON SPOUSE
If the beneficiary or surviving joint owner is not the spouse of the
owner, the contract may continue in force subject to the required
distribution rules of the Internal Revenue Code (the "Code"). See next
section.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the
Code.
If any contract owner of a non-qualified Contract dies before the annuity
start date, the death benefit payable to the beneficiary will be
distributed as follows: (a) the death benefit must be completely
distributed within 5 years of the contract owner's date of death; or (b)
the beneficiary may elect, within the 1-year period after the contract
owner's date of death, to receive the death benefit in the form of an
annuity from us, provided that (i) such annuity is distributed in
substantially equal installments over the life of such beneficiary or
over a period not extending beyond the life expectancy of such
beneficiary; and (ii) such distributions begin not later than 1 year
after the contract owner's date of death.
Notwithstanding (a) and (b) above, if the sole contract owner's
beneficiary is the deceased owner's surviving spouse, then such spouse
may elect to continue the Contract under the same terms as before the
contract owner's death. Upon receipt of such election from the spouse at
our Customer Service Center: (1) all rights of the spouse as contract
owner's beneficiary under the Contract in effect prior to such election
will cease; (2) the spouse will become the owner of the Contract and will
also be treated as the contingent annuitant, if none has been named and
only if the deceased owner was the annuitant; and (3) all rights and
privileges granted by the Contract or allowed by Golden American will
belong to the spouse as contract owner of the Contract. This election
will be deemed to have been made by the spouse if such spouse makes a
premium payment to the Contract or fails to make a timely election as
described in this paragraph. If the owner's beneficiary is a nonspouse,
the distribution provisions described in subparagraphs (a) and (b) above,
will apply even if the annuitant and/or contingent annuitant are alive at
the time of the contract owner's death.
If we do not receive an election from a non-spouse owner's beneficiary
within the 1-year period after the contract owner's date of death, then
we will pay the death benefit to the owner's beneficiary in a cash
payment within five years from date of death. We will determine the
death benefit as of the date we receive proof of death. We will make
payment of the proceeds on or before the end of the 5-year period
starting on the owner's date of death. Such cash payment will be in full
settlement of all our liability under the Contract.
If a contract owner dies after the annuity start date, we will continue
to distribute any benefit payable at least as rapidly as under the
annuity option then in effect. All of the contract owner's rights
granted under the Contract or allowed by us will pass to the contract
owner's beneficiary.
If the Contract has joint owners we will consider the date of death of
the first joint owner as the death of the contract owner and the
surviving joint owner will become the contract owner of the Contract. If
any contract owner is not an individual, the death of an annuitant shall
be treated as the death of a contract owner.
PP4SF-108892 46
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CHARGES AND FEES
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We deduct the charges described below to cover our cost and expenses,
services provided and risks assumed under the Contracts. We incur
certain costs and expenses for distributing and administrating the
Contracts, for paying the benefits payable under the Contracts and for
bearing various risks associated with the Contracts. The amount of a
charge will not always correspond to the actual costs associated. For
example, the surrender charge collected may not fully cover all of the
distribution expenses incurred by us with the service or benefits
provided. In the event there are any profits from fees and charges
deducted under the Contract, we may use such profits to finance the
distribution of contracts.
CHARGE DEDUCTION SUBACCOUNT
You may elect to have all charges against your contract value deducted
directly from a single subaccount designated by the Company. Currently
we use the Liquid Asset subaccount for this purpose. If you do not elect
this option, or if the amount of the charges is greater than the amount
in the designated subaccount, the charges will be deducted as discussed
below. You may cancel this option at any time by sending satisfactory
notice to our Customer Service Center.
CHARGES DEDUCTED FROM THE CONTRACT VALUE
We deduct the following charges from your contract value:
SURRENDER CHARGE. We will deduct a contingent deferred sales charge (a
"surrender charge") if you surrender your Contract or if you take a
withdrawal in excess of the Free Withdrawal Amount during the 9-year
period from the date we receive and accept a premium payment. The
surrender charge is based on a percentage of each premium payment
withdrawn. This charge is intended to cover sales expenses that we have
incurred. We may in the future reduce or waive the surrender charge in
certain situations and will never charge more than the maximum surrender
charges. The percentage of premium payments deducted at the time of
surrender or excess withdrawal depends on the number of complete years
that have elapsed since that premium payment was made. We determine the
surrender charge as a percentage of each premium payment withdrawn as
follows:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+
SINCE PREMIUM PAYMENT | | | | | | | | |
SURRENDER CHARGE 8%| 8%| 8%| 8%| 7%| 6%| 5%| 3%| 1%| 0%
WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. We will waive
the surrender charge in most states in the following events: (i) you
begin receiving qualified extended medical care on or after the first
contract anniversary for at least 45 days during a 60 day period and your
request for the surrender or withdrawal, together with all required
documentation is received at our Customer Service Center during the term
of your care or within 90 days after the last day of your care; or (ii)
you are first diagnosed by a qualifying medical professional, on or after
the first contract anniversary, as having a qualifying terminal illness.
We have the right to require an examination by a physician of our choice.
If we require such an examination, we will pay for it. You are required
to send us satisfactory written proof of illness. See your Contract for
more information. The waiver of surrender charge may not be available in
all states. If we waive the surrender charge, we will deduct any credit
added to your contract value within 1 year of the withdrawal, and we will
not add any additional credit to any additional premium you pay on or
after the date of any such waiver.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract
year is 10% of your contract value on the date of withdrawal less any
withdrawals during that contract year.
PP4SF-108892 47
SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a surrender
charge for excess withdrawals. We consider a withdrawal to be an "excess
withdrawal" when the amount you withdraw in any contract year exceeds the
Free Withdrawal Amount. Where you are receiving systematic withdrawals,
any combination of regular withdrawals taken and any systematic
withdrawals expected to be received in a contract year will be included
in determining the amount of the excess withdrawal. Such a withdrawal
will be considered a partial surrender of the Contract and we will impose
a surrender charge and any associated premium tax. We will deduct such
charges from the contract value in proportion to the contract value in
each subaccount or Fixed Interest Allocation from which the excess
withdrawal was taken. In instances where the excess withdrawal equals
the entire contract value in such subaccounts or Fixed Interest
Allocations, we will deduct charges proportionately from all other
subaccounts and Fixed Interest Allocations in which you are invested.
ANY WITHDRAWAL FROM A FIXED INTEREST ALLOCATION MORE THAN 30 DAYS BEFORE
ITS MATURITY DATE WILL TRIGGER A MARKET VALUE ADJUSTMENT.
For the purpose of calculating the surrender charge for an excess
withdrawal: a) we treat premiums as being withdrawn on a first-in, first-
out basis; and b) amounts withdrawn which are not considered an excess
withdrawal are not considered a withdrawal of any premium payments. We
have included an example of how this works in Appendix C. Although we
treat premium payments as being withdrawn before earnings for purpose of
calculating the surrender charge for excess withdrawals, the federal tax
law treats earnings as withdrawn first.
PREMIUM TAXES. We may make a charge for state and local premium taxes
depending on your state of residence. The tax can range from 0% to 3.5%
of the premium payment. We have the right to change this amount to
conform with changes in the law or if you change your state of residence.
We deduct the premium tax from your contract value (or from the MGIB
Base, if exercised) on the annuity start date. However, some
jurisdictions impose a premium tax at the time that initial and
additional premiums are paid, regardless of when the annuity payments
begin. In those states we may defer collection of the premium taxes from
your contract value and deduct it when you surrender the Contract, when
you take an excess withdrawal or on the annuity start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on
each Contract anniversary, or if you surrender your Contract prior to a
Contract anniversary, at the time we determine the cash surrender value
payable to you. The amount deducted is $40 per Contract. This charge is
waived if your contract value is $100,000 or more at the end of a
contract year or the total of your premium payments is $100,000 or more
or under other conditions established by Golden American. We deduct the
charge proportionately from all subaccounts in which you are invested.
If there is no contract value in those subaccounts, we will deduct the
charge from your Fixed Interest Allocations starting with the guaranteed
interest periods nearest their maturity dates until the charge has been
paid.
TRANSFER CHARGE. We currently do not deduct any charges for transfers
made during a contract year. We have the right, however, to assess up to
$25 for each transfer after the twelfth transfer in a contract year. If
such a charge is assessed, we would deduct the charge from the
subaccounts and the Fixed Interest Allocations from which each such
transfer is made in proportion to the amount being transferred from each
such subaccount and Fixed Interest Allocation unless you have chosen to
have all charges deducted from a single subaccount. The charge will not
apply to any transfers due to the election of dollar cost averaging,
automatic rebalancing and transfers we make to and from any subaccount
specially designated by the Company for such purpose.
Charges Deducted from the Subaccounts
MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk
charge is deducted each business day. The amount of the mortality and
expense risk charge depends on the death benefit you have elected. The
charge is deducted on each business day based on the assets you have in
each subaccount. The charge for each death benefit option, on an annual
basis, is equal to 1.30% for the Standard Death Benefit, 1.55% for the
Annual Ratchet Enhanced Death Benefit, 1.65% for the 7% Solution Enhanced
Death Benefit or 1.75% for the Max 7 Enhanced Death Benefit, of the
assets you have in each subaccount. The charge is
PP4SF-108892 48
deducted each business day at the rate of .003585% (Standard), .004280%
(Annual Ratchet), .004558% (7% Solution), or .004837% (Max 7), respectively,
for each day since the previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the
assets you have in each subaccount. The charge is deducted on each
business day at the rate of .000411% for each day since the previous
business day. This charge is deducted daily from your assets in each
subaccount.
OPTIONAL RIDER CHARGES. Subject to state availability, you may purchase one
of three optional benefit riders that you may elect at issue. So long as the
rider is in effect, we will deduct a separate quarterly charge for each optional
benefit rider through a pro rata reduction of the contract value of the
subaccounts in which you are invested. If there is insufficient contract
value in the subaccount, we will deduct the charges from your Fixed
Interest Allocations nearest their maturity date. We deduct each rider
charge on each quarterly contract anniversary in arrears, meaning the
first charge will be deducted on the first quarterly anniversary
following the rider date. For a description of the riders and the
defined terms used in connection with the riders, see "The Annuity
Contract -- Optional Riders."
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge
for the MGAB rider is as follows:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year......... 0.125% of the MGAB Charge Base (0.50% annually)
20 Year......... 0.125% of the MGAB Charge Base (0.50%annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date,
and (ii) premiums and credits during the 2-year period commencing on the
rider date, reduced pro rata for withdrawals and reduced for transfers
made within the last 3 years prior to the MGAB Benefit Date. We will
deduct charges only during your ten-year or twenty-year waiting period,
as applicable. If you surrender or annuitize your Contract, we will
deduct a pro rata portion of the charge for the current quarter based on
the current quarterly charge rate and MGAB Charge Base immediately prior
to the surrender or annuitization. The MGAB Charge Base is adjusted for
transfers between Special and Non-Special Funds.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the
MGIB rider is as follows:
MGIB Rate Quarterly Charge
--------- ----------------
7%........... 0.125% of the MGIB Charge Base (0.50% annually)
The MGIB Charge Base is the total of premiums paid and credits added more
than 5 years before the earliest MGIB Benefit Date, reduced pro rata for
all withdrawals taken while the MGIB rider is in effect, and accumulated
at the MGIB Rate (7%) . If you surrender or annuitize your Contract, we
will deduct a pro rata portion of the charge for the current quarter
based on the current quarterly charge rate and your MGIB Charge Base
immediately prior to the surrender or annuitization. The MGIB Charge
Base is adjusted for transfers between Special and Non-Special Funds.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for
the MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible
Payment Amount. The original MGWB Eligible Payment Amount is equal to
all premiums paid and credits added during the first two contract years
following the rider date. When we calculate the MGWB rider charge, we do
not reduce the Eligible Payment Amount by the amount of any withdrawals
taken while the MGWB rider is in effect. We will deduct charges only
during the period before your Contract's Automatic Periodic Benefit
Status. If you surrender or annuitize your Contract, we will deduct a pro
rata portion of the charge for the current quarter based on the
PP4SF-108892 49
current quarterly charge rate and your original MGWB Eligible Payment Amount,
and applicable credits, immediately prior to the surrender or annuitization.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts. Each portfolio deducts portfolio management fees and charges from
the amounts you have invested in the portfolios. In addition, three
portfolios deduct 12b-1 fees. For 1999, total portfolio fees and charges
ranged from 0.56% to 1.75%. See "Fees and Expenses" in this prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators or distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings
experienced by the investment advisers, administrators or distributors.
It is anticipated that such compensation will be based on assets of the
particular portfolios attributable to the Contract. Some advisers,
administrators or distributors may pay us more than others.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start date,
we will begin making payments to the contract owner under an income plan.
We will make these payments under the annuity option you chose. You may
change an annuity option by making a written request to us at least 30
days before the annuity start date. The amount of the payments will be
determined by applying your contract value, adjusted for any applicable
Market Value Adjustment, on the annuity start date in accordance with the
annuity option you chose. The MGIB annuity benefit may be available if
you have purchased the MGIB rider, provided the waiting period and other
specified conditions have been met.
You may also elect an annuity option on surrender of the Contract for its
cash surrender value or you may choose one or more annuity options for
the payment of death benefit proceeds while it is in effect and before
the annuity start date. If, at the time of the contract owner's death or
the annuitant's death (if the contract owner is not an individual), no
option has been chosen for paying death benefit proceeds, the beneficiary
may choose an annuity option within 60 days. In all events, payments of
death benefit proceeds must comply with the distribution requirements of
applicable federal tax law.
The minimum monthly annuity income payment that we will make is $20. We
may require that a single sum payment be made if the contract value is
less than $2,000 or if the calculated monthly annuity income payment is
less than $20.
For each annuity option we will issue a separate written agreement
putting the annuity option into effect. Before we pay any annuity
benefits, we require the return of your Contract. If your Contract has
been lost, we will require that you complete and return the applicable
lost Contract form. Various factors will affect the level of annuity
benefits, such as the annuity option chosen, the applicable payment rate
used and the investment performance of the portfolios and interest
credited to the Fixed Interest Allocations.
Our current annuity options provide only for fixed payments. Fixed
annuity payments are regular payments, the amount of which is fixed and
guaranteed by us. Some fixed annuity options provide fixed payments
either for a specified period of time or for the life of the annuitant.
The amount of life income payments will depend on the form and duration
of payments you chose, the age of the annuitant or beneficiary (and
gender, where appropriate under applicable law), the total contract value
applied to purchase a Fixed Interest Allocation, and the applicable
payment rate.
PP4SF-108892 50
Our approval is needed for any option where:
(1)The person named to receive payment is other than the
contract owner or beneficiary;
(2)The person named is not a natural person, such as a
corporation; or
(3)Any income payment would be less than the minimum annuity
income payment allowed.
SELECTING THE ANNUITY START DATE
You select the annuity start date, which is the date on which the annuity
payments commence. The annuity start date must be at least 5 years from
the contract date but before the month immediately following the
annuitant's 90th birthday, or 10 years from the contract date, if later.
If, on the annuity start date, a surrender charge remains, the elected
annuity option must include a period certain of at least 5 years.
If you do not select an annuity start date, it will automatically begin
in the month following the annuitant's 90th birthday, or 10 years from
the contract date, if later.
If the annuity start date occurs when the annuitant is at an advanced
age, such as over age 85, it is possible that the Contract will not be
considered an annuity for federal tax purposes. For more information,
see "Federal Tax Considerations" and the SAI. For a Contract purchased
in connection with a qualified plan, other than a Roth IRA, distributions
must commence not later than April 1st of the calendar year following the
calendar year in which you reach age 70 1/2 or, in some cases, retire.
Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written
notice from you, we will make the payments monthly. There may be certain
restrictions on minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options 1, 2
and 3 are fixed. Payments under Option 4 may be fixed or variable,
although only fixed are currently available. For a fixed annuity option,
the contract value in the subaccounts is transferred to the Company's
general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make
monthly payments in equal installments for a fixed number of years based
on the contract value on the annuity start date. We guarantee that each
monthly payment will be at least the amount stated in your Contract. If
you prefer, you may request that payments be made in annual, semi-annual
or quarterly installments. We will provide you with illustrations if you
ask for them. If the cash surrender value or contract value is applied
under this option, a 10% penalty tax may apply to the taxable portion of
each income payment until the contract owner reaches age 59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Under this option,
we make payments for the life of the annuitant in equal monthly
installments and guarantee the income for at least a period certain such
as 10 or 20 years. Other periods certain may be available to you on
request. You may choose a refund period instead. Under this arrangement,
income is guaranteed until payments equal the amount applied. If the
person named lives beyond the guaranteed period, we will continue
payments until his or her death. We guarantee that each payment will be
at least the amount specified in the Contract corresponding to the
person's age on his or her last birthday before the annuity start date.
Amounts for ages not shown in the Contract are available if you ask for
them.
OPTION 3. JOINT LIFE INCOME. This option is available when there are
2 persons named to determine annuity payments. At least one of the
persons named must be either the contract owner or beneficiary of the
Contract. We guarantee monthly payments will be made as long as at least
one of the named persons is living. There is no minimum number of
payments. Monthly payment amounts are available if you ask for them.
PP4SF-108892 51
OPTION 4. ANNUITY PLAN. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the
annuity start date. Annuity payments under Option 4 may be fixed or
variable. If variable and subject to the 1940 Act, it will comply with
the requirements of such Act.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts
still due as provided in the annuity agreement between you and Golden
American. The amounts we will pay are determined as follows:
(1)For Option 1, or any remaining guaranteed payments under
Option 2, we will continue payments. Under Options 1 and 2, the
discounted values of the remaining guaranteed payments may be paid
in a single sum. This means we deduct the amount of the interest
each remaining guaranteed payment would have earned had it not
been paid out early. The discount interest rate is never less
than 3% for Option 1 and Option 2 per year. We will, however,
base the discount interest rate on the interest rate used to
calculate the payments for Options 1 and 2 if such payments were
not based on the tables in your Contract.
(2)For Option 3, no amounts are payable after both named persons
have died.
(3)For Option 4, the annuity option agreement will state the
amount we will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of each
calendar quarter. The report will show the contract value, cash
surrender value, and the death benefit as of the end of the calendar
quarter. The report will also show the allocation of your contract value
and reflects the amounts deducted from or added to the contract value
since the last report, including rider charges if you have elected one of
the optional riders offered in this prospectus. You have 30 days to
notify our Customer Service Center of any errors or discrepancies
contained in the report and in any confirmation notice. We will also
send you copies of any shareholder reports of the investment portfolios
in which Separate Account B invests, as well as any other reports,
notices or documents we are required by law to furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any
payment or determination of values on any business day (1) when the New
York Stock Exchange is closed; (2) when trading on the New York Stock
Exchange is restricted; (3) when an emergency exists as determined by the
SEC so that the sale of securities held in Separate Account B may not
reasonably occur or so that the Company may not reasonably determine the
value of Separate Account B's net assets; or (4) during any other period
when the SEC so permits for the protection of security holders. We have
the right to delay payment of amounts from a Fixed Interest Allocation
for up to 6 months.
IN CASE OF ERRORS IN YOUR APPLICATION
If an age or gender given in the application or enrollment form is
misstated, the amounts payable or benefits provided by the Contract shall
be those that the premium payment would have bought at the correct age or
gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan
but you should understand that your rights and any beneficiary's rights
may be subject to the terms of the assignment. An assignment may have
federal tax consequences. You should consult a tax adviser for tax advice.
You must give us satisfactory written notice at our Customer Service Center
in order to make or release an assignment. We are not responsible for the
validity of any assignment.
PP4SF-108892 52
CONTRACT CHANGES -- APPLICABLE TAX LAW
We have the right to make changes in the Contract to continue to qualify
the Contract as an annuity under applicable federal tax law. You will be
given advance notice of such changes.
FREE LOOK
You may cancel your Contract within your 10-day free look period. We
deem the free look period to expire 15 days after we mail the Contract to
you. Some states may require a longer free look period. To cancel, you
need to send your Contract to our Customer Service Center or to the agent
from whom you purchased it. We will refund the contract value. For
purposes of the refund during the free look period, (i) we adjust your
contract value for any market value adjustment (if you have invested in
the fixed account), (ii) then we exclude any credit initially applied,
and (iii) then we include a refund of any charges deducted from your
contract value. Because of the market risks associated with investing in
the portfolios and the potential positive or negative effect of the
market value adjustment, the contract value returned may be greater or
less than the premium payment you paid. Some states require us to return
to you the amount of the paid premium (rather than the contract value) in
which case you will not be subject to investment risk during the free
look period. In these states, your premiums designated for investment in
the subaccounts may be allocated during the free look period to a
subaccount specially designated by the Company for this purpose
(currently, the Liquid Asset subaccount). We may, in our discretion,
require that premiums designated for investment in the subaccounts from
all other states as well as premiums designated for a Fixed Interest
Allocation be allocated to the specially designated subaccount during the
free look period. Your Contract is void as of the day we receive your
Contract and cancellation request. We determine your contract value at
the close of business on the day we receive your written request. If you
keep your Contract after the free look period and the investment is
allocated to a subaccount specially designated by the Company, we will
put your money in the subaccount(s) chosen by you, based on the
accumulation unit value next computed for each subaccount, and/or in the
Fixed Interest Allocation chosen by you.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any surrender,
administration, and mortality and expense risk charges. We may also
change the minimum initial and additional premium requirements, or offer
an alternative or reduced death benefit.
SELLING THE CONTRACT
Directed Services, Inc. is the principal underwriter and distributor of
the Contract as well as for other contracts issued through Separate
Account B and other separate accounts of Golden American. We pay
Directed Services for acting as principal underwriter under a
distribution agreement which in turn pays the writing agent. The
principal address of Directed Services is 1475 Dunwoody Drive, West
Chester, Pennsylvania 19380.
Directed Services enters into sales agreements with broker-dealers to
sell the Contracts through registered representatives who are licensed to
sell securities and variable insurance products. These broker-dealers
are registered with the SEC and are members of the National Association
of Securities Dealers, Inc. Directed Services receives a maximum of 7%
commission, and passes through 100% of the commission to the broker-
dealer whose registered representative sold the contract.
PP4SF-108892 53
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UNDERWRITER COMPENSATION
- --------------------------------------------------------------------------------
NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER BE PAID COMPENSATION
Directed Services, Inc. Maximum of 7% Reimbursement of any
of any initial covered expenses
or additional incurred
premium payments by registered
except when representatives
combined in connection
with some annual with the
trail commissions. distribution
of the Contracts.
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Certain sales agreements may provide for a combination of a certain
percentage of commission at the time of sale and an annual trail
commission (which when combined could exceed 7% of total premium
payments).
We do not pay any additional commissions on the sale or exercise of any
of the optional benefit riders offered in this prospectus.
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OTHER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
We will vote the shares of a Trust owned by Separate Account B according
to your instructions. However, if the 1940 Act or any related
regulations should change, or if interpretations of it or related
regulations should change, and we decide that we are permitted to vote
the shares of a Trust in our own right, we may decide to do so.
We determine the number of shares that you have in a subaccount by
dividing the Contract's contract value in that subaccount by the net
asset value of one share of the portfolio in which a subaccount invests.
We count fractional votes. We will determine the number of shares you
can instruct us to vote 180 days or less before a Trust shareholder
meeting. We will ask you for voting instructions by mail at least 10
days before the meeting. If we do not receive your instructions in time,
we will vote the shares in the same proportion as the instructions
received from all contracts in that subaccount. We will also vote shares
we hold in Separate Account B which are not attributable to contract
owners in the same proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware. We
are also subject to the insurance laws and regulations of all
jurisdictions where we do business. The Contract offered by this
prospectus has been approved where required by those jurisdictions. We
are required to submit annual statements of our operations, including
financial statements, to the Insurance Departments of the various
jurisdictions in which we do business to determine solvency and
compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be 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. We believe that currently there are
no pending or threatened lawsuits that are reasonably likely to have a
materially adverse impact on the Company or Separate Account B.
PP4SF-108892 54
LEGAL MATTERS
The legal validity of the Contracts was passed on by Myles R. Tashman,
Esquire, 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.
EXPERTS
The audited financial statements of Golden American and Separate Account
B appearing in this prospectus or in the SAI and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing in this prospectus or in the SAI
and in the Registration Statement and are included or incorporated by
reference in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
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FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The following summary provides a general description of the federal
income tax considerations associated with this Contract and does not
purport to be complete or to cover all tax situations. This discussion
is not intended as tax advice. You should consult your counsel or other
competent tax advisers for more complete information. This discussion is
based upon our understanding of the present federal income tax laws. We
do not make any representations as to the likelihood of continuation of
the present federal income tax laws or as to how they may be interpreted
by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or purchased
on a tax-qualified basis. Qualified Contracts are designed for use by
individuals whose premium payments are comprised solely of proceeds from
and/or contributions under retirement plans that are intended to qualify
as plans entitled to special income tax treatment under Sections 401(a),
403(b), 408, or 408A of the Code. The ultimate effect of federal income
taxes on the amounts held under a Contract, or annuity payments, depends
on the type of retirement plan, on the tax and employment status of the
individual concerned, and on our tax status. In addition, certain
requirements must be satisfied in purchasing a qualified Contract with
proceeds from a tax-qualified plan and receiving distributions from a
qualified Contract in order to continue receiving favorable tax
treatment. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Contract administration
procedures. Contract owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the Contract comply with applicable law.
Therefore, you should seek competent legal and tax advice regarding the
suitability of a Contract for your particular situation. The following
discussion assumes that qualified Contracts are purchased with proceeds
from and/or contributions under retirement plans that qualify for the
intended special federal income tax treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments
of a variable account be "adequately diversified" in order for non-
qualified Contracts to be treated as annuity contracts for federal income
tax purposes. It is intended that Separate Account B, through the
subaccounts, will satisfy these diversification requirements.
INVESTOR CONTROL. In certain circumstances, owners of variable annuity
contracts have been considered for federal income tax purposes to be the
owners of the assets of the separate account supporting their contracts
due to their ability to exercise investment control over those assets.
When this is the case, the contract owners have been currently taxed on
income and gains attributable to the separate account assets. There is
little guidance in this area, and some features of the Contracts, such as
the flexibility of a contract owner to allocate premium payments and
transfer contract values, have not been explicitly addressed in published
rulings. While we believe that the Contracts do not give contract owners
investment control over
PP4SF-108892 55
Separate Account B assets, we reserve the right to modify the Contracts
as necessary to prevent a contract owner from being treated as the owner
of the Separate Account B assets supporting the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract
for federal income tax purposes, the Code requires any non-qualified
Contract to contain certain provisions specifying how your interest in
the Contract will be distributed in the event of your death. The non-
qualified Contracts contain provisions that are intended to comply with
these Code requirements, although no regulations interpreting these
requirements have yet been issued. We intend to review such provisions
and modify them if necessary to assure that they comply with the
applicable requirements when such requirements are clarified by
regulation or otherwise. See "Death Benefit Choices" for additional
information on required distributions from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as
annuity contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will
generally not be taxed on increases in the value of a Contract until a
distribution occurs or until annuity payments begin. (For these
purposes, the agreement to assign or pledge any portion of the contract
value, and, in the case of a qualified Contract, any portion of an
interest in the qualified plan, generally will be treated as a
distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a
natural person generally must include in income any increase in the
excess of the contract value over the "investment in the contract"
(generally, the premiums or other consideration you paid for the contract
less any nontaxable withdrawals) during the taxable year. There are some
exceptions to this rule and a prospective contract owner that is not a
natural person may wish to discuss these with a tax adviser. The
following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs
(including amounts paid to you under the MGWB rider), the amount received
will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the contract value (unreduced by the amount of
any surrender charge) immediately before the distribution over the
contract owner's investment in the Contract at that time. Credits
constitute earnings (not premiums) for federal tax purposes and are not
included in the owner's investment in the Contract. The tax treatment of
market value adjustments is uncertain. You should consult a tax adviser
if you are considering taking a withdrawal from your Contract in
circumstances where a market value adjustment would apply. In the case of
a surrender under a non-qualified Contract, the amount received generally
will be taxable only to the extent it exceeds the contract owner's
investment in the Contract.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from
a non-qualified Contract, there may be imposed a federal tax penalty
equal to 10% of the amount treated as income. In general, however, there
is no penalty on distributions:
o made on or after the taxpayer reaches age 59 1/2;
o made on or after the death of a contract owner;
o attributable to the taxpayer's becoming disabled; or
o made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
PP4SF-108892 56
Other exceptions may be applicable under certain circumstances and
special rules may be applicable in connection with the exceptions
enumerated above. A tax adviser should be consulted with regard to
exceptions from the penalty tax.
ANNUITY PAYMENTS. Although tax consequences may vary depending on the
payment option elected under an annuity contract, a portion of each
annuity payment is generally not taxed and the remainder is taxed as
ordinary income. The non-taxable portion of an annuity payment is
generally determined in a manner that is designed to allow you to recover
your investment in the Contract ratably on a tax-free basis over the
expected stream of annuity payments, as determined when annuity payments
start. Once your investment in the Contract has been fully recovered,
however, the full amount of each annuity payment is subject to tax as
ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of your death or the death of the annuitant. Generally,
such amounts are includible in the income of recipient as follows: (i)
if distributed in a lump sum, they are taxed in the same manner as a
surrender of the Contract, or (ii) if distributed under a payment option,
they are taxed in the same way as annuity payments.
TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT. A
transfer or assignment of ownership of a Contract, the designation of an
annuitant, the selection of certain dates for commencement of the annuity
phase, or the exchange of a Contract may result in certain tax
consequences to you that are not discussed herein. A contract owner
contemplating any such transfer, assignment or exchange, should consult a
tax adviser as to the tax consequences.
WITHHOLDING. Annuity distributions are generally subject to
withholding for the recipient's federal income tax liability. Recipients
can generally elect, however, not to have tax withheld from
distributions.
MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that
are issued by us (or our affiliates) to the same contract owner during
any calendar year are treated as one non-qualified deferred annuity
contract for purposes of determining the amount includible in such
contract owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary
according to the type of plan and the terms and conditions of the plan
itself. Special favorable tax treatment may be available for certain
types of contributions and distributions. Adverse tax consequences may
result from: contributions in excess of specified limits; distributions
before age 59 1/2 (subject to certain exceptions); distributions that do
not conform to specified commencement and minimum distribution rules; and
in other specified circumstances. Therefore, no attempt is made to
provide more than general information about the use of the Contracts with
the various types of qualified retirement plans. Contract owners,
annuitants, and beneficiaries are cautioned that the rights of any person
to any benefits under these qualified retirement plans may be subject to
the terms and conditions of the plans themselves, regardless of the terms
and conditions of the Contract, but we shall not be bound by the terms
and conditions of such plans to the extent such terms contradict the
Contract, unless the Company consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same manner
as under a non-qualified Contract. When a withdrawal from a qualified
Contract occurs, a pro rata portion of the amount received is taxable,
generally based on the ratio of the contract owner's investment in the
Contract (generally, the premiums or other consideration paid for the
Contract) to the participant's total accrued benefit balance under the
retirement plan. For qualified Contracts, the investment in the Contract
can be zero. For Roth IRAs, distributions are generally not taxed,
except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires
that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the
contract owner (or plan participant) (i) reaches age 70 1/2 or (ii)
retires, and must be made in a specified form or manner. If the plan
participant is a "5 percent owner" (as defined in the Code),
distributions generally
PP4SF-108892 57
must begin no later than April 1 of the calendar year following the
calendar year in which the contract owner (or plan participant) reaches
age 70 1/2. For IRAs described in Section 408, distributions generally
must commence no later than the later of April 1 of the calendar year
following the calendar year in which the contract owner (or plan participant)
reaches age 70 1/2. Roth IRAs under Section 408A do not require distributions
at any time before the contract owner's death.
WITHHOLDING. Distributions from certain qualified plans generally are
subject to withholding for the contract owner's federal income tax
liability. The withholding rates vary according to the type of
distribution and the contract owner's tax status. The contract owner may
be provided the opportunity to elect not to have tax withheld from
distributions. "Eligible rollover distributions" from section 401(a)
plans and section 403(b) tax-sheltered annuities are subject to a
mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan,
except certain distributions that are required by the Code or
distributions in a specified annuity form. The 20% withholding does not
apply, however, if the contract owner chooses a "direct rollover" from
the plan to another tax-qualified plan or IRA.
Brief descriptions of the various types of qualified retirement plans in
connection with a Contract follow. We will endorse the Contract as
necessary to conform it to the requirements of such plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Section
401(a) of the Code permits corporate employers to establish various types
of retirement plans for employees, and permits self-employed individuals
to establish these plans for themselves and their employees. These
retirement plans may permit the purchase of the Contracts to accumulate
retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant, or to both may result if
this Contract is assigned or transferred to any individual as a means to
provide benefit payments, unless the plan complies with all legal
requirements applicable to such benefits before transfer of the Contract.
Employers intending to use the Contract with such plans should seek
competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
or "IRA." These IRAs are subject to limits on the amount that can be
contributed, the deductible amount of the contribution, the persons who
may be eligible, and the time when distributions commence. Also,
distributions from certain other types of qualified retirement plans may
be "rolled over" or transferred on a tax-deferred basis into an IRA.
There are significant restrictions on rollover or transfer contributions
from Savings Incentive Match Plans for Employees (SIMPLE), under which
certain employers may provide contributions to IRAs on behalf of their
employees, subject to special restrictions. Employers may establish
Simplified Employee Pension (SEP) Plans to provide IRA contributions on
behalf of their employees. Sales of the Contract for use with IRAs may
be subject to special requirements of the IRS.
ROTH IRA
Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject
to limits on the amount of the contributions and the persons who may be
eligible to contribute, are not deductible, and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover
from or conversion of an IRA to a Roth IRA may be subject to tax, and
other special rules may apply. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10% penalty tax may apply
to distributions made (1) before age 59 1/2 (subject to certain
exceptions) or (2) during the five taxable years starting with the year
in which the first contribution is made to any Roth IRA. A 10% penalty
may apply to amounts attributable to a conversion from an IRA to a Roth
IRA if the amounts are distributed during the five taxable years
beginning with the year in which the conversion was made.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their gross income the
premium payments made, within certain limits, on a Contract that will
provide an annuity for the employee's retirement. These premium payments
may be subject to FICA (Social
PP4SF-108892 58
Security) tax. Distributions of (1) salary reduction contributions made
in years beginning after December 31, 1988; (2) earnings on those
contributions; and (3) earnings on amounts held as of the last year
beginning before January 1, 1989, are not allowed prior to age 59 1/2,
separation from service, death or disability. Salary reduction
contributions may also be distributed upon hardship, but would generally
be subject to penalties.
LOANS
Loans may be available if you are under age 70 1/2 and purchased your contract
in connection with a non-ERISA plan qualified under Section 403(b) of the Code
("TSA"). If your contract was issued in connection with a TSA and the terms of
your plan permit, you may take a loan from us, using your Cash Surrender Value
as collateral for the loan. Loans are subject to the terms of the Contract, the
plan and the Code. You are responsible for monitoring the amount and number of
loans outstanding at any one time under your TSA, whether under our contracts or
those of other carriers. We may modify the terms of a loan to comply with
changes in applicable law. WE URGE YOU TO CONSULT WITH A QUALIFIED TAX ADVISOR
PRIOR TO EFFECTING A LOAN TRANSACTION UNDER YOUR CONTRACT.
LOAN PROCEDURES. You must complete a loan application in order to effect a
loan. You may submit a loan application at any time after the free look period
and before the annuity start date. There is a loan fee (currently $25) per loan,
payable at the time of the loan. If the loan amount plus the loan fee exceeds
the maximum loan amount, the fee will be deducted from the loan proceeds.
In order to secure your loan, on the effective date of your loan, we will
transfer an amount equal to the principal amount of your loan into an account
called the "TSA Special Fixed Account". You must indicate your choice of
variable and fixed accounts from which amounts will be transferred to the TSA
Special Fixed Account. If no choice is indicated, amounts will be transferred on
a pro rata basis from your variable accounts. If amounts allocated to the
variable accounts are not sufficient, amounts will be transferred from the fixed
accounts on a nearest to maturity basis.
Amounts transferred from the TSA Special Fixed Account upon loan repayments
will be transferred to the variable accounts in proportion to the contract value
so allocated. If no contract value is allocated to the variable accounts, such
transfers will be made to the Liquid Asset subaccount.
No withdrawals are permitted unless there has been a Distributable Event.
Distributable Events are the following:
1) attainment of age 59 1/2;
2) separation from service ;
3) death; or
4) disability.
You must notify us when a separation from service has occurred.. No withdrawals
are permitted from the TSA Special Fixed Account, other than an automatic
withdrawal to pay off a defaulted loan. See Loan Default, below.
MINIMUM AND MAXIMUM LOAN AMOUNTS. You may borrow a minimum of $1,000,
unless we are required by law to allow a lesser minimum amount. We currently
allow no more than 2 loans per Contract at any time. The maximum loan amount for
a new loan is the lesser of (1) and (2), minus any outstanding loan balance,
where
1) is 50% of the Cash Surrender Value, and
2) is $50,000 minus the excess of the highest outstanding loan
balance during the past 12 months over the loan balance on the
date of the new loan.
LOAN INTEREST. The outstanding loan balance in the TSA Special Fixed
Account is credited with interest until the loan is repaid in full. The current
annual effective interest rate is 3.5%. The guaranteed minimum
PP4SF-108892 59
interest rate is 3%. Rates are guaranteed for one year. Each loan will have a
separate TSA Special Fixed Account, and each may have a different interest
crediting rate.
You will be charged interest on the outstanding loan balance at an annual
effect interest rate of 6%. Interest will be charged in arrears. Interest
charges accrue on your outstanding loan balance daily beginning on the effective
date of your loan.
LOAN REPAYMENT. Loans must be repaid within 5 years. However, if the loan
is used to purchase your principal residence, it must be repaid within 15 years.
You must identify your payments as premium payments or they will be treated as
loan repayments. You may choose whether to make your loan repayments quarterly
or monthly. Currently, loans must be repaid by electronic funds transfer ("EFT")
or pre-authorized check. ("PAC"), unless we have approved another form of
payment.
If your loan repayment is late, and the loan would otherwise be in default,
we will make a withdrawal in an amount sufficient to keep the loan from going
into default. The withdrawals will be made on a pro rata basis from all of the
variable accounts to which contract value is then allocated. If there is not
enough contract value in the variable accounts, the withdrawal will be made from
the fixed accounts on a nearest to maturity basis. This will only be done if:
1) there has been a Distributable Event;
2) the amount available for withdrawal is equal to or exceeds the
necessary amount plus any applicable withdrawal charges; and
3) you have authorized us to do so in the loan agreement.
If any of these conditions is not met, the loan will be considered to be in
default, and default procedures will be performed.
LOAN DEFAULT. When your loan is in default, you may pay off the loan, or
the loan will be repaid through an automatic withdrawal from your contract
value, as described below.
1. Loan Repaid
For loans in default status, we will accept repayment only in the
amount necessary to pay off the loan balance in full.
2. Loan Not Repaid
The defaulted loan balance continues to accrue interest until there
has been a Distributable Event, at which time the defaulted loan
balance plus accrued interest will be repaid by automatic
withdrawal. The defaulted loan balance will be considered a Deemed
Distribution. If a Distributable Event has occurred prior to
default, the defaulted loan balance plus accrued interest is repaid
by automatic withdrawal upon default. The automatic withdrawal will
apply first to the TSA Special Fixed Account, then pro rata to the
variable accounts and then to the fixed accounts on a nearest to
maturity basis. Surrender charges and any market value adjustments
will be applied as applicable to such withdrawals. In either case
the Deemed Distribution or withdrawal will be considered a
currently taxable event, and may be subject to federal income tax
withholding and the federal early withdrawal penalty tax.
OVERLOANS. An overloan occurs when the total outstanding loan balance(s)
exceeds the Cash Surrender Value. If this occurs, we will send you a letter
requesting payment of an amount which will take the loan out of overloan status.
If after 30 days, the overloan status has not been corrected, the loan will be
considered in default. If a Distributable Event occurred, the Contract will
terminate without value. If a Distributable Event has not occurred, the Contract
will continue in force, interest continues to accrue and the loan continues.
Upon the occurrence of a Distributable Event while the loan is still in overloan
status, the Contract will terminate without value.
EFFECT OF LOAN ON OTHER CONTRACT FEATURES. The following contract
features will be impacted by any outstanding loan balance:
PP4SF-108892 60
1) Withdrawals and Charges: The rules concerning maximum withdrawal
amounts, free partial withdrawals, systematic withdrawals and
waiver of administrative charges will be determined by reducing the
otherwise applicable amounts by the amount of any outstanding loan
balance.
2) Death Benefits, Annuitization and Surrenders: The outstanding loan
balance is deducted from any amounts otherwise payable and in
determining the amount available for annuitization.
3) Riders:
a) Minimum Guaranteed Income Benefit ("MGIB") Rider. Upon
exercising the MGIB rider, the MGIB Base is reduced by the
ratio of the outstanding loan balance to the contract value.
b) Minimum Guaranteed Withdrawal Benefit ("MGWB") Rider. The
portion of the contract value used to pay off the outstanding
loan balance will reduce the MGWB Withdrawal Account. We do
not recommend the MGWB rider if loans are contemplated.
c) Minimum Guaranteed Accumulation Benefit ("MGAB") Rider.
Generally, loan repayment periods should not extend into the
3 year period preceding the end of the Waiting Period, because
transfers made within such 3 year period reduce the MGAB Base
and the MGAB Charge Base pro rata based on the percentage of
contract value transferred. Transfers between the TSA Special
Fixed Account and the variable accounts will not be excluded
from this treatment.
ENHANCED DEATH BENEFIT
The Contract includes an Enhanced Death Benefit that in some cases may
exceed the greater of the premium payments or the contract value. The
IRS has not ruled whether an Enhanced Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in
any Code section 401(a) pension or profit-sharing plan or Code section
403(b) tax-sheltered annuity. Employers using the Contract may want to
consult their tax adviser regarding such limitation. Further, the
Internal Revenue Service has not addressed in a ruling of general
applicability whether a death benefit provision such as the Enhanced
Death Benefit provision in the Contract comports with IRA or Roth IRA
qualification requirements. A tax advisor should be consulted.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the Contracts are not exhaustive, and special rules are provided
with respect to other tax situations not discussed in this prospectus.
Further, the federal income tax consequences discussed herein reflect our
understanding of current law, and the law may change. Federal estate and
state and local estate, inheritance and other tax consequences of
ownership or receipt of distributions under a Contract depend on the
individual circumstances of each contract owner or recipient of the
distribution. A competent tax adviser should be consulted for further
information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the Contracts could
change by legislation or other means. It is also possible that any
change could be retroactive (that is, effective before the date of the
change). You should consult a tax adviser with respect to legislative
developments and their effect on the Contract.
PP4SF-108892 61
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MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY
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SELECTED FINANCIAL DATA
The following selected financial data prepared in accordance with generally
accepted accounting principles ("GAAP") for Golden American should be read in
conjunction with the financial statements and notes thereto included in this
prospectus. On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of Equitable of Iowa
Companies ("Equitable of Iowa"), according to a merger agreement among Equitable
of Iowa, PFHI and ING Groep N.V. (the "ING acquisition"). On August 13, 1996,
Equitable of Iowa acquired all of the outstanding capital stock of BT Variable,
Inc., then the parent of Golden American (the "Equitable acquisition"). For
financial statement purposes, the ING acquisition was accounted for as a
purchase effective October 25, 1997 and the Equitable acquisition was accounted
for as a purchase effective August 14, 1996. As a result, the financial data
presented below for 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.
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER
-------------- ------------ ------------- --------------
For the Period For the Period
January 1, For the Year For the Year October 25,
2000 through Ended Ended 1997 through
September 30, December 31, December 31, December 31,
2000 1999 1998 1997
-------------- ------------ ------------- --------------
Annuity and Interest
Sensitive Life
Product Charges................. $ 106,892 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss) before
Federal Income Tax ............. $ 27,886 $ 19,737 $ 10,353 $ (279)
Net Income (Loss)................... $ 18,084 $ 11,214 $ 5,074 $ (425)
Total Assets........................ $ 11,835,937 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities................... $ 11,256,283 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's Equity.......... $ 579,654 $ 477,849 $ 353,894 $ 227,313
POST-ACQUISITION | PRE-ACQUISITION
-------------- -------------- | ------------------------------
For the Period For the Period | For the Period
January 1,1997 August 14, | January 1, For the Year
through 1996 through | 1996 through Ended
October 24, December 31, | August 13, December, 31,
1997 1996 | 1996 1995
-------------- -------------- | --------------- -------------
|
Annuity and Interest |
Sensitive Life Product Charges................. $ 18,288 $ 8,768 | $ 12,259 $ 18,388
Net Income (Loss) before |
Federal Income Tax............................. $ (608) $ 570 | $ 1,736 $ 3,364
Net Income (Loss).................................. $ 729 $ 350 | $ 3,199 $ 3,364
Total Assets....................................... N/A $ 1,677,899 | N/A $1,203,057
Total Liabilities.................................. N/A $ 1,537,415 | N/A $1,104,932
Total Stockholder's Equity......................... N/A $ 140,484 | N/A $ 98,125
PP4SF-108892 62
BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: strong
stock market performance over the last four years; relatively low interest
rates; an aging U.S. population that is increasingly concerned about retirement,
estate planning, and maintaining their standard of living in retirement; and
potential reductions in government and employer-provided benefits at retirement,
as well as lower public confidence in the adequacy of those benefits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze Golden American Life
Insurance Company's ("Golden American") consolidated results of operations. In
addition, some analysis and information regarding financial condition and
liquidity and capital resources is also provided. This analysis should be read
jointly with the consolidated financial statements, the related notes, and the
Cautionary Statement Regarding Forward-Looking Statements, which appear
elsewhere in this report. Golden American reports financial results on a
consolidated basis. The consolidated financial statements include the accounts
of Golden American and its wholly owned subsidiary, First Golden American Life
Insurance Company of New York ("First Golden," and collectively with Golden
American, the "Companies").
RESULTS OF OPERATION
MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable")
shareholders approved an Agreement and Plan of Merger ("Merger Agreement") dated
July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI"), and ING Groep N.V.
("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., Equitable Investment Services, Inc. (subsequently dissolved),
Directed Services, Inc. ("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 "Parent"), a Delaware corporation.
For financial statement purposes, the
change in control of the Companies through the ING merger was accounted for as a
purchase effective October 25, 1997. This merger resulted in a new basis of
accounting reflecting estimated fair values of assets and liabilities at the
merger date. As a result, the Companies' financial statements for periods after
October 24, 1997 are presented on the Post-Merger new basis of accounting.
The purchase price was allocated to EIC and its subsidiaries with $227.6 million
allocated to the Companies. Goodwill of $1.4 billion was established for the
excess of the merger cost over the fair value of the assets and liabilities of
EIC with $151.1 million attributed to the Companies. Goodwill resulting from the
merger is being amortized over 40 years on a straight-line basis. The carrying
value will be reviewed periodically for any indication of impairment in value.
CHANGE IN CONTROL -- ACQUISITION. On August 13, 1996, Equitable acquired all of
the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its
wholly owned subsidiaries, Golden American and DSI. 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
PP4SF-108892 63
Equitable, while the remainder of its net assets were contributed to Golden
American. On December 30, 1997, EIC Variable, Inc. was dissolved.
For financial statement purposes, the change in control of Golden
American through the acquisition of BT Variable was accounted for as a purchase
effective August 14, 1996. This acquisition resulted in a new basis of
accounting reflecting estimated fair values of assets and liabilities at the
acquisition date. As a result, the Companies' financial statements included for
the period January 1, 1997 through October 24, 1997 are presented on the
Post-Acquisition basis of accounting.
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 $139.9 million. Goodwill of $41.1 million
was established for the excess of the acquisition cost over the fair value of
the assets and liabilities and attributed to Golden American. At June 30, 1997,
goodwill was increased by $1.8 million, due to the adjustment of the value of a
receivable existing at the acquisition date. Before the ING merger, goodwill
resulting from the acquisition was being amortized over 25 years on a
straight-line basis.
THE FIRST NINE MONTHS OF 2000 COMPARED TO THE SAME PERIOD OF 1999
PREMIUMS
PERCENTAGE DOLLAR
NINE MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
---------- ---------- ----------- ----------
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $ 682.7 (61.7)% $ (1,100.8) $ 1,783.5
Fixed account.................................... 503.2 (6.7) (36.2) 539.4
---------- ------- ----------- ----------
Total variable annuity premiums...................... 1,185.9 (49.0) (1,137.0) 2,322.9
Variable life premiums............................... 1.5 (78.3) (5.5) 7.0
---------- ------- ----------- ----------
Total premiums....................................... $ 1,187.4 (49.0)% $ (1,142.5) $ 2,329.9
========== ======= =========== ==========
For the Companies' variable contracts, premiums collected are not reported as
revenues, but as deposits to insurance liabilities. Revenues for these products
are recognized over time in the form of investment spread and product charges.
Variable annuity separate account premiums decreased 61.7% during the first nine
months of 2000 compared to the same period of 1999. This decrease is completely
due to premium reductions included in the variable annuity separate account
premiums of $1,772.1 million and $72.1, million for the first nine months of
2000 and 1999, respectively, related to modified coinsurance agreements.
Variable life premiums decreased 78.3% in the first nine months of 2000 from the
same period of 1999. In August 1999, Golden American discontinued offering
variable life products.
Premiums, net of reinsurance, for variable products from
a significant broker/dealer having at least ten percent of total sales for the
nine months ended September 30, 2000 totaled $139.3 million, or 12% of total
premiums ($664.2 million, or 29% from two significant broker/dealers for the
nine months ended September 30, 1999).
PP4SF-108892 64
REVENUES
PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30 2000 CHANGE CHANGE 1999
--------- ---------- ----------- ----------
(Dollars in millions)
Annuity and interest sensitive
life product charges............................. $ 106.9 93.7% $ 51.7 $ 55.2
Management fee revenue............................... 15.6 130.1 8.8 6.8
Net investment income................................ 47.9 12.2 5.2 42.7
Realized losses on investments....................... (4.5) (104.5) (2.3) (2.2)
Net income from modified coinsurance
agreements....................................... 220.2 3,184.4 213.8 6.4
Other income......................................... 1.3 30.0 0.3 1.0
-------- ------- -------- --------
$ 387.4 252.6% $ 277.5 $ 109.9
======== ======= ======== ========
Total revenues increased 252.6% in the first nine months of 2000 from the same
period in 1999. Annuity and interest sensitive life product charges increased
93.7% in the first nine months of 2000 due to additional fees earned from the
increasing block of business under management in the variable separate accounts.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"). The fee paid to Golden American for these services,
which is calculated as a percentage of average assets in the variable separate
accounts, was $15.6 million and $6.8 million for the first nine months of 2000
and 1999, respectively. This increase is due to the increasing assets in the
variable separate account and renegotiation of the fee paid by DSI to Golden
American.
Net investment income increased 12.2% in the first nine months of 2000
due to growth in average invested assets for the first nine months of 2000 as
compared to the same period in 1999. The Companies had $4.5 million of realized
losses in the first nine months of 2000 on the sale of fixed maturities and the
writedown of an impaired investment, compared to losses of $2.2 million in the
same period of 1999 resulting from the writedown of two fixed maturities in the
second quarter of 1999 and from the sale of investments in the first nine months
of 1999.
Net income from modified coinsurance agreements increased by $213.8 million to
$220.2 million for the first nine months of 2000 as compared to the first nine
months of 1999. This was primarily due to a modified coinsurance agreement which
was entered into during the second quarter of 2000, with an affiliate, Equitable
Life Insurance Company of Iowa ("Equitable Life"), covering a part of business
issued in 2000. This reinsurance agreement contributed $102.9 million to other
income in the third quarter of 2000 and $214.7 in the first nine months of 2000,
which was offset by a corresponding release of deferred policy acquisition costs
and reimbursement of non-deferrable costs related to policies reinsured under
this agreement.
EXPENSES
Total insurance benefits and expenses increased $247.6 million, or 255.6%, to
$344.5 million in the first nine months of 2000. Interest credited to account
balances increased $21.9 million, or 17.4%, to $147.3 million in the first nine
months of 2000. The premium credit on the Premium Plus product increased $19.9
million to $105.6 million in the first nine months of 2000. The bonus interest
on the fixed account decreased $0.4 million to $7.2 million during the first
nine months of 2000. The remaining increase in interest credited relates to
lower account balances associated with the Companies' fixed account options
within the variable products relative to the balances at September 30, 1999.
Commissions increased $25.5 million, or 19%, to $160.1 million in the first nine
months of 2000. Insurance taxes, state licenses, and fees increased $0.7
million, or 20%, to $4.0 million in the first nine months of 2000. Changes in
commissions and insurance taxes, state licenses, and fees are generally related
to changes in the level and composition of variable product sales. Insurance
taxes, state licenses, and fees are impacted by several other factors, which
include an increase in FICA taxes primarily due to incentive bonuses. Most costs
incurred as the result of new sales are deferred, thus having very little impact
on current earnings.
PP4SF-108892 65
General expenses increased $13.6 million, or 28.7%, to $61.2 million in the
first nine months of 2000. Management expects general expenses to continue to
increase in 2000 as a result of the emphasis on expanding the salaried
wholesaler distribution network, the growth in sales, and the increased amounts
in force. The Companies use a network of wholesalers to distribute products, and
the salaries and sales bonuses of these wholesalers are included in general
expenses. The portion of these salaries and related expenses that varies
directly with production levels is deferred thus having little impact on current
earnings. The increase in general expenses was partially offset by
reimbursements received from the following affiliates: DSI, Equitable Life, ING
Mutual Funds Management Co., LLC, Security Life of Denver Insurance Company,
Southland Life Insurance Company, and United Life & Annuity Insurance Company,
for certain advisory, computer, and other resources and services provided by the
Companies.
During the first nine months of 2000 and 1999, value of purchased insurance in
force ("VPIF") was adjusted to increase amortization by $0.7 million in each
period, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits. Amortization of deferred policy acquisition
costs ("DPAC") increased $29.8 million, or 151.4%, in the first nine months of
2000. This increase resulted from the deferral of expenses associated with the
large sales volume experienced since September 30, 1999. Deferred policy
acquisition costs decreased $157.1 million or 64.2% in the first nine months of
2000. During the second quarter of 2000, a modified coinsurance agreement was
entered into which resulted in a $213.0 million release of previously deferred
policy acquisition costs for the first nine months of 2000. Based on current
conditions and assumptions as to the impact of future events on acquired
policies in force, the expected net amortization relating to VPIF as of
September 30, 2000 is $0.9 million for the remainder of 2000, $3.5 million in
2001, $3.3 million in 2002, $2.8 million in 2003, $2.2 million in 2004, and $1.7
million in 2005. Actual amortization may vary based upon changes in assumptions
and experience.
Interest expense increased 169.7%, or $9.4 million, to $15.0 million in the
first nine months of 2000. Interest expense on a $25 million surplus note issued
December 1996 and expiring December 2026 was $1.5 million for the first nine
months of 2000, unchanged from the same period of 1999. Interest expense on a
$60 million surplus note issued in December 1998 and expiring December 2028 was
$3.3 million for the first nine months of 2000, unchanged from the same period
of 1999. Interest expense on a $75 million surplus note, issued September 1999
and expiring September 2029 was $4.4 million for the first nine months of 2000.
Interest expense on a $50 million surplus note, issued December 1999 and
expiring December 2029 was $3.1 million for the first nine months of 2000.
Interest expense on a $35 million surplus note issued December 1999 and expiring
December 2029 was $2.3 million for the first nine months of 2000. Golden
American also paid $0.4 million in 2000 and $0.7 million in 1999 to ING America
Insurance Holdings, Inc. ("ING AIH") for interest on a reciprocal loan
agreement. Interest expense on a revolving note payable with SunTrust Bank,
Atlanta was $36,000 and $109,000 for the first nine months of 2000 and 1999,
respectively.
INCOME
Net income was $18.1 million for the first nine months of 2000, an increase of
$14.5 million, or 409.3% from the same period of 1999.
Comprehensive income for
the first nine months of 2000 was $21.8 million, an increase of $21.8 million
from comprehensive loss of $18,000 in the same period of 1999.
PP4SF-108892 66
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---------- ---------- ----------- ----------
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................................... 770.7 30.9 182.0 588.7
-------- ---- -------- --------
Total variable annuity premiums...................... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............................... 8.6 (37.8) (5.2) 13.8
-------- ---- -------- --------
Total premiums....................................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ==== ======== ========
For the Companies' variable contracts, premiums collected are not reported as
revenues, but as deposits to insurance liabilities. Revenues for these products
are recognized over time in the form of investment spread and product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for
variable products from two significant broker/dealers each having at least ten
percent of total sales for the year ended December 31, 1999 totaled $918.4
million, or 28% of premiums compared to $528.9 million, or 26%, from two
significant broker/dealers for the year ended December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---------- ---------- ----------- ----------
(Dollars in millions)
Annuity and interest sensitive life product
charges.......................................... $ 82.9 112.0% $43.8 $39.1
Management fee revenue............................... 10.1 112.5 5.3 4.8
Net investment income................................ 59.2 39.3 16.7 42.5
Realized gains (losses) on investments............... (2.9) 96.1 (1.4) (1.5)
Other income......................................... 10.8 94.4 5.2 5.6
------- ---- ----- -----
$ 160.1 77.0% $69.6 $90.5
======= ==== ===== =====
Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999.
Annuity and interest sensitive life product charges increased 112.0%, or $43.8
million, to $82.9 million in 1999, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
Golden American provides certain managerial and supervisory services to DSI. The
fee paid to Golden American for these services, which is calculated as a
percentage of average assets in the variable separate accounts, was $10.1
million for 1999 and $4.8 million for 1998.
Net investment income increased 39.3%, or $16.7 million, to $59.2 million in
1999 from $42.5 million in 1998, due to growth in invested assets from December
31, 1998, increasing interest rates, and a relative increase in below investment
grade investments.
PP4SF-108892 67
During 1999, the Company had net realized losses on investments of $2.9 million,
which includes a $1.6 million write down of two impaired fixed maturities,
compared to net realized losses on investments of $1.5 million in 1998 which
included a $1.0 million write down of two impaired fixed maturities.
Other income increased $5.2 million to $10.8 million in 1999, due primarily to
income received under a modified coinsurance agreement with an unaffiliated
reinsurer.
EXPENSES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---------- ---------- ----------- ----------
(Dollars in millions)
Insurance benefits and expenses: Annuity and interest sensitive life benefits:
Interest credited to account balances.......... $ 175.9 85.4% $ 81.0 $ 94.9
Benefit claims incurred in excess of
account balances............................. 6.3 200.2 4.2 2.1
Underwriting, acquisition, and insurance
expenses:
Commissions.................................... 188.4 55.5 67.2 121.2
General expenses............................... 60.2 60.2 22.6 37.6
Insurance taxes, state licenses, and fees...... 4.0 (4.0) (0.1) 4.1
Policy acquisition costs deferred.............. (346.4) 75.1 (148.6) (197.8)
Amortization:
Deferred policy acquisition costs............ 33.1 543.3 28.0 5.1
Value of purchased insurance in force........ 6.2 32.0 1.5 4.7
Goodwill..................................... 3.8 -- -- 3.8
------- ---- ------- --------
$ 131.5 73.7% $ 55.8 $ 75.7
======= ==== ======= ========
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999
from $75.7 million in 1998. Interest credited to account balances increased
85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit
on the Premium Plus variable annuity product increased $69.3 million to $123.8
million at December 31, 1999. The bonus interest on the fixed account increased
$3.0 million to $10.9 million at December 31, 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products.
Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in
1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million,
in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Insurance taxes, state licenses, and fees
are impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses and expenses for the triennial insurance department
examination of Golden American, which were offset by a decrease in 1999 of
guaranty fund assessments paid. Most costs incurred as the result of sales have
been deferred, thus having very little impact on current earnings.
General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million
in 1998. Management expects general expenses to continue to increase in 2000 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an
affiliate, Southland Life Insurance Company, an affiliate, and United Life &
Annuity Insurance Company, an affiliate, for certain advisory, computer, and
other resources and services provided by Golden American.
PP4SF-108892 68
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
value of purchased insurance in force ("VPIF"), and unearned revenue reserve
were eliminated and a new asset of $44.3 million representing VPIF was
established for all policies in force at the merger date. During 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. During 1998, VPIF
was adjusted to reduce amortization by $0.2 million to reflect changes in the
assumptions related to the timing of future gross profits. Amortization of DPAC
increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth
in policy acquisition costs deferred from $197.8 million at December 31, 1998 to
$346.4 million at December 31, 1999, which was generated by expenses associated
with the large sales volume experienced since December 31, 1998. 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, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million
in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in
1998. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1999,
unchanged from the same period of 1998. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.3 million
for the year ended December 31, 1999. Interest expense on a $75 million surplus
note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million
for the year ended December 31, 1999. Golden American also paid $0.8 million in
1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING
AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3
million for the years ended December 31, 1999 and 1998, respectively. In
addition, Golden American incurred interest expense of $0.2 million in 1998 on a
line of credit with Equitable.
INCOME
Net income for 1999 was $11.2 million, an increase of $6.1 million from $5.1
million for 1998.
Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from
comprehensive income of $3.9 million for 1998.
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
POST-MERGER COMBINED POST-MERGER POST-ACQUISITION
----------------- ----------------- ---------------- -----------------
For the Period For the Period
October 25, January 1,
For the Year For the Year 1997 1997
ended ended through through
December 31, December 31, December 31, October 24,
1998 1997 1997 1997
----------------- ----------------- ---------------- -----------------
(Dollars in millions)
Variable annuity premiums:
Separate account........................ $ 1,513.3 $ 291.2 $ 111.0 $ 180.2
Fixed account........................... 588.7 318.0 60.9 257.1
---------- --------- --------- ---------
2,102.0 609.2 171.9 437.3
Variable life premiums...................... 13.8 15.6 1.2 14.4
---------- --------- --------- ---------
Total premiums.............................. $ 2,115.8 $ 624.8 $ 173.1 $ 451.7
========== ========= ========= =========
For the Companies' variable contracts, premiums collected are not reported as
revenues, but are reported as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment income and
product charges.
PP4SF-108892 69
Variable annuity separate account premiums increased 419.7% in 1998 primarily
due to increased sales of the Premium Plus product introduced in October of 1997
and the increased sales levels of the Companies' other products. The fixed
account portion of the Companies' variable annuity premiums increased 85.1% in
1998. Variable life premiums decreased 11.4% in 1998. Total premiums increased
238.7% in 1998.
During 1998, the Companies' sales were further diversified among broker/dealers.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers having at least ten percent of total sales for the year ended
December 31, 1998 totaled $528.9 million, or 26% of premiums ($328.2 million, or
53% from two significant broker/dealers for the year ended December 31, 1997).
REVENUES
POST-MERGER COMBINED POST-MERGER POST-ACQUISITION
----------------- ----------------- ---------------- -----------------
For the Period For the Period
October 25, January 1,
For the Year For the Year 1997 1997
ended ended through through
December 31, December 31, December 31, October 24,
1998 1997 1997 1997
----------------- ----------------- ---------------- -----------------
(Dollars in millions)
Annuity and interest sensitive life
product charges......................... $ 39.1 $ 22.1 $ 3.8 $ 18.3
Management fee revenue...................... 4.8 2.8 0.5 2.3
Net investment income....................... 42.5 26.8 5.1 21.7
Realized gains (losses)
on investments.......................... (1.5) 0.1 -- 0.1
Other income................................ 5.6 0.7 0.3 0.4
---------- --------- --------- ---------
$ 90.5 $ 52.5 $ 9.7 $ 42.8
========== ========= ========= =========
Total revenues increased 72.3%, or $38.0 million, to $90.5 million in 1998.
Annuity and interest sensitive life product charges increased 76.8%, or $17.0
million, to $39.1 million in 1998 due to additional fees earned from the
increasing block of business under management in the separate accounts and an
increase in surrender charge revenues. This increase was partially offset by the
elimination of the unearned revenue reserve related to in force acquired
business at the merger date, which resulted in lower annuity and interest
sensitive life product charges compared to Post-Acquisition levels.
Golden American provides certain managerial and supervisory services to DSI. The
fee paid to Golden American for these services, which is calculated as a
percentage of average assets in the variable separate accounts, was $4.8 million
for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5 million in
1998 from $26.8 million in 1997 due to growth in invested assets. During 1998,
the Company had net realized losses on investments of $1.5 million, which
included a $1.0 million write down of two impaired bonds, compared to gains of
$0.1 million in 1997. Other income increased $4.9 million to $5.6 million in
1998 due primarily to income received under a modified coinsurance agreement
with an unaffiliated reinsurer as a result of increased sales.
PP4SF-108892 70
EXPENSES
POST-MERGER COMBINED POST-MERGER POST-ACQUISITION
----------------- ----------------- ---------------- -----------------
For the Period For the Period
October 25, January 1,
For the Year For the Year 1997 1997
ended ended through through
December 31, December 31, December 31, October 24,
1998 1997 1997 1997
----------------- ----------------- ---------------- -----------------
(Dollars in millions)
Insurance benefits and expenses:
Annuity and interest sensitive
life benefits:
Interest credited to account
balances.............................. $ 94.9 $ 26.7 $ 7.4 $ 19.3
Benefit claims incurred in excess
of account balances................... 2.1 0.1 -- 0.1
Underwriting, acquisition, and insurance expenses:
Commissions............................. 121.2 36.3 9.4 26.9
General expenses........................ 37.6 17.3 3.4 13.9
Insurance taxes......................... 4.1 2.3 0.5 1.8
Policy acquisition costs deferred....... (197.8) (42.7) (13.7) (29.0)
Amortization:
Deferred policy acquisition costs..... 5.1 2.6 0.9 1.7
Value of purchased insurance
in force............................. 4.7 6.1 0.9 5.2
Goodwill.............................. 3.8 2.0 0.6 1.4
--------- --------- --------- ---------
$ 75.7 $ 50.7 $ 9.4 $ 41.3
========= ========= ========= =========
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in 1998
from $50.7 million in 1997. Interest credited to account balances increased
255.4%, or $68.2 million, in 1998 from $26.7 in 1997. The extra credit bonus on
the Premium Plus product introduced in October of 1997 generated a $51.6 million
increase in interest credited during 1998 compared to 1997. The remaining
increase in interest credited related to higher account balances associated with
the Companies' fixed account option within its variable products.
Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in
1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3
million in 1997. Changes in commissions and insurance taxes are generally
related to changes in the level of variable product sales. Insurance taxes are
impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses. Most costs incurred as the result of new sales
including the extra credit bonus were deferred, thus having very little impact
on current earnings.
General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3 million
in 1997. Management expects general expenses to continue to increase in 1999 as
a result of the emphasis on expanding the salaried wholesaler distribution
network. The Companies use a network of wholesalers to distribute products and
the salaries of these wholesalers are included in general expenses. The portion
of these salaries and related expenses that varies with production levels is
deferred thus having little impact on current earnings. The increase in general
expenses was partially offset by reimbursements received from Equitable Life, an
affiliate, for certain advisory, computer and other resources and services
provided by Golden American.
At the merger date, the Companies' deferred policy acquisition costs ("DPAC"),
previous balance of value of purchased insurance in force ("VPIF") and unearned
revenue reserve were eliminated and a new asset of $44.3 million representing
VPIF was established for all policies in force at the merger date. During 1998,
VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in
the assumptions related to the timing of future gross profits. VPIF decreased
$2.6 million in the second quarter of 1998 to adjust the value of other
PP4SF-108892 71
receivables recorded at the time of merger and increased $0.2 million in the
first quarter of 1998 as the result of an adjustment to the merger costs. The
amortization of VPIF and DPAC increased $1.1 million, or 13.0%, in 1998. During
the second quarter of 1997, VPIF was adjusted by $2.3 million to reflect
narrower spreads than the gross profit model assumed.
Amortization of goodwill for the year ended December 31, 1998 totaled
$3.8 million compared to $2.0 million for the year ended December 31, 1997.
Interest expense on the $25 million surplus note issued
December 1996 and expiring December 2026 was $2.1 million for
the year ended December 31, 1998, unchanged from the same
period of 1997. In addition, Golden American incurred interest expense
of $0.2 million in 1998 compared to $0.5 million in 1997 on the line of
credit with Equitable which was repaid with a capital contribution. Golden
American also paid $1.8 million in 1998 to ING America Insurance Holdings, Inc.
("ING AIH") for interest on the reciprocal loan agreement. Interest expense on
the revolving note payable with SunTrust Bank, Atlanta was $0.3 million for the
year ended December 31, 1998.
INCOME
Net income for 1998 was $5.1 million, an increase of $4.8 million from $0.3
million in 1997.
Comprehensive income for 1998 was $3.9 million, an increase of $1.8 million
from $2.1 million in 1997.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by
Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying
value and amortized cost basis of the Companies' total investments decreased
slightly during the first nine months of 2000. All of the Companies'
investments, other than mortgage loans on real estate, are carried at fair value
in the Companies' financial statements. The decrease in the carrying value of
the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of investments offset by net sales. The decrease
in the cost basis of the Companies' investment portfolio resulted from net
transfers to the separate accounts. The Companies manage the growth of insurance
operations in order to maintain adequate capital ratios. To support the fixed
account options of the Companies' variable insurance products, cash flow is
invested primarily in fixed maturities and mortgage loans on real estate.
At September 30, 2000, the Companies had no investments in default. At September
30, 2000, the Companies' investments had a yield of 6.7%. The Companies estimate
the total investment portfolio, excluding policy loans, had a fair value
approximately equal to 98.3% of amortized cost value at September 30, 2000.
FIXED MATURITIES: At September 30, 2000, the Companies had fixed maturities with
an amortized cost of $798.9 million and an estimated fair value of $784.8
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $14.1 million was comprised of
gross appreciation of $1.7 million and gross depreciation of $15.8 million. Net
unrealized holding losses on these securities, net of adjustments for VPIF,
DPAC, and deferred income taxes of $4.9 million, were included in stockholder's
equity at September 30, 2000.
The individual securities in the Companies' fixed
maturities portfolio (at amortized cost) include investment grade securities,
which include securities issued by the U.S. government, its agencies, and
corporations that are rated at least A- by Standard & Poor's Rating Services
("Standard & Poor's") ($527.7 million or 66.0%), that are rated BBB+ to BBB- by
Standard & Poor's ($130.1 million or 16.3%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($53.0 million or 6.5%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($88.1 million or 11.6%). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.7% at September
30, 2000.
PP4SF-108892 72
Fixed maturities rated BBB+ to BBB- may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of the issuer to make principal and
interest payments than is the case with higher rated fixed maturities.
At September 30, 2000, the amortized cost value of the Companies' total
investments in below investment grade securities, excluding mortgage-backed
securities, was $71.5 million, or 7.0%, of the Companies' investment portfolio.
The Companies intend to purchase additional below investment grade securities,
but do not expect the percentage invested in such securities to exceed 10% of
the investment portfolio. At September 30, 2000, the yield at amortized cost on
the Companies' below investment grade portfolio was 8.1% compared to 6.5% for
the Companies' investment grade corporate bond portfolio. The Companies estimate
the fair value of the below investment grade portfolio was $67.5 million, or
94.4% of amortized cost value, at September 30, 2000.
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
significantly greater with respect to below investment grade securities than
with other corporate debt securities. Below investment grade securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, issuers of below investment grade securities usually have higher levels of
debt and are more sensitive to adverse economic conditions, such as a recession
or increasing interest rates, than are investment grade issuers. The Companies
attempt to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by company and by industry.
The Companies analyze the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Companies' ability
to realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e. if it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
received, which may necessitate future write-downs of securities in the
Companies' portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Companies' net income in
future periods.
During the first nine months of 2000, fixed maturities
designated as available for sale with a combined amortized cost of $163.3
million were sold, called, or repaid by their issuers. In total, net pre-tax
losses from sales, calls, and repayments of fixed maturity investments amounted
to $4.5 million in the first nine months of 2000.
During the second quarter of
2000, Golden American determined that the carrying value of an impaired bond
exceeded its estimated net realizable value. As a result, at June 30, 2000,
Golden American recognized a total pre-tax loss of approximately $142,000 to
reduce the carrying value of the bond to its net realizable value of $329,000.
EQUITY SECURITIES: Equity securities represent 0.9% of the Companies' investment
portfolio. At September 30, 2000, the Companies owned equity securities with a
cost of $9.7 million and an estimated fair value of $8.8 million. Net unrealized
depreciation of equity securities was comprised entirely of gross depreciation
of $0.9 million. Equity securities are comprised of investments in shares of
mutual funds underlying the Companies' registered separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate
represent 10.1% of the Companies' investment portfolio.
Mortgages outstanding were $104.5 million at September 30,
2000 with an estimated fair value of $102.4 million. The Companies'
mortgage loan portfolio is comprised of 59 loans with an average size of
$1.8 million and average seasoning of 0.6 years if weighted by the number of
loans. The Companies' mortgage loans on real estate are typically secured by
occupied buildings in major metropolitan locations and not speculative
developments and are diversified by type of property and geographic location. At
September 30, 2000, the yield on the Companies' mortgage loan portfolio was
7.3%.
PP4SF-108892 73
At September 30, 2000, no mortgage loan on real estate was delinquent by
90 days or more. The Companies' loan investment strategy is consistent with
other life insurance subsidiaries of ING in the United States. The insurance
subsidiaries of EIC have experienced a historically low default rate in their
mortgage loan portfolios.
OTHER ASSETS. DPAC represents certain deferred costs
of acquiring new insurance business, principally first year commissions and
interest bonuses, premium credits, and other expenses related to production
after October 24, 1997 ("ING merger date"). The Companies' previous balances of
DPAC and VPIF were eliminated as of the ING merger date, and an asset
representing VPIF was established for all policies in force at the ING merger
date. VPIF is amortized into income in proportion to the expected gross profits
of in force acquired business in a manner similar to DPAC amortization. Any
expenses which vary directly with the sales of the Companies' products are
deferred and amortized. During the second quarter of 2000, a modified
coinsurance agreement was entered into which resulted in a $213.0 million
release of previously deferred policy acquisition costs. At September 30, 2000,
the Companies had DPAC and VPIF balances of $564.0 million and $28.9 million,
respectively.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established as a result of
the merger with ING. Accumulated amortization of goodwill through September 30,
2000 was $11.0 million.
Due from affiliates increased $9.2 million or 1438.4% to $9.8 million during the
first nine months of 2000. This is mainly due to an increased receivable for
management fee revenues. The increase is due to higher management fees in the
current year as well as the timing of the receivable settlement.
Other assets increased $1.2 million from December 31, 1999, due to an increase
in the receivable for securities sold and an increase in prepaid expenses.
At September 30, 2000, the Companies had $10.0 billion of separate account
assets compared to $7.6 billion at December 31, 1999. The increase in
separate account assets resulted from market appreciation, transfers from
the fixed account options, and sales of the Companies' variable annuity
products, net of redemptions.
At September 30, 2000, the Companies had total assets of $11.8 billion, a 26.0%
increase from December 31, 1999.
LIABILITIES. Future policy benefits for annuity
and interest sensitive life products decreased 9.1%, to $939.0 million due to
net transfers to the variable accounts. Market appreciation, net transfers from
the fixed account to the variable account options, and premiums, net of
redemptions, accounted for the $2.4 billion, or 32.1%, increase in separate
account liabilities to $10.0 billion at September 30, 2000.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029. On December 8, 1999,
Golden American issued a $35 million, 8.0% surplus note to First Columbine Life
Insurance Company, an affiliate, which matures on December 7, 2029. On September
30, 1999, Golden American issued a $75 million, 7.75% surplus note to ING AIH,
which matures on September 29, 2029. On December 30, 1999, ING AIH assigned the
surplus note to Equitable Life. On December 30, 1998, Golden American issued a
$60 million, 7.2% surplus note to Equitable Life, which matures on December 29,
2028. On December 17, 1996, Golden American issued a $25 million, 8.2% surplus
note to Equitable of Iowa Companies, which matures on December 17, 2026. As a
result of the ING merger, the surplus note is now payable to EIC.
Due to affiliates increased $12.5 million or 98.1% to $25.1 million during the
first nine months of 2000. This is mainly due to the overpayment of the cash
settlement for the modified co-insurance agreement with a related party.
Other liabilities decreased $5.9 million or 11.1% to $47.3 million during the
first nine months of 2000 due to the timing of account transfers, as well as the
timing of the settlement of investment transactions.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $2.3 billion, or 26.3%, during the first nine months of
2000 and totaled $11.3 billion at September 30, 2000.
PP4SF-108892 74
The effects of inflation and changing prices on the Companies' financial
position are not material since insurance assets and liabilities are both
primarily monetary and remain in balance. An effect of inflation, which has
been low in recent years, is a decline in stockholder's equity when monetary
assets exceed monetary liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $80.0 million,
or 17.1%, from December 31, 1999 to $548.6 million at September 30, 2000,
due to a capital contribution from the Parent.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Companies to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Companies' principal sources of cash are variable annuity premiums and
product charges, investment income, maturing investments, proceeds from debt
issuance, and capital contributions made by the Parent. Primary uses of these
funds are payments of commissions and operating expenses, interest and premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash provided by operating activities was $142.9 million in the first nine
months of 2000 compared to net cash used of $60.0 million in the same period of
1999. The Companies have predominantly had negative cash flows from operating
activities since Golden American started issuing variable insurance products in
1989. These negative operating cash flows result primarily from the funding of
commissions and other deferrable expenses related to the continued growth in the
variable annuity products. However, during the first nine months of 2000, Golden
American received $214.7 million in conjunction with the modified coinsurance
agreement with an affiliate, resulting in positive cash flow from operating
activities.
Net cash provided by investing activities was $15.0 million during the first
nine months of 2000 as compared to net cash used of $111.3 million in the same
period of 1999. This change from prior year is primarily due to net sales of
fixed maturities and equity securities, the net repayment of policy loans and a
reduction in purchases of property and equipment. These sources of cash were
partially offset by an increase in net purchases of short-term investments and
mortgages during the first nine months of 2000 as compared to the same period in
1999. Net sales of fixed maturities reached $53.1 million during the first nine
months of 2000 compared to net purchases of $79.7 million in the same period of
1999. Net purchases of short term investments reached $37.6 million in the first
nine months of 2000 versus $25.4 million during the same period in 1999. Net
purchases of mortgage loans on real estate were $4.7 million during the first
nine months of 2000 versus net sales of $3.2 million during the first nine
months of 1999.
Net cash used in financing activities was $162.4 million during
the first nine months of 2000 compared to net cash provided by financing
activities of $177.5 million during the same period in 1999. The net
reallocations to the Companies' separate accounts, which increased to $620.6
million from $439.2 million during the prior year, contributed to the increased
use of cash in financing activities. The issue of surplus notes of $75.0 million
in September, 1999 also added to the decrease of cash flow from financing
activities, as did a decrease in capital contributions of $20.0 million to $80.0
million in the first nine months of 2000.
The Companies' liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH and the Companies have established an $85.0 million
revolving note facility with SunTrust Bank, Atlanta which expired on July 31,
2000. As of July 31, 2000, the SunTrust Bank, Atlanta revolving note facility
was extended to July 30, 2001. Management believes these sources of liquidity
are adequate to meet the Companies' short-term cash obligations.
Based on current trends, the Companies expect to continue to use net cash in
operating activities, given the continued growth of the variable annuity sales.
It is anticipated that a continuation of capital contributions from the Parent,
the issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level
PP4SF-108892 75
such that: 1) the ratio of Total Adjusted Capital divided by Company Action
Level Risk Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital
(excluding surplus notes) divided by Company Action Level Risk Based Capital
exceeds 200%; and 3) Golden American's statutory capital and surplus exceeds
the "Amounts Accrued for Expense Allowances Recognized in Reserves" as disclosed
on page 3, Line 13A of Golden American's statutory statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. Golden American occupies 105,000 square
feet of leased space; an affiliate occupies 20,000 square feet. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $0.5 million on capital needs during
the remainder of 2000.
The ability of Golden American 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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. The management of First Golden does not anticipate paying
dividends to Golden American during 2000.
The NAIC's risk-based capital requirements require
insurance companies to calculate and report information under a risk-based
capital formula. These requirements are intended to allow insurance regulators
to monitor the capitalization of insurance companies based upon the type and
mixture of risks inherent in a company's operations. The formula includes
components for asset risk, liability risk, interest rate exposure, and other
factors. The Companies have complied with the NAIC's risk-based capital
reporting requirements. Amounts reported indicate the Companies have total
adjusted capital well above all required capital levels.
REINSURANCE. At September 30, 2000, Golden American had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under its variable contracts. Golden
American remains liable to the extent its reinsurers do not meet their
obligations under the reinsurance agreements.
On June 30, 2000, effective
January 1, 2000, Golden American entered into a modified coinsurance agreement
with Equitable Life, an affiliate, covering a considerable portion of Golden
American's variable annuities issued in 2000, excluding those with an interest
rate guarantee.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing additional alternative
reinsurance arrangements for new business issued after December 31, 1999. There
can be no assurance that such alternative arrangements will be available. The
reinsurance covering business in force at December 31, 1999 will continue to
apply in the future.
IMPACT OF YEAR 2000. In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
The Companies are not aware of any material problems resulting from Year 2000
issues, either with products, internal systems, or the products and services of
third parties. The Companies will continue to monitor mission critical computer
applications and those of suppliers and vendors throughout the Year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
PP4SF-108892 76
MARKET RISK AND RISK MANAGEMENT
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development, and crediting
rates determination. As part of the risk management process, different economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include contractholder behavior
and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable insurance products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed by
contractholders, not by the Companies (subject to, among other things, certain
minimum guarantees). The Companies' products also provide certain minimum death
benefits that depend on the performance of the variable separate accounts.
Currently, the majority of death benefit risks are reinsured, which protects
the Companies from adverse mortality experience and prolonged capital market
decline.
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material amount
of market risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the
Companies to respond to changes in market interest rates, changes in prepayment
risk, changes in relative values of asset sectors and individual securities and
loans, changes in credit quality outlook, and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risks, as well as other risks. The Companies'
asset/liability management discipline includes strategies to minimize exposure
to loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
June 30, 2000 levels, variable separate account funds, which represent 90% of
the in force, pass the risk in underlying fund performance to the contractholder
(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from June 30, 2000 levels, the remaining 10% of the
in force are fixed account funds and almost all of these have market value
adjustments which provide significant protection against changes in interest
rates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other oral or written
statement by the Companies or any of their officers, directors, or employees is
qualified by the fact that actual results of the Companies may differ materially
from such statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which
may affect the ability of the Companies to sell their products, the
market value and liquidity of the Companies' investments, fee
revenue, and the lapse rate of the Companies' policies,
notwithstanding product design features intended to enhance
persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations, which
may affect the tax status of the Companies'
products.
3. Changes in the regulation of financial services, including bank
sales and underwriting of insurance products, which may affect the
competitive environment for the Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation,
insurance industry insolvencies, availability of competitive
reinsurance on new business, investment performance of the
underlying portfolios of the variable
PP4SF-108892 77
products, variable product design, and sales volume by significant
sellers of the Companies' variable products.
OTHER INFORMATION
SEGMENT INFORMATION. During the period since the acquisition by Bankers Trust,
September 30, 1992 to date of this Prospectus, Golden American's operations
consisted of one business segment, the sale of variable insurance products.
Golden American and its affiliate DSI are party to in excess of 480 sales
agreements with broker-dealers, five of whom, DSI, Locust Street Securities,
Inc., Vestax Securities Corporation, IFG Network Securities, Inc. and
Multi-Financial Securities Corporation, are affiliates of Golden American.
During the first nine months of 2000, one broker-dealer produced 10% or more of
Golden American's product sales (two broker-dealers as of December 31, 1999).
REINSURANCE. On June 30, 2000, effective January 1, 2000, Golden American
entered into a modified coinsurance agreement with Equitable Life, an affiliate,
covering a considerable portion of Golden American's variable annuities issued
in 2000, excluding those with an interest rate guarantee. The accompanying
financial statements are presented net of the effects of the agreement.
RESERVES. In accordance with the life insurance laws and regulations under which
Golden American operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on outstanding
Contracts. Reserves, based on valuation mortality tables in general use in the
United States, where applicable, are computed to equal amounts which, together
with interest on such reserves computed annually at certain assumed rates, make
adequate provision according to presently accepted actuarial standards of
practice, for the anticipated cash flows required by the contractual obligations
and related expenses of Golden American.
COMPETITION. Golden American is engaged in a business that is highly competitive
because of the large number of stock and mutual life insurance companies and
other entities marketing insurance products comparable to those of Golden
American. There are approximately 2,350 stock, mutual and other types of
insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
The Companies have a service agreement with Equitable Life, in which Equitable
Life provides administrative and financial services. Under this agreement, the
Companies incurred expenses of $339,000 in the third quarter of 2000 and
$1,006,000 for the first nine months of 2000 ($50,000 and $855,000,
respectively, for the same periods of 1999).
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 third quarter and nine months ended September 30,
2000, the fee was $6.5 million and $15.6 million respectively ($2.7 million and
$6.8 million respectively, for the same periods of 1999).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
third quarter and first nine months of 2000, the Companies incurred fees of
$596,000 and $870,000, respectively, under this agreement ($523,000 and $1.6
million, respectively for the same periods of 1999).
Golden American provides certain advisory, computer and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1.5 million for the third quarter
of 2000 and $4.8 million for the first nine months of 2000 ($237,000 and
$898,000, respectively, for the same periods of 1999).
The Companies provide resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$54,000 for the third quarter of 2000, and $162,000 for the first nine months of
2000 ($276,000 and $759,000 respectively, for the same periods of 1999).
PP4SF-108892 78
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $117,000 for the third quarter of
2000 and $387,000 for the first nine months of 2000 ($159,000 and $376,000,
respectively, for the same periods of 1999).
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $145,000 for the third
quarter of 2000 and $463,000 for the first nine months of 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $65,000 for the third
quarter of 2000 and $173,000 for the first nine months of 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $26,000 for the third quarter of
2000 and $78,000 for the first nine months of 2000.
Golden American has a guaranty agreement with Equitable Life, an affiliate. In
consideration of an annual fee, payable September 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 a direct
or indirect guaranty by Equitable Life of the payment of any debt or other
obligation, indebtedness, or liability 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. On
September 30, 2000, Golden American incurred a fee of $7,000, under this
agreement. No annual fee was paid in 1999.
DISTRIBUTION AGREEMENT. DSI, an affiliate, acts as the principal underwriter (as
defined in the Securities Act of 1933 and the Investment Company Act of 1940, as
amended) of the variable insurance products issued by the 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. The Companies paid commissions to DSI totaling $47.1
million and $156.3 million in the third quarter and the first nine months of
2000, respectively ($50.1 million and $130.4 million, respectively, for the same
periods of 1999).
EMPLOYEES. Golden American, as a result of its Service Agreement with Bankers
Trust (Delaware) and EIC Variable, had very few direct employees. Instead,
various management services were provided by Bankers Trust (Delaware), EIC
Variable and Bankers Trust New York Corporation, as described above under
"Service Agreement." The cost of these services were allocated to Golden
American. Since August 14, 1996, Golden American has hired individuals to
perform various management services and has looked to Equitable of Iowa and its
affiliates for certain other management services. Certain officers of Golden
American are also officers of DSI, and their salaries are allocated among both
companies.
Certain officers of Golden American are also officers of other
Equitable of Iowa subsidiaries. See "Directors and Executive Officers."
PROPERTIES. Golden American's principal office is located at 1475 Dunwoody
Drive, West Chester, Pennsylvania 19380, where all of Golden American's records
are maintained. This office space is leased.
STATE REGULATION. Golden American
is subject to the laws of the State of Delaware governing insurance companies
and to the regulations of the Delaware Insurance Department (the "Insurance
Department"). A detailed financial statement in the prescribed form (the "Annual
Statement") is filed with the Insurance Department each year covering Golden
American's operations for the preceding year and its financial condition as of
the end of that year. Regulation by the Insurance Department includes periodic
examination to determine contract liabilities and reserves so that the Insurance
Department may certify that these items are correct. Golden American's books and
accounts are subject to review by the Insurance Department at all
PP4SF-108892 79
times. A full examination of Golden American's operations is conducted
periodically by the Insurance Department and under the auspices of the NAIC.
In addition, Golden American is subject to regulation under the insurance laws
of all jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Golden American is required to file the Annual Statement
with supervisory agencies in each of the jurisdictions in which it does
business, andits operations and accounts are subject to examination by these
agencies at regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information about the
Risk-Based Capital adequacy monitoring system and Golden American, see
"Management's Discussion and Analysis Results of Operations."
In addition, many states regulate affiliated groups of insurers, such as Golden
American, and its affiliates, under insurance holding company legislation.
Under such laws, inter-company transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval, depending on
the size of the transfers and payments in relation to the financial positions of
the companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies which have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength. For information regarding Golden American's
estimated liability for future guaranty fund assessments, see Note 11 of Notes
to Financial Statements.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of Golden American are
subject to various federal securities laws and regulations. In addition,
current and proposed federal measures which may significantly affect the
insurance business include regulation of insurance company solvency, employee
benefit regulation, removal of barriers preventing banks from engaging in
he insurance business, tax law changes affecting the taxation of insurance
companies and the tax treatment of insurance products and its impact on the
relative desirability of various personal investment vehicles.
PP4SF-108892 80
DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
- -------------------------- ----------------------------------------------------
Barnett Chernow (50) President and Director
Myles R. Tashman (58) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (52) Director
Mark A. Tullis (45) Director
Phillip R. Lowery (47) Director
James R. McInnis (52) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (43) Executive Vice President and Chief Actuary
E. Robert Koster (42) Senior Vice President and Chief Financial Officer
David L. Jacobson (51) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (47) Senior Vice President, Project Implementation
Steven G. Mandel (41) Senior Vice President and Chief Information Officer
Gary F. Haynes (55) Senior Vice President, Operations
Each director is elected to serve for one year or until the next annual meeting
of shareholders or until his or her successor is elected. Some directors are
directors of insurance company subsidiaries of Golden American's parent,
Equitable of Iowa. Golden American's directors and senior executive officers and
their principal positions for the past five years are listed below:
Mr. Barnett Chernow became President of Golden American and First Golden in
April, 1998. From 1996 to 1998, Mr. Chernow served as Executive V.P. of First
Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President
of Golden American. He was elected to serve as a director of First Golden in
June, 1996 and Golden American in April, 1998.
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 was
elected to serve as a Director of Golden American in January 1998. He also
serves as a Director, Executive Vice President, General Counsel and Secretary of
First Golden.
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.
Mr. Mark A. Tullis became a Director of Golden
American and First Golden in December 1999. He has served as Executive Vice
President, Strategy and Operations for ING Americas Region since September 1999.
From June, 1994 to August, 1999, he was with Primerica, serving as Executive
Vice President at the time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and
First Golden in December 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined
Golden American and First Golden in December, 1997 as Executive Vice President.
From 1982 through November, 1997, he held several positions with the Endeavor
Group and was President upon his departure.
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. He was elected Senior Vice President and Chief Actuary of First Golden in
June, 1996 and elected Executive Vice President in June, 1998.
Mr. E. Robert Koster was elected Senior Vice President and Chief
Financial Officer of Golden American and First Golden in September 1998.
From August, 1984 to September, 1998 he has held various
positions with ING companies in The Netherlands.
PP4SF-108892 81
Mr. David L. Jacobson joined Golden American in November 1993 as Vice
President and Assistant Secretary and became Senior Vice President in December,
1993. He was elected Senior Vice President and Assistant Secretary for First
Golden in June, 1996.
Mr. William L. 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.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
Mr. Steven G. Mandel joined Golden American in October 1988 and became
Senior Vice President and Chief Information Officer in June, 1998.
Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998, he was with F&G Life
Insurance Company serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE AND OTHER INFORMATION
The following sets forth information with respect to the Chief Executive Officer
of Golden American as well as the annual salary and bonus for the next four
highly compensated executive officers for the fiscal year ended December 31,
1999. Certain executive officers of Golden American are also officers of DSI and
First Golden. The salaries of such individuals are allocated among Golden
American, DSI and First Golden pursuant to an arrangement among these companies.
PP4SF-108892 82
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the annual salary and
bonus for Golden American's Chief Executive Officer, the four other most highly
compensated executive officers and the two most highly compensated former
executive officers for the fiscal year ended December 31, 1999.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS 1 OPTIONS 2 OPTIONS COMPENSATION 3
Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $20,464 4
President 1998 $ 284,171 $ 105,375 8,000
1997 $ 234,167 $ 31,859 $ 277,576 4,000
James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $15,663 4
Executive Vice 1998 $ 250,004 $ 626,245 2,000
President
Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $14,598 4
Executive Vice 1998 $ 189,337 $ 54,425 3,500
President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000
Counsel and Secretary
Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $12,564 4
Executive Vice 1998 $ 173,870 $ 32,152 3,500
President and Chief 1997 $ 160,758 $ 16,470
Actuary
Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $11,551 4
Senior Vice 1998 $ 139,169 $ 25,833
President 1997 $ 129,167 $ 25,000
R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $23,921 4
Former Chief
Executive Officer
Keith Glover............. 1999 $ 87,475 $ 761,892 $558,541 4, 5
Former Executive 1998 $ 250,000 $ 145,120 3,900
Vice President
--------------------
1 The amount shown relates to bonuses paid in 1999, 1998, and 1997.
2 Restricted stock awards granted to executive officers vested on
October 24, 1997 with the change in control of Equitable of Iowa.
3 Other compensation for 1999 includes reimbursements to named employee
for participation in company sponsored programs such as tuition
reimbursement, PC purchase assistance program, and other miscellaneous
payments or reimbursements. For 1999, Mr. Chernow received $2,464; Mr.
McInnis received $636; Mr. Tashman received $2,598; Mr. Preston received
$564; Mr. Mandel received $2,251; Mr. Armstrong received $1,421; and Mr.
Glover received $3,089.
4 Other compensation for 1999 includes a business allowance for each named
executive which is required to be applied to specific business expenses
of the named executive.
5 In connection with the termination of his employment, Mr. Glover
received payments and benefits totaling $555,452.
PP4SF-108892 83
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
% OF TOTAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE APPRECIATION
OPTIONS IN FISCAL OR BASE EXPIRATION FOR OPTION TERM 3
NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10%
Barnett Chernow........... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191
4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664
James R. McInnis.......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312
3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302
Myles R. Tashman.......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514
Stephen J. Preston........ 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113
Steven G. Mandel.......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955
R. Brock Armstrong........ 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
------------------
1 Stock appreciation rights granted in 1999 to the officers of Golden
American have a three-year vesting period and an expiration date as
shown.
2 The base price was equal to the fair market value of ING's stock on
the date of grant.
3 Total dollar gains based on indicated rates of appreciation of share
price over the total term of the rights.
PP4SF-108892 84
- --------------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000
PP4SF-108892 85
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
September 30, 2000 December 31, 1999
------------------ -----------------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $798,855; 1999 - $858,052)......................... $ 784,780 $ 835,321
Equity securities, at fair value (cost: 2000 - $9,671;
1999 - $14,952)..................................................... 8,832 17,330
Mortgage loans on real estate....................................... 104,537 100,087
Policy loans........................................................ 13,126 14,157
Short-term investments.............................................. 117,757 80,191
-------------- ------------
Total investments...................................................... 1,029,032 1,047,086
Cash and cash equivalents.............................................. 9,979 14,380
Reinsurance recoverable................................................ 19,362 14,834
Reinsurance recoverable from affiliate................................. -- --
Due from affiliates.................................................... 9,768 637
Accrued investment income.............................................. 11,511 11,198
Deferred policy acquisition costs...................................... 564,004 528,957
Value of purchased insurance in force ................................. 28,881 31,727
Current income taxes recoverable....................................... -- 35
Deferred income tax asset.............................................. 13,546 21,943
Property and equipment, less allowances for depreciation of
$4,857 in 2000 and $3,229 in 1999................................... 14,153 13,888
Goodwill, less accumulated amortization of $11,020 in 2000
and $8,186 in 1999.................................................. 140,107 142,941
Other assets........................................................... 3,733 2,514
Separate account assets................................................ 9,991,861 7,562,717
-------------- ------------
Total assets........................................................... $ 11,835,937 $ 9,392,857
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products...................... $ 939,865 $ 1,033,701
Unearned revenue reserve.......................................... 6,914 6,300
Other policy claims and benefits.................................... 35 8
-------------- ------------
946,814 1,040,009
Reciprocal loan from affiliate......................................... -- --
Surplus notes.......................................................... 245,000 245,000
Revolving note payable................................................. -- 1,400
Due to affiliates...................................................... 25,062 12,651
Current income taxes payable........................................... 289 --
Other liabilities...................................................... 47,257 53,231
Separate account liabilities........................................... 9,991,861 7,562,717
-------------- ------------
11,256,283 8,915,008
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.......................................... 548,640 468,640
Accumulated other comprehensive loss................................ (5,433) (9,154)
Retained earnings .................................................. 33,947 15,863
-------------- ------------
Total stockholder's equity............................................. 579,654 477,849
-------------- ------------
Total liabilities and stockholder's equity............................. $ 11,835,937 $ 9,392,857
============== ============
PP4SF-108892 86
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
For the Nine For the Nine
Months Ended Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Revenues:
Annuity and interest sensitive life product charges................. $ 106,892 $ 55,195
Management fee revenue.............................................. 15,579 6,755
Net investment income............................................... 47,896 42,671
Realized losses on investments...................................... (4,546) (2,215)
Net income from modified coinsurance agreements..................... 220,249 6,443
Other income........................................................ 1,287 1,005
----------- ----------
387,357 109,854
Insurance benefits and expenses: Annuity and interest sensitive life benefits:
Interest credited to account balances............................... 147,277 125,404
Benefit claims incurred in excess of account balances............... 4,083 3,452
Underwriting, acquisition, and insurance expenses:
Commissions......................................................... 160,105 134,585
General expenses.................................................... 61,194 47,551
Insurance taxes, state licenses, and fees........................... 4,047 3,382
Policy acquisition costs deferred................................. (87,753) (244,840)
Amortization:
Deferred policy acquisition costs............................... 49,527 19,699
Value of purchased insurance in force............................. 3,181 4,803
Goodwill.......................................................... 2,834 2,834
----------- ----------
344,495 96,870
Interest expense....................................................... 14,976 5,552
----------- ----------
359,471 102,422
----------- ----------
Income before income taxes............................................. 27,886 7,432
Income taxes........................................................... 9,802 3,881
----------- ----------
Net income............................................................. $ 18,084 $ 3,551
=========== ==========
See accompanying notes.
PP4SF-108892 87
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
For the Nine For the Nine
Months Ended Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................... $ 142,933 $ (60,026)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale............................... 158,731 170,548
Equity securities................................................... 5,196 --
Mortgage loans on real estate....................................... 5,118 4,241
Policy loans - net.................................................. 837 --
------------- ------------
169,882 174,789
Acquisition of investments:
Fixed maturities - available for sale............................... (105,606) (250,277)
Mortgage loans on real estate....................................... (9,786) (1,034)
Policy loans - net.................................................. -- (1,682)
Short term investments - net........................................ (37,567) (25,367)
------------- ------------
(152,959) (278,360)
Net purchase of property and equipment................................. (1,898) (7,700)
Issuance of reciprocal loan agreement receivables...................... (16,900) --
Receipt of repayment of reciprocal loan agreement receivables.......... 16,900 --
Net cash provided by (used in) investing activities.................... 15,025 (111,271)
------------- ------------
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings..................... 177,900 488,950
Repayment of reciprocal loan agreement borrowings...................... (177,900) (488,950)
Proceeds from revolving note payable................................... 66,100 131,595
Repayment of revolving note payable.................................... (67,500) (131,595)
Receipts from annuity and interest sensitive life
policies credited to account balances............................... 506,412 540,464
Return of account balances on annuity
and interest sensitive life policies................................ (126,803) (98,715)
Net reallocations to Separate Accounts................................. (620,568) (439,223)
Contribution from parent .............................................. 80,000 100,000
------------- ------------
Net cash provided by (used in) financing activities.................... (162,359) 177,526
------------- ------------
Increase (decrease) in cash and cash equivalents....................... (4,401) 6,229
Cash and cash equivalents at beginning of period....................... 14,380 6,679
------------- ------------
Cash and cash equivalents at end of period............................. $ 9,979 $ 12,908
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for........................................
Interest............................................................ $ 18,068 $ 5,078
Taxes............................................................... $ 28 $ 10
See accompanying notes.
PP4SF-108892 88
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. This Form is being filed with the reduced disclosure format
specified in General Instruction H(1) and (2) of Form 10-Q. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All adjustments were of a normal
recurring nature, unless otherwise noted in Management's Discussion and Analysis
and the Notes to Financial Statements. Operating results for the nine months
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. These financial statements
should be read in conjunction with the financial statements and related
footnotes included in the Golden American Life Insurance Company's annual report
on Form 10-K for the year ended December 31, 1999.
CONSOLIDATION
The condensed 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 is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $6,017,000 and $75,508,000 for the nine months ended
September 30, 2000 and 1999, respectively. Total statutory capital and surplus
was $441,698,000 at September 30, 2000 and $368,928,000 at December 31, 1999.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to conform to the September 30, 2000 financial statement presentation.
PP4SF-108892 89
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
2. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the third quarters of 2000 and 1999, total comprehensive
income (loss) for the Companies amounted to $14,781,000 and $2,059,000,
respectively, and $21,805,000 and $(18,000) for the nine months ended September
30, 2000 and 1999, respectively. Included in these amounts are total
comprehensive income (loss) for First Golden of $549,000 and $(14,000) for the
third quarters of 2000 and 1999, respectively, and $659,000 and $(258,000) for
the nine months ended September 30, 2000 and 1999, respectively. Other
comprehensive income (loss) excludes net investment gains (losses) included in
net income which merely represent transfers from unrealized to realized gains
and losses. These amounts totaled $(834,000) and $(460,000) during the third
quarters of 2000 and 1999, respectively, and $(1,422,000) and $(2,512,000)
during the nine months ended September 30, 2000 and 1999, respectively. Such
amounts, which have been measured through the date of sale, are net of income
taxes and adjustments for value of purchased insurance in force and deferred
policy acquisition costs totaling $(1,080,000) and $(38,000) for the third
quarters of 2000 and 1999, respectively, and $(3,121,000) and $297,000 for the
nine months ended September 30, 2000 and 1999, respectively.
3. INVESTMENTS
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 impairment in value
appears to be other than temporary. During the second quarter of 2000, Golden
American determined that the carrying value of an impaired bond exceeded its
estimated net realizable value. As a result, at June 30, 2000, Golden American
recognized a total pre-tax loss of approximately $142,000 to reduce the carrying
value of the bond to its net realizable value of $329,000 at June 30, 2000.
During the third quarter of 1999, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at September 30, 1999, Golden American recognized a total pre-tax loss of
$1,639,000 to reduce the carrying value of the bonds to their combined net
realizable value of $1,137,000.
4. RELATED PARTY TRANSACTIONS
Operating Agreements: Directed Services, Inc. ("DSI"), an affiliate, 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. The
Companies paid commissions to DSI totaling $47,073,000 and $156,325,000 in the
third quarter and the first nine months of 2000, respectively ($50,131,000 and
$130,419,000, respectively, for the same periods of 1999).
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 third quarter and nine months ended
September 30, 2000, the fee was $6,521,000 and $15,579,000, respectively
($2,659,000 and $6,755,000, respectively, for the same periods of 1999).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
third quarter and first nine months of 2000, the Companies incurred fees of
$596,000 and $1,870,000, respectively, under this agreement ($523,000 and
$1,637,000, respectively, for the same periods of 1999).
PP4SF-108892 90
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("Equitable Life"), an affiliate. In consideration of an annual fee,
payable September 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 a direct or indirect guaranty by Equitable Life
of the payment of any debt or other obligation, indebtedness, or liability 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. On September 30, 2000, Golden American incurred
a fee of $7,000, under this agreement. No annual fee was paid in 1999.
Golden American provides certain advisory, computer, and
other resources and services to Equitable Life. Revenues for
these services, which reduced general expenses incurred by Golden American,
totaled $1,534,000 in the third quarter of 2000 and
$4,810,000 for the first nine months of 2000 ($237,000 and $898,000,
respectively, for the same periods of 1999).
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 $339,000 in the third quarter of 2000 and $1,006,000 for the first
nine months of 2000 ($50,000 and $855,000 respectively, for the same periods of
1999).
The Companies provide resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$54,000 for the third quarter of 2000 and $162,000 for the first nine months of
2000 ($276,000 and $759,000 respectively, for the same periods of 1999).
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $117,000 for the third quarter of
2000 and $387,000 for the first nine months of 2000 ($159,000 and $376,000,
respectively, for the same periods of 1999).
Golden American provides resources
and services to United Life & Annuity Insurance Company, an affiliate. Revenues
for these services, which reduced general expenses incurred by Golden American,
totaled $145,000 for the third quarter of 2000 and $463,000 for the first nine
months of 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $65,000 for the third
quarter of 2000 and $173,000 for the first nine months of 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $26,000 for the third quarter of
2000 and $78,000 for the first nine months of 2000.
For the third quarter of 2000, the Companies received premiums, net of
reinsurance, for variable products sold through five affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), and IFG Network
Securities, Inc. ("IFG"), of $6,000,000, $700,000, $0, $2,100,000, and
$2,700,000, respectively ($46,600,000, $12,900,000, $0, $11,000,000, and
$4,300,000, respectively, for the same period of 1999). For the first nine
months of 2000, the Companies received premiums, net of reinsurance for variable
products sold through five affiliates, LSSI, Vestax, DSI, Multi-Financial, and
IFG of $73,000,000, $29,000,000, $800,000, $23,200,000, and $11,000,000,
respectively ($121,900,000, $72,000,000, $2,300,000, $24,400,000 and
$20,000,000, respectively, for the same period of 1999).
PP4SF-108892 91
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
Modified Coinsurance Agreement: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued in 2000, excluding those with an interest rate
guarantee. The accompanying financial statements are presented net of the
effects of the agreement.
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 Department of Insurance of the
State of Delaware. Interest on any Golden American borrowings is charged at the
rate of ING AIH's cost of funds for the interest period plus 0.1%. 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 $91,000 and
$397,000 for the third quarters of 2000 and 1999, respectively, and $427,000 and
$633,000 for the first nine months of 2000 and 1999, respectively. At September
30, 2000, Golden American had no borrowings from ING AIH under this agreement.
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred interest expense of $1,020,000 for the third
quarter of 2000 and $3,076,000 for the first nine months of 2000.
On December 8, 1999, Golden American
issued a 7.979% surplus note in the amount of $35,000,000 to First
Columbine Life Insurance Company ("First Columbine"), an affiliate. The
note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American incurred interest expense of
$696,000 for the third quarter of 2000 and $2,271,000 for the first nine months
of 2000.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,449,000 for the third quarter of 2000 and
$4,355,000 for the first nine months of 2000. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $1,088,000 and $1,088,000 for the third quarters of
2000 and 1999, respectively, and $3,263,000 for the first nine months of 2000,
unchanged from the same period in 1999.
PP4SF-108892 92
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. The note matures on December 17,
2026. Payment of 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 $516,000 for the
quarter ended September 30, 2000, and $1,547,000 for the first nine months of
2000, unchanged from the same periods in 1999.
Stockholder's Equity: During the third quarter of 2000 and first nine months of
2000, Golden American received capital contributions from its Parent of $0 and
$80,000,000, respectively ($20,000,000 and $100,000,000, respectively, for the
same periods of 1999).
5. COMMITMENTS AND CONTINGENCIES
Reinsurance: At September 30, 2000, the Companies had reinsurance treaties with
four unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks under its variable contracts as of December 31,
1999. Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements. At September 30, 2000 and
December 31, 1999, the Companies had net receivables of $19,362,000 and
$14,834,000 respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $2,961,000 and $493,000,
respectively, for claims recoverable from reinsurers, $3,928,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $20,329,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $6,564,000 for the third quarter of 2000 and $14,472,000 for the
first nine months of 2000 compared to $2,638,000 and $6,656,000 for the same
periods in 1999. Also included in the accompanying financial statements are net
policy benefits of $1,122,000 for the third quarter of 2000 and $2,957,000 for
the first nine months of 2000 compared to $2,569,000 and $4,008,000 for the same
periods in 1999.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued in 2000,
excluding those with an interest rate guarantee. At September 30, 2000, Golden
American had received a total settlement of $214.7 million under this agreement.
The carrying value of the separate account liabilities covered under this
agreement represent 17.1% of total separate account liabilities outstanding at
September 30, 2000. Golden American remains liable to the extent Equitable Life
does not meet its obligations under the agreement. The accompanying financial
statements are presented net of the effects of the agreement.
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.
The reinsurance treaties that
covered the nonstandard minimum guaranteed death benefits for new business have
been terminated for business issued after December 31, 1999. The Companies are
currently pursuing additional alternative reinsurance agreements for new
business issued after December 31, 1999. There can be no assurance that such
alternative agreements will be available. The reinsurance covering business in
force at December 31, 1999 will continue to apply in the future.
PP4SF-108892 93
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
5. COMMITMENTS AND CONTINGENCIES (continued)
Guaranty Fund Assessments: Assessments are levied on 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 offset 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged no expense in the third quarter and $2,000 in the
first nine months of 2000. At September 30, 2000 and December 31, 1999, the
Companies have an undiscounted reserve of $2,450,000, and $2,444,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax offsets) and have established an asset totaling $692,000 and
$618,000, respectively, 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 and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The
Companies have various concentrations in the investment portfolio. As of
September 30, 2000, the Companies had one investment (other than bonds issued by
agencies of the United States government) exceeding ten percent of stockholder's
equity. The Companies' asset growth, net investment income, and cash flow are
primarily generated from the sale of variable insurance 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 have a severe impact on the
Companies' financial condition. Two broker/dealers, each having at least ten
percent of total sales, generated 27% of the Companies' sales during the third
quarter of 2000 (29% by two broker/dealers in the same period of 1999). One
broker/dealer generated 12% of the Companies' sales during the first nine months
of 2000 (29% by two broker/dealers in the same period of 1999). The Premium Plus
product generated 73% and 74% of the Companies' sales during the third quarter
of 2000 and first nine months of 2000, respectively (79% and 78% in the same
periods of 1999).
Revolving Note Payable: To enhance short-term liquidity, the
Companies established revolving notes payable effective July 27, 1998 and
expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). As of July 31,
1999, the SunTrust Bank, Atlanta, revolving note facilities were first extended
to July 31, 2000, and as of July 31, 2000, they were extended to July 30, 2001.
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 notes accrue interest at an annual rate equal
to: (1) the cost of funds for the Bank for the period applicable for the advance
plus 0.225% 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 quarters ended September 30, 2000 and 1999, the
Companies incurred interest expense of $0 and $55,000, respectively. During the
nine months ended September 30, 2000 and 1999, the Companies incurred interest
expense of $36,000 and $109,000, respectively. At September 30, 2000, the
Companies did not have any borrowings under these agreements ($1,400,000 at
December 31, 1999).
PP4SF-108892 94
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the periods from
October 25, 1997 through December 31, 1997, and January 1, 1997 through October
24, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the periods from October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997, in conformity with accounting
principles generally accepted in the United States.
/s/Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
PP4SF-108892 95
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
---------------------------
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (Cost: 1999 - $858,052;
1998 - $739,772)....................... $835,321 $741,985
Equity securities, at fair value (cost:
1999 - $14,952; 1998 - $14,437)........ 17,330 11,514
Mortgage loans on real estate............ 100,087 97,322
Policy loans............................. 14,157 11,772
Short-term investments................... 80,191 41,152
---------- ----------
Total investments........................... 1,047,086 903,745
Cash and cash equivalents................... 14,380 6,679
Reinsurance recoverable..................... 14,834 7,586
Due from affiliates......................... 637 2,983
Accrued investment income................... 11,198 9,645
Deferred policy acquisition costs........... 528,957 204,979
Value of purchased insurance in force....... 31,727 35,977
Current income taxes recoverable............ 35 628
Deferred income tax asset................... 21,943 31,477
Property and equipment, less allowances for
depreciation of $3,229 in 1999 and $801
in 1998.................................. 13,888 7,348
Goodwill, less accumulated amortization of
$8,186 in 1999 and $4,408 in 1998........ 142,941 146,719
Other assets................................ 2,514 743
Separate account assets..................... 7,562,717 3,396,114
---------- ----------
Total assets................................ $9,392,857 $4,754,623
========== ==========
See accompanying notes.
PP4SF-108892 96
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
POST-MERGER
-----------------------------
December 31, December 31,
1999 1998
-------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive
life products....................... $1,033,701 $881,112
Unearned revenue reserve.............. 6,300 3,840
Other policy claims and benefits......... 8 --
---------- ----------
1,040,009 884,952
Surplus notes.............................. 245,000 85,000
Revolving note payable..................... 1,400 --
Due to affiliates.......................... 9,547 --
Other liabilities.......................... 56,335 34,663
Separate account liabilities............... 7,562,717 3,396,114
---------- ----------
8,915,008 4,400,729
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............... 468,640 347,640
Accumulated other comprehensive loss..... (9,154) (895)
Retained earnings........................ 15,863 4,649
---------- ----------
Total stockholder's equity................. 477,849 353,894
---------- ----------
Total liabilities and stockholder's equity. $9,392,857 $4,754,623
========== ==========
See accompanying notes.
PP4SF-108892 97
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
POST-
POST-MERGER ACQUISITION
--------------------------------------------|-------------
For the period |or the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
--------------------------------------------|--------------
Revenues |
Annuity and interest |
sensitive life product |
charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288
Management fee revenue........... 10,136 4,771 508 | 2,262
Net investment income............ 59,169 42,485 5,127 | 21,656
Realized gains (losses) |
on investments................ (2,923) (1,491) 15 | 151
Other income..................... 10,827 5,569 236 | 426
-------- ------- ------- | -------
160,144 90,453 9,720 | 42,783
|
Insurance benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to account |
balances..................... 175,851 94,845 7,413 | 19,276
Benefit claims incurred in |
excess of account balances... 6,370 2,123 -- | 125
Underwriting, acquisition, and |
insurance expenses: |
Commissions.................... 188,383 121,171 9,437 | 26,818
General expenses............... 60,194 37,577 3,350 | 13,907
Insurance taxes, state |
licenses, and fees........... 3,976 4,140 450 | 1,889
Policy acquisition costs |
deferred..................... (346,396) (197,796) (13,678) | (29,003)
Amortization: |
Deferred policy acquisition |
costs....................... 33,119 5,148 892 | 1,674
Value of purchased insurance |
in force.................... 6,238 4,724 948 | 5,225
Goodwill...................... 3,778 3,778 630 | 1,398
-------- ------- ------- | -------
131,513 75,710 9,442 | 41,309
|
Interest expense.................... 8,894 4,390 557 | 2,082
-------- ------- ------- | -------
140,407 80,100 9,999 | 43,391
-------- ------- ------- | -------
Income (loss) before income taxes... 19,737 10,353 (279) | (608)
|
Income taxes........................ 8,523 5,279 146 | (1,337)
-------- ------- ------- | -------
|
Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729
======== ======= ======= | =======
See accompanying notes.
PP4SF-108892 98
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income (Loss) Earnings Equity
------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------
Balance at January 1, 1997..... $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
====== ======== ======= ======= ========
-----------------------------------------------------------
POST-MERGER
-----------------------------------------------------------
Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497
Comprehensive income:
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.... 2,500 224,997 (895) 4,649 353,894
Comprehensive income:
Net income................... -- -- -- 11,214 11,214
Change in net unrealized
investment gains (losses). -- -- (8,259) -- (8,259)
--------
Comprehensive income........... 2,955
Contribution of Capital........ -- 121,000 -- -- 121,000
------ -------- ------- ------- --------
Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849
====== ======== ======= ======= ========
See accompanying notes.
PP4SF-108892 99
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
OPERATING ACTIVITIES |
Net income (loss)................................. $11,214 $5,074 $(425) | $729
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Interest credited and other charges on |
interest sensitive products................ 175,851 94,845 7,413 | 19,276
Charges for mortality and administration..... 524 (233) (62) | (99)
Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292
Increase (decrease) in policy liabilities and |
accruals..................................... 8 (10) 10 | --
Decrease (increase) in accrued investment |
income....................................... (1,553) (3,222) 1,205 | (3,489)
Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003)
Amortization of deferred policy |
acquisition costs............................ 33,119 5,148 892 | 1,674
Amortization of value of purchased |
insurance in force........................... 6,238 4,724 948 | 5,225
Change in other assets, due to/from |
affiliates, other liabilities, and accrued |
income taxes................................. 24,845 9,979 4,205 | (8,944)
Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203
Provision for deferred income taxes............ 8,523 5,279 146 | 316
Realized (gains) losses on investments......... 2,923 1,491 (15) | (151)
-------- -------- ------- | ---------
Net cash provided by (used in) operating |
activities..................................... (73,394) (63,923) 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity, or repayment of investments: |
Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622
Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828
Short-term investments - net................... -- -- -- | 11,415
-------- -------- ------- | ---------
227,119 149,044 11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173)
Equity securities.............................. -- (10,000) (1) | (4,865)
Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481)
Policy loans - net............................. (2,385) (2,940) (328) | (3,870)
Short-term investments - net................... (39,039) (26,692) (13,244) | --
-------- -------- ------- | ---------
(395,670) (532,545) (57,378) | (208,389)
Net purchase of property and equipment............ (8,968) (6,485) (252) | (875)
-------- -------- ------- | ---------
Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
See accompanying notes.
PP4SF-108892 100
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings.............................. $396,350 $500,722 -- | --
Repayment of reciprocal loan agreement |
borrowings.............................. (396,350) (500,722) -- | --
Proceeds from revolving note payable....... 220,295 108,495 -- | --
Repayment of revolving note payable........ (218,895) (108,495) -- | --
Proceeds from surplus note................. 160,000 60,000 -- | --
Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124
Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977)
Receipts from annuity and interest |
sensitive life policies credited to |
account balances........................ 773,685 593,428 62,306 | 261,549
Return of account balances on annuity |
and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931)
Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069)
Contributions of capital by parent......... 121,000 103,750 -- | 1,011
-------- -------- ------- | ---------
Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707
-------- -------- ------- | ---------
|
Increase (decrease) in cash and cash |
equivalents............................. 7,701 (14,360) 3,863 | 11,337
Cash and cash equivalents at |
beginning of period..................... 6,679 21,039 17,176 | 5,839
-------- -------- ------- | ---------
Cash and cash equivalents at |
end of period........................... $14,380 $6,679 $21,039 | $17,176
======== ========= ======= | =========
|
SUPPLEMENTAL DISCLOSURE |
OF CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest................................ $6,392 $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....... -- 18,750 -- | --
See accompanying notes.
PP4SF-108892 101
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 collectively
with Golden American, 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. First Golden is
licensed to sell insurance products in New York and Delaware. 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. ("BT Variable") was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in new
bases of accounting reflecting estimated fair values of assets and liabilities
at their respective dates. As a result, the Companies' financial statements
included for the periods after October 24, 1997 are presented on the Post-Merger
new basis of accounting and for the period January 1, 1997 through October 24,
1997 are presented on the Post-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, 1999 and 1998, 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
PP4SF-108892 102
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
Mortgage Loans On Real Estate: 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.
Fair Values: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. 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, premium credit, and other expenses related to
the production of new business, have been deferred. Acquisition costs for
variable insurance 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.
PP4SF-108892 103
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and 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 of the variable products with fixed
interest guarantees 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 11.00% during 1999, 3.00% to
10.00% during 1998, and 3.30% to 8.25% during 1997. 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
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
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 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 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.
PP4SF-108892 104
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Product charges recorded by the Companies from variable insurance 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
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
PP4SF-108892 105
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
regarding all of the preceding items are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could materially
impact the financial statements.
RECLASSIFICATIONS
Certain amounts for the periods ended in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 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 insurance 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 insurance 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 $85,578,000 in 1999, $68,002,000 in 1998, and $428,000
in 1997. Total statutory capital and surplus was $368,928,000 at December 31,
1999 and $183,045,000 at December 31, 1998.
PP4SF-108892 106
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488
Equity securities.............. 515 -- 3 | --
Mortgage loans on real estate.. 7,074 6,616 879 | 3,070
Policy loans................... 485 619 59 | 482
Short-term investments......... 2,583 1,311 129 | 443
Other, net..................... 388 246 (154) | 24
------- ------- ------- | -------
Gross investment income........ 61,397 44,016 5,359 | 22,507
Less investment expenses....... (2,228) (1,531) (232) | (851)
------- ------- ------- | -------
Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656
======= ======= ======= | =======
Realized gains (losses) on investments follows:
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Fixed maturities, available for |
sale.......................... $(2,910) $(1,428) $ 25 | $ 151
Mortgage loans on real estate... (13) (63) (10) | --
------- ------- ------- | -------
Realized gains (losses) on |
investments................... $(2,923) $(1,491) $15 | $151
======= ======= ======= | ========
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
|
Fixed maturities, available for |
sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197
Equity securities................ 5,301 (2,390) (68) | (462)
-------- -------- -------- | --------
Unrealized appreciation |
(depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735
======== ======== ======== | ========
PP4SF-108892 107
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
POST-MERGER
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
(Dollars in thousands)
December 31, 1999
-----------------------------
U.S. government and
governmental agencies
and authorities............ $ 21,363 -- $ (260) $ 21,103
Public utilities.............. 53,754 $ 25 (2,464) 51,315
Corporate securities.......... 396,494 53 (12,275) 384,272
Other asset-backed securities. 207,044 850 (4,317) 203,577
Mortgage-backed securities.... 179,397 39 (4,382) 175,054
-------- ------ -------- --------
Total......................... $858,052 $ 967 $(23,698) $835,321
======== ====== ======== ========
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
======== ====== ======== ========
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. At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes). 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 adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to
deferred income taxes).
At December 31, 1999, net unrealized appreciation on equity securities was
comprised entirely of gross appreciation of $2,378,000. At December 31, 1998,
net unrealized depreciation of equity securities was comprised entirely of gross
depreciation of $2,923,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1999 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.
PP4SF-108892 108
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
POST-MERGER
-------------------------
Amortized Estimated
December 31, 1999 Cost Fair Value
- ---------------------------------------------------------------------
(Dollars in thousands)
Due within one year..................... $ 25,317 $ 25,186
Due after one year through five years... 355,205 344,998
Due after five years through ten years.. 83,004 78,976
Due after ten years..................... 8,085 7,530
-------- --------
471,611 456,690
Other asset-backed securities........... 207,044 203,577
Mortgage-backed securities.............. 179,397 175,054
-------- --------
Total................................... $858,052 $835,321
======== ========
An analysis of sales, maturities, and principal repayments of the Companies'
fixed maturities portfolio follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
For the year ended December 31, 1999:
Scheduled principal repayments, calls,
and tenders.......................... $141,346 $216 $(174) $141,388
Sales................................... 80,472 141 (1,454) 79,159
-------- ---- ------- --------
Total................................... $221,818 $357 $(1,628) $220,547
======== ==== ======= ========
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
======== ==== ======= ========
PP4SF-108892 109
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
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 fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During 1997, no investments were
identified as having an other than temporary impairment.
Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits
covering bonds with a par value of $6,470,000 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, 1999 and December 31, 1998. Fixed maturities included investments in basic
industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities
(22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and
other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in
1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations
of mortgage loans on real estate in any state exceeding ten percent at December
31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998),
retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10%
in 1999, 8% in 1998). 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, 1999.
4. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for
the year ended December 31, 1998 and $159,000, and $536,000, respectively, for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997). 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 $(1,468,000) in
1999 and $(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 $(1,441,000) in 1999 and $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
PP4SF-108892 110
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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, 1999 December 31, 1998
---------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars in thousands)
ASSETS
Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985
Equity securities..................... 17,330 17,330 11,514 11,514
Mortgage loans on real estate......... 100,087 95,524 97,322 99,762
Policy loans.......................... 14,157 14,157 11,772 11,772
Short-term investments................ 80,191 80,191 41,152 41,152
Cash and cash equivalents............. 14,380 14,380 6,679 6,679
Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114
LIABILITIES
Annuity products...................... 1,017,105 953,546 869,009 827,597
Surplus notes......................... 245,000 226,100 85,000 90,654
Revolving note payable................ 1,400 1,400 -- --
Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
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 process. This pricing
PP4SF-108892 111
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
process 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
current market value.
Revolving note payable: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
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.
PP4SF-108892 112
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
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 follows:
POST-MERGER
-------------------------------------------------
For the period
For the year For the year October 25, 1997
ended ended through
December 31, December 31, December 31, 1997
-------------------------------------------------
(Dollars in thousands)
Beginning balance........................ $35,977 $43,174 $44,297
------- ------- -------
Imputed interest......................... 2,373 2,802 1,004
Amortization............................. (7,930) (7,753) (1,952)
Changes in assumptions of timing of
gross profits.......................... (681) 227 --
------- ------- -------
Net amortization......................... (6,238) (4,724) (948)
Adjustment for unrealized gains (losses)
on available for sale securities....... 1,988 (28) (175)
Adjustment for other receivables and
merger costs........................... -- (2,445) --
------- ------- -------
Ending balance........................... $31,727 $35,977 $43,174
======= ======= =======
PP4SF-108892 113
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for
the year ended December 31, 1999, 7.38% for the year ended December 31, 1998,
and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999,
VPIF was adjusted to increase amortization by $681,000 to reflect changes in the
assumptions related to the timing of estimated gross profits. The amortization
of VPIF, net of imputed interest, is charged to expense. VPIF decreased
$2,664,000 during 1998 to adjust the value of other receivables and increased
$219,000 in 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, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in
2002, $2,807,000 in 2003, and $2,292,000 in 2004. 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.
PP4SF-108892 114
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. ACQUISITION (continued)
An analysis of the VPIF asset follows:
POST-ACQUISITION
----------------
For the period
January 1, 1997
through
October 24, 1997
----------------
(Dollars in thousands)
Beginning balance............ $ 83,051
--------
Imputed interest............. 5,138
Amortization................. (12,656)
Changes in assumption of
timing of gross profits.... 2,293
--------
Net amortization............. (5,225)
Adjustment for unrealized
gains on available for
sale securities............ (373)
--------
Ending balance............... $ 77,453
========
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period January 1, 1997 through October 24, 1997. The amortization
of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted
for the unrealized gains 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
the Parent's consolidated tax return for 5 years.
At December 31, 1999, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $161,799,000.
Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012, 2013, and 2014, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
POST-MERGER |POST-ACQUISITION
--------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Current -- -- -- | $ 12
Deferred $8,523 $5,279 $146 | (1,349)
------ ------ ---- | -------
$8,523 $5,279 $146 | $(1,337)
====== ====== ==== | =======
PP4SF-108892 115
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
follows:
POST-MERGER |POST-ACQUISITION
---------------------------------------------|-----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | -------------
(Dollars in thousands)
|
Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608)
======= ======= ===== =======
|
Income tax (benefit) at federal |
statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213)
Tax effect (decrease) of: |
Goodwill amortization............ 1,322 1,322 220 | --
Compensatory stock option and
restricted stock expense....... -- -- -- | (1,011)
Meals and entertainment.......... 199 157 23 | 53
Other items...................... 94 176 1 | (166)
------- ------- ------- | --------
Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337)
======= ======= ======= | ========
PP4SF-108892 116
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 1999 and 1998 follows:
POST-MERGER
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value............................ -- $1,023
Net unrealized depreciation of available
for sale fixed maturities................ $3,745 --
Future policy benefitS..................... 133,494 66,273
Goodwill................................... 16,323 16,323
Net operating loss carryforwards........... 56,630 17,821
Other...................................... 1,333 1,272
------- -------
211,525 102,712
Deferred tax liabilities:
Net unrealized appreciation of securities
at fair value............................ (832) --
Net unrealized appreciation of available
for sale fixed maturities................ -- (332)
Fixed maturity securities.................. (17,774) (1,034)
Deferred policy acquisition costs.......... (154,706) (55,520)
Mortgage loans on real estate.............. (715) (845)
Value of purchased insurance in force...... (10,462) (12,592)
Other...................................... (1,348) (912)
------- -------
(185,837) (71,235)
------- -------
Valuation allowance........................... (3,745) --
------- -------
Deferred income tax asset..................... $21,943 $31,477
======= =======
At December 31, 1999, the Company reported, for financial statement purposes,
unrealized losses on certain investments which have not been recognized for tax
purposes. The Companies have established a valuation allowance against the
deferred income tax assets associated with unrealized depreciation on fixed
maturities available for sale as the Companies are uncertain as to whether their
capital losses, if ever realized, could be utilized to offset future capital
gains.
PP4SF-108892 117
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 1999 and 1998, 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, 1999:
1999 1998
-----------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1... $ 4,454 $956
Service cost...................... 1,500 1,138
Interest cost..................... 323 97
Actuarial (gain) loss............. (2,056) 2,266
Benefit payments.................. -- (3)
------- -------
Benefit obligation at December 31. $ 4,221 $ 4,454
======= =======
Funded status:
Funded status at December 31...... $(4,221) $(4,454)
Unrecognized net loss............. 210 2,266
------- -------
Net amount recognized............. $(4,011) $(2,188)
======= =======
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 1999 1998
- -----------------------------------------------------------------
Discount rate.................... 8.00% 6.75%
Expected return on plan assets... 9.25 9.50
Rate of compensation increase.... 5.00 4.00
PP4SF-108892 118
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
The following table provides the net periodic benefit cost for the fiscal years
1999, 1998, and 1997:
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
For the year For the year For the period | For the period
ended ended October 25, 1997 | January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997 |October 24, 1997
----------------------------------------------|-----------------
(Dollars in thousands) |
|
|
Service cost................ $1,500 $1,138 $114 | $568
Interest cost............... 323 97 10 | 15
Amortization of net loss.... -- -- -- | 1
------ ------ ---- | ----
Net periodic benefit cost... $1,823 $1,235 $124 | $584
====== ====== ==== | ====
There were no gains or losses resulting from curtailments or settlements during
1999, 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 $4,221,000, $2,488,000, and $0, respectively, as of December
31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31,
1998.
During 1997, ING approved the 1997 Phantom Plan for certain key employees. The
Phantom Plan is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI, an affiliate, 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
PP4SF-108892 119
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the years ended December
31, 1999 and 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 $181,536,000, $117,470,000, $9,931,000, and $26,419,000,
respectively.
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 years ended December 31, 1999
and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000,
$508,000, and $2,262,000, 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 and accounting 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 years ended December 31, 1999 and 1998, the Companies
incurred fees of $2,227,000 and $1,504,000, respectively, 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 and $768,000
for the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, 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 1999 or in 1998.
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 $6,107,000 and $5,833,000 for the
years ended December 31, 1999 and 1998, respectively ($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).
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 $1,251,000 and $1,058,000 for the
years ended December 31, 1999 and 1998, respectively ($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
$387,000 in 1999 and $75,000 in 1998.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduce general
expenses incurred by Golden American, totaled $244,000 in 1999.
PP4SF-108892 120
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $460,000 in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $216,000 in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $103,000 in 1999.
In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total
premiums, net of reinsurance, for variable products sold through five affiliates
as noted in the following table:
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
|
For the year For the year For the period | For the period
ended ended October 25, 1997 |January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997|October 24, 1997
------------ ------------ -----------------|----------------
(Dollars in millions)
|
LSSI.................................. $168.5 $122.9 $9.3 | $16.9
Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2
DSI................................... 2.5 13.6 2.1 | 0.4
Multi-Financial Securities Corporation 44.1 13.4 -- | --
IFG Network Securities, Inc........... 25.8 3.7 -- | --
------ ------ ----- | -----
Total................................. $329.0 $198.5 $13.3 | $18.5
====== ====== ===== | =====
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 from the Department of Insurance of the
State of Delaware. 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 $815,000 in
1999 and $1,765,000 in 1998. At December 31, 1999 and 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 and $362,000 for the period January 1, 1997 through October 24, 1997). The
outstanding balance was paid by a capital contribution and with funds borrowed
from ING AIH.
PP4SF-108892 121
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred no interest in 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American paid no interest in 1999.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 1999. 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. Payment of
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 1999, unchanged from 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).
Stockholder'S Equity: During 1999 and 1998, Golden American received capital
contributions from its Parent of $121,000,000 and $122,500,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 1999, the Companies had reinsurance treaties with
four unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks under its variable contracts. Golden American
remains liable to the extent reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life mortality risks were
$119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000
and $7,586,000, respectively, for reserve credits, reinsurance claims, or
PP4SF-108892 122
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
other receivables from these reinsurers comprised of $493,000 and$439,000,
respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000,
respectively, for a payable for reinsurance premiums, and $15,542,000 and
$7,690,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy
benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the
years ended December 31, 1999 and 1998 and for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
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
$1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31,
1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Guaranty Fund Assessments: Assessments are levied on 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000 and $1,123,000 for
the years ended December 31, 1999 and 1998, respectively, $141,000 for the
period October 25, 1997 through December 31, 1997 and $446,000 for the period
January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the
Companies have an undiscounted reserve of $2,444,000 and $2,446,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $618,000 and
$586,000, respectively, 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 and
arbitrations. In some class action and other lawsuits involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the 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 insurance 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, each having at least ten percent of total sales,
generated 28% of the Companies' sales in 1999
PP4SF-108892 123
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
(26% and 53% by two broker/dealers during 1998 and 1997, respectively).
The Premium Plus product generated 79% of the Companies' sales during 1999
(63% during 1998 and 11% 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 years ended December 31, 1999 and 1998 and for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000,
respectively. At December 31, 1999, minimum rental payments due under all
non-cancelable operating leases with initial terms of one year or more are: 2000
- - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 -
$2,419,000, and 2005 and thereafter - $42,852,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
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. As of July 31, 1999, the SunTrust Bank,
Atlanta revolving note facility was extended to July 31, 2000. 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 years ended December 31, 1999 and 1998, the Companies incurred
interest expense of $198,000 and $352,000, respectively. At December 31, 1999,
the Companies had a $1,400,000 note payable to the Bank under this agreement.
PP4SF-108892 124
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- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Table of Contents
ITEM PAGE
Introduction 1
Description of Golden American Life Insurance Company 1
Safekeeping of Assets 1
The Administrator 1
Independent Auditors 1
Distribution of Contracts 1
Performance Information 2
IRA Partial Withdrawal Option 9
Other Information 9
Financial Statements of Separate Account B 10
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE
STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE
PROSPECTUS. SEND THE FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS
SHOWN ON THE PROSPECTUS COVER.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B.
Please Print or Type:
__________________________________________________
NAME
__________________________________________________
SOCIAL SECURITY NUMBER
__________________________________________________
STREET ADDRESS
__________________________________________________
CITY, STATE, ZIP
PP4SF-108892 Premium Plus 12/29/00
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
PP4SF-108892 125
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- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
Except for the Asset Allocation Growth, Diversified Mid-Cap, Growth and
Income, Special Situations, Investors, Large Cap Value, All Cap, Managed
Global, the ING Global Brand Names, Prudential Jennison and the SP
Jennison International Growth subaccounts which did not commence
operations as of December 31, 1999, the following tables give (1) the
accumulation unit value ("AUV"), (2) the total number of accumulation
units, and (3) the total accumulation unit value, for each subaccount of
Golden American Separate Account B available under the Contract for the
indicated periods. The date on which the subaccount became available to
investors and the starting accumulation unit value are indicated on the
last row of each table.
LIQUID ASSET
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $14.79 7,150,254 $105,783 $14.55 4,223,787 $61,465
1998 14.33 1,185,641 16,985 14.11 839,093 11,842
1997 13.83 131,429 1,818 13.65 61,012 846
10/1/97 13.71 -- -- 13.53 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $14.29 10,661,158 $152,353
1998 13.88 2,967,968 41,195
1997 13.44 298,288 4,009
10/1/97 13.33 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $16.72 1,726,180 $28,863 $16.45 863,647 $14,205
1998 16.77 633,316 10,620 16.52 334,521 5,526
1997 15.91 16,839 268 15.70 10,105 159
10/1/97 15.72 -- -- 15.52 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $16.15 2,219,351 $35,848
1998 16.25 910,113 14,787
1997 15.47 12,577 195
10/1/97 15.29 -- --
- ------------------------------------------------------------------
GLOBAL FIXED INCOME
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $11.79 439,601 $5,184 $11.70 219,011 $2,562
1998 13.09 187,670 2,456 13.00 80,199 1,043
1997 11.87 3,418 41 11.81 310 4
10/1/97 11.99 -- -- 11.93 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $11.60 603,046 $6,998
1998 12.92 180,373 2,330
1997 11.75 6,455 76
10/1/97 11.87 -- --
- ------------------------------------------------------------------
PP4SF-108892 A1
FULLY MANAGED
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $21.65 1,292,419 $27,978 $21.29 988,291 $21,044
1998 20.53 593,655 12,189 20.23 512,203 10,361
1997 19.66 36,852 725 19.40 28,440 552
10/1/97 9.49 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $20.91 3,030,152 $63,363
1998 19.90 1,673,484 33,294
1997 19.11 108,003 2,064
10/1/97 18.96 -- --
- ------------------------------------------------------------------
TOTAL RETURN
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $18.06 4,404,186 $79,539 $17.91 2,910,090 $52,124
1998 17.72 1,708,118 30,264 17.60 1,404,222 24,713
1997 16.02 54,291 874 16.02 25,888 415
10/1/97 16.10 -- -- 15.75 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $17.77 8,891,632 $158,001
1998 17.49 3,742,869 65,449
1997 15.94 147,659 2,354
10/1/97 15.68 -- --
- ------------------------------------------------------------------
EQUITY INCOME
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $21.47 1,085,728 $23,316 $21.12 617,614 $13,046
1998 21.94 257,646 5,652 21.61 207,605 4,486
1997 20.55 26,372 542 20.28 13,243 269
10/1/97 20.55 -- -- 20.29 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $20.74 2,236,042 $46,384
1998 21.26 713,431 15,164
1997 19.97 35,002 699
10/1/97 19.99 -- --
- ------------------------------------------------------------------
VALUE EQUITY
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $18.14 859,962 $15,603 $18.01 767,525 $13,823
1998 18.31 491,538 8,998 18.20 470,129 8,556
1997 18.28 28,327 518 18.20 40,454 736
10/1/97 18.85 -- -- 18.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $17.84 1,901,397 $33,924
1998 18.06 1,161,575 20,974
1997 18.09 117,054 2,117
10/1/97 18.67 -- --
- ------------------------------------------------------------------
PP4SF-108892 A2
RISING DIVIDENDS
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $25.83 3,855,308 $99,594 $25.59 3,388,151 $86,710
1998 22.61 1,802,632 40,757 22.43 1,454,269 32,624
1997 20.09 50,068 1,006 19.96 34,332 685
10/1/97 19.30 -- -- 19.19 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $25.31 9,238,054 $233,848
1998 22.22 4,169,562 92,659
1997 19.81 169,648 3,360
10/1/97 19.05 -- --
- ------------------------------------------------------------------
RESEARCH
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $28.04 3,732,084 $104,644 $27.80 3,987,090 $110,860
1998 22.89 1,882,609 43,093 22.73 1,664,084 37,830
1997 18.87 58,635 1,106 18.77 29,908 561
10/1/97 19.33 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $27.58 7,961,890 $219,621
1998 22.59 3,540,785 79,977
1997 18.67 154,878 2,892
10/1/97 19.15 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $30.11 1,321,446 $39,790 $29.77 1,332,081 $39,650
1998 24.50 552,738 13,542 24.26 436,641 10,591
1997 22.05 12,122 267 21.87 20,531 449
10/1/97 21.95 -- -- 21.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $29.38 3,502,726 $102,900
1998 23.98 996,496 23,892
1997 21.65 66,918 1,449
10/1/97 21.57 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $21.06 3,183,975 $67,052 $20.94 3,036,436 $63,576
1998 17.01 1,393,674 23,707 16.94 1,251,474 21,197
1997 15.41 101,866 1,569 15.36 160,843 2,471
10/1/97 15.99 -- -- 15.95 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $20.82 7,329,545 $152,590
1998 16.87 2,660,020 44,867
1997 15.32 246,159 3,772
10/1/97 15.92 -- --
- ------------------------------------------------------------------
PP4SF-108892 A3
STRATEGIC EQUITY
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $21.92 1,284,045 $28,148 $21.78 1,027,948 $22,392
1998 14.23 291,183 4,143 14.16 162,917 2,307
1997 14.31 13,199 189 14.26 15,985 228
10/1/97 14.14 -- -- 14.10 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $21.61 2,946,931 $63,695
1998 14.07 748,842 10,538
1997 14.20 49,579 704
10/1/97 14.04 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $39.59 2,679,145 $106,080 $39.34 1,972,481 $77,589
1998 22.43 871,756 19,550 22.31 523,815 11,688
1997 18.52 35,953 666 18.45 13,732 253
10/1/97 18.94 -- -- 18.88 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $39.02 4,341,508 $169,421
1998 22.17 1,207,879 26,779
1997 18.36 48,168 885
10/1/97 18.79 -- --
- ------------------------------------------------------------------
SMALL CAP
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $22.82 2,787,333 $63,611 $22.68 1,823,715 $41,368
1998 15.37 1,029,412 15,820 15.30 594,716 9,098
1997 12.88 58,584 755 12.84 20,111 258
10/1/97 13.85 -- -- 13.82 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $22.55 3,575,459 $80,614
1998 15.23 1,273,236 19,390
1997 12.81 99,963 1,280
10/1/97 13.78 -- --
- ------------------------------------------------------------------
GROWTH
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $28.62 8,941,918 $255,925 $28.46 6,570,102 $186,953
1998 16.29 1,521,473 24,792 16.22 797,510 12,940
1997 13.03 97,853 1,275 12.99 34,329 446
10/1/97 15.18 -- -- 15.14 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $28.29 14,909,662 $421,842
1998 16.16 2,265,343 36,602
1997 12.96 226,700 2,938
10/1/97 15.10 -- --
- ------------------------------------------------------------------
PP4SF-108892 A4
REAL ESTATE
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $20.62 286,539 $5,909 $20.28 155,133 $3,147
1998 21.74 196,372 4,270 21.42 112,984 2,420
1997 25.48 10,718 273 25.14 8,060 203
10/1/97 25.25 -- -- 24.92 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $19.92 532,774 $10,613
1998 21.07 408,418 8,604
1997 24.76 44,523 1,102
10/1/97 24.56 -- --
- ------------------------------------------------------------------
HARD ASSETS
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $17.37 130,846 $2,273 $17.09 175,931 $3,006
1998 14.28 50,015 714 14.07 33,343 469
1997 20.57 4,291 88 20.29 4,830 98
10/1/97 24.00 -- -- 23.68 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $16.78 559,019 $9,381
1998 13.84 205,654 2,846
1997 19.99 10,671 213
10/1/97 23.34 -- --
- ------------------------------------------------------------------
DEVELOPING WORLD
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $11.61 1,294,269 $15,027 $11.58 620,258 $7,181
1998 7.28 131,499 958 7.27 31,253 227
2/19/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $11.54 1,334,812 $15,410
1998 7.26 111,256 808
2/19/98 -- -- --
- ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $10.24 3,028,750 $31,013 $10.21 1,524,636 $15,572
1998 10.08 872,132 8,791 10.07 424,746 4,277
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $10.19 5,377,440 $54,782
1998 10.06 1,487,999 14,969
5/1/98 10.00 -- --
- ------------------------------------------------------------------
PP4SF-108892 A5
PIMCO STOCKSPLUS GROWTH AND INCOME
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $13.13 2,808,279 $36,875 $13.10 2,387,540 $31,271
1998 11.11 883,763 9,820 11.10 467,386 5,188
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $13.06 7,040,346 $91,978
1998 11.09 1,878,277 20,828
5/1/98 10.00 -- --
- ------------------------------------------------------------------
INTERNATIONAL EQUITY
- ---------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ---------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
1999 $15.57 2,749,756 $42,801 $15.59 1,959,322 $30,538
1998 10.29 1,067,090 10,979 10.32 680,862 7,025
1997 9.90 38,652 383 9.95 36,098 359
10/1/97 11.57 -- -- 11.62 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $15.50 4,663,701 $72,274
1998 10.27 1,736,702 17,844
1997 9.92 72,955 724
10/1/97 11.60 -- --
- ------------------------------------------------------------------
PP4SF-108892 A6
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into
the guaranteed interest period; that the then Index Rate for a 7-year guaranteed
interest period ("J") is 8%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest Allocation on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $112,695 ($124,230 - $11,535).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into
the guaranteed interest period; that the then Index Rate for a 7-year guaranteed
interest period ("J") is 6%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest Allocation on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $128,371 ($124,230 + $4,141).
EXAMPLE #3: WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a withdrawal of $112,695 is requested 3
years into the guaranteed interest period; that the then Index Rate ("J") for a
7-year guaranteed interest period is 8%; and that no prior transfers or
withdrawals affecting this Fixed Interest Allocation have been made.
PP4SF-108892 B1
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of the Fixed Interest Allocation on the date of
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$112,695 /((1.07/1.0850) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $112,695 as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $112,695, and also reduced by the Market Value
Adjustment of $11,535, for a total reduction in the Fixed Interest Allocation of
$124,230.
EXAMPLE #4: WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate of 7%; that a withdrawal of $128,371 requested 3 years into
the guaranteed interest period; that the then Index Rate ("J") for a 7-year
guaranteed interest period is 6%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of Fixed Interest Allocation on the date of surrender is
3
$248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$128,371 / ((1.07/1.0650) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $128,371, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $128,371, but increased by the Market Value
Adjustment of $4,141, for a total reduction in the Fixed Interest Allocation of
$124,230.
PP4SF-108892 B2
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third
contract years, for total premium payments under the Contract of $30,000.
It also assumes a withdrawal at the beginning of the fifth contract year
of 15% of the contract value of $35,000.
In this example, $3,500 ($35,000 x .10) is the maximum free withdrawal
amount that you may withdraw during the contract year without a surrender
charge. The total withdrawal would be $5,250 ($35,000 x .15).
Therefore, $1,750 ($5,250 - $3,500) is considered an excess withdrawal of
a part of the initial premium payment of $10,000 and would be subject to
a 7% surrender charge of $122.50 ($1,750 x .07). This example does not
take into account any Market Value Adjustment or deduction of any premium
taxes.
PP4SF-108892 C1
- --------------------------------------------------------------------------------
APPENDIX D
- --------------------------------------------------------------------------------
WITHDRAWAL ADJUSTMENT FOR 7% SOLUTION DEATH BENEFIT EXAMPLES
EXAMPLE #1: THE CONTRACT VALUE (AV) IS LOWER THAN THE DEATH BENEFIT
Assume a premium payment of $100,000(including credit), AV at the time
of withdrawal of $87,000 and a 7% Solution minimum guarantee death benefit
("MGDB") at the time of withdrawal of $127,000. A total withdrawal of $27,000
is made. The withdrawal is a combination of Special Withdrawal and Pro-Rata
Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000($87,000 - $7,000)
AV after Special Withdrawal = $80,000($127,000 - $7,000)
The Pro-Rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro-Rata Withdrawal Adjustment to MGDB = $30,000 ($120,000
* ($20,000 /$80,000))
MGDB after Pro-Rata Withdrawal = $90,000 ($120,000 -$30,000)
AV after Pro-Rata Withdrawal = $60,000 ($80,000 -$20,000)
EXAMPLE #2: THE CONTRACT VALUE (AV) IS GREATER THAN THE DEATH BENEFIT
Assume a premium payment of $100,000(including credit), AV at the time of
withdrawal of $167,000 and a 7% Solution minimum guarantee death benefit
("MGDB") at the time of withdrawal of $127,000. A total withdrawal of $27,000
is made. The withdrawal is a combination of Special Withdrawal and Pro-Rata
Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000($127,000 - $7,000)
AV after Special Withdrawal = $160,000($127,000 - $7,000)
The Pro-Rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro-Rata Withdrawal Adjustment to MGDB = $15,000 ($120,000
* ($20,000 /$160,000))
MGDB after Pro-Rata Withdrawal = $105,000 ($120,000 -$15,000)
AV after Pro-Rata Withdrawal = $140,000 ($160,000 -$20,000)
PP4SF-108892 D1
EXAMPLE #3: THE CONTRACT VALUE (AV) IS EQUAL TO THAN THE DEATH BENEFIT
Assume a premium payment of $100,000(including credit), AV at the time
of withdrawal of $127,000 and a 7% Solution minimum guarantee death benefit
("MGDB") at the time of withdrawal of $127,000. A total withdrawal of $27,000
is made. The withdrawal is a combination of Special Withdrawal and Pro-Rata
Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000($127,000 - $7,000)
AV after Special Withdrawal = $120,000($127,000 - $7,000)
The Pro-Rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro-Rata Withdrawal Adjustment to MGDB = $20,000 ($120,000
* ($20,000 /$120,000))
MGDB after Pro-Rata Withdrawal = $100,000 ($120,000 -$20,000)
AV after Pro-Rata Withdrawal = $100,000 ($120,000 -$20,000)
PP4SF-108892 D2
- --------------------------------------------------------------------------------
APPENDIX E
- --------------------------------------------------------------------------------
DEATH BENEFITS FOR CONTRACT OWNERS
WHO PURCHASED CONTRACTS PRIOR TO JANUARY 1, 2001
The following is a description of the death benefit options for contract
owners who purchased contracts prior to the effective date of this
prospectus.
Effective with the date of this prospectus, we will be designating
certain investment portfolios as "Excluded Funds". We may add new
portfolios as Excluded Funds. We may also reclassify an existing
portfolio as an Excluded Fund or remove such classification upon 30 days
notice to you. Such reclassification will apply only to amounts
transferred or otherwise added to such portfolio after the effective date
of the reclassification. Investment in Excluded Funds will impact your
death benefit. OTHER THAN AS SPECIFIED BELOW, PLEASE SEE THE PROSPECTUS
FOR A COMPLETE DESCRIPTION OF YOUR DEATH BENEFIT OPTIONS.
DEATH BENEFIT FOR EXCLUDED FUNDS
For the period of time, and to the extent, that you allocate premium or
contract value to Excluded Funds, your death benefit attributable to that
allocation will equal the contract value of that allocation. Any
guarantee of death benefit in excess of contract value otherwise provided
with regard to allocations to Non-Excluded Funds, does not apply to
allocations to Excluded Funds. The death benefit provided under the
Contract may be reduced to the extent that you allocate premium or
contract value to Excluded Funds.
Transfers from Excluded Funds to Non-Excluded funds will reduce all death
benefit components for Excluded Funds on a pro-rata basis. Except with
respect to any maximum guaranteed death benefit, the resulting increase
in the Non-Excluded Funds death benefit component will equal the lesser
of the reduction in the death benefit for Excluded Funds and the contract
value transferred. With respect to the maximum guaranteed death benefit,
where applicable, the resulting increase in the Non-Excluded Funds
maximum guaranteed death benefit will equal the reduction in the maximum
guaranteed death benefit for Excluded Funds.
Transfers from Non-Excluded Funds to Excluded Funds will reduce the Non-
Excluded Funds death benefit components on a pro-rata basis. The
resulting increase in the death benefit components of Excluded Funds will
equal the reduction in the Non-Excluded Funds death benefit components.
Adjustments for transfers involving both Excluded Funds and Special Funds
will be calculated separately from adjustments for transfers involving
Excluded Funds and Non-Special Funds, where applicable.
DEATH BENEFIT FOR NON-EXCLUDED FUNDS
Under the STANDARD DEATH BENEFIT, if you die before the annuity start
date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
pro rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the total premium payments plus credits made under the Contract
reduced by a pro rata adjustment for any withdrawals, minus any
credits added within 1 year prior to death.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the
annuity start date, your beneficiary will receive the greatest of:
PP4SF-108892 E1
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
pro rata adjustment for any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year
prior to death, which we determine as follows: we credit interest
each business day at the 7% annual effective rate to the enhanced
death benefit from the preceding day (which would be the initial
premium and the credit added if the preceding day is the contract
date), then we add additional premiums paid and credits added
since the preceding day, then we adjust for any withdrawals
(including any market value adjustment applied to such withdrawal
and any associated surrender charges) since the preceding day.
Special withdrawals are withdrawals of up to 7% per year of
cumulative premiums and premium credits. Special withdrawals
shall reduce the 7% Solution Enhanced Death Benefit by the amount
of contract value withdrawn. For any withdrawals in excess of the
amount available as a special withdrawal, a pro rata adjustment to
the death benefit is made. The maximum enhanced death benefit is 3
times all premium payments and credits added, adjusted to reflect
withdrawals.* Each accumulated initial or additional premium
payment and credit will continue to grow at the 7% annual
effective rate until the maximum enhanced death is reached or the
contract owner attains age 80, if earlier.
*Depending on your Contract and the state of issue, this maximum
may be 2 times all premium payments and credits added.
Note for current Special Funds: Certain investment portfolios and
the Fixed Account are designated as "Special Funds" for purposes
of calculating the 7% Solution Enhanced Death Benefit. In
addition to the Fixed Account, the investment portfolios
designated currently as Special Funds are the Liquid Asset
Portfolio and the Limited Maturity Bond Portfolio. The actual
interest rate used for calculating the 7% Solution Enhanced Death
Benefit for Special Funds will be the lesser of (1) 7% and (2) the
interest rate, positive or negative, providing a yield on the
enhanced death benefit for Special Funds equal to the net return
for the current valuation period on the contract value allocated
to Special Funds. We may, with 30 days notice to you, designate
any investment portfolio as a Special Fund on existing contracts
with respect to new premiums added to such investment portfolio
and also with respect to new transfers to such investment
portfolio. Thus selecting these investment portfolios and/or the
Fixed Account may limit or reduce the enhanced death benefit.
Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the
annuity start date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
pro rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within 1 year
prior to death, which is determined as follows: On each contract
anniversary that occurs on or before the contract owner turns age
80, we compare the prior enhanced death benefit to the contract
value and select the larger amount as the new enhanced death
benefit. On all other days, the enhanced death benefit is the
following amount: On a daily basis we first take the enhanced
death benefit from the preceding day (which would be the initial
premium and credit added if the preceding day is the contract
date), then we add additional premiums paid and credits added
since the preceding day, and then we adjust for any withdrawals on
a pro rata basis (including any market value adjustment applied to
such withdrawal and any associated surrender charges) since the
preceding day. That amount becomes the new enhanced death
benefit.
PP4SF-108892 E2
Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greater of the 7% Solution
Enhanced Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit option, the 7% Solution Enhanced Death Benefit and the
Annual Ratchet Enhanced Death Benefit are calculated in the same manner
as if each were the elected benefit.
Note: In all cases described above, the amount of the death benefit
could be reduced by premium taxes owed and withdrawals not
previously deducted. ALL ENHANCED DEATH BENEFITS MAY NOT BE
AVAILABLE IN EVERY STATE OR UNDER ALL CONTRACTS.
PP4SF-108892 E3
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- --------------------------------------------------------------------------------
APPENDIX F
- --------------------------------------------------------------------------------
OPTIONAL RIDER BENEFITS FOR CONTRACT OWNERS
WHO PURCHASED CONTRACTS PRIOR TO JANUARY 1, 2001
The following is a description of the optional rider benefits for
contract owners who purchased contracts prior to the effective date of
this prospectus and elected an optional rider benefit.
Effective with the date of this prospectus, we will be designating
certain investment portfolios as "Excluded Funds". We may add new
portfolios as Excluded Funds. We may also reclassify an existing
portfolio as an Excluded Fund or remove such classification upon 30 days
notice to you. Such reclassification will apply only to amounts
transferred or otherwise added to such portfolio after the effective date
of the reclassification. Investment in Excluded Funds will impact the
benefit under any optional rider that you have elected. IF YOU NEVER
INVEST IN EXCLUDED FUNDS, YOUR RIDER BENEFITS WILL BE UNAFFECTED. OTHER
THAN AS SPECIFIED BELOW, PLEASE SEE THE PROSPECTUS FOR A COMPLETE
DESCRIPTION OF YOUR OPTIONAL RIDER BENEFITS.
OPTIONAL RIDER BENEFITS FOR EXCLUDED FUNDS
For the period of time, and to the extent, that you allocate premium or
contract value to Excluded Funds, any guarantee of an optional rider
benefit does not apply to those amounts. The optional rider benefit
provided under the Contract may be reduced to the extent that you
allocate premium or contract value to Excluded Funds.
For each rider benefit component contained in your rider, a corresponding
component will be created for allocations to Excluded Funds. Transfers
from Excluded Funds to Non-Excluded funds will reduce all rider benefit
components for Excluded Funds on a pro-rata basis. Except with respect
to any maximum guaranteed rider benefit, the resulting increase in the
Non-Excluded Funds rider benefit component will equal the lesser of the
reduction in the rider benefit component for Excluded Funds and the
contract value transferred. With respect to the maximum guaranteed
benefit, where applicable, the resulting increase in the Non-Excluded
Funds maximum guaranteed benefit will equal the reduction in the maximum
guaranteed benefit for Excluded Funds.
Transfers from Non-Excluded Funds to Excluded Funds will reduce the Non-
Excluded Funds rider benefit component on a pro-rata basis. The
resulting increase in the rider benefit components of Excluded Funds will
equal the reduction in the Non-Excluded Funds benefit.
Adjustments for transfers involving both Excluded Funds and Special Funds
will be calculated separately from adjustments for transfers involving
Excluded Funds and Non-Special Funds, where applicable.
OPTIONAL RIDER BENEFIT FOR NON-EXCLUDED FUNDS
A. MINIMUM GUARANTEED ACCUMULATION BENEFIT ("MGAB"). We calculate your
MGAB as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a
calculation used to determine the MGAB. The MGAB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your annuity income, cash surrender
value and death benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your
initial premium and credit, plus any additional premium and credit
added to your Contract during the 2-year period after your rider
date, reduced pro rata for any withdrawals and reduced for any
transfers made within the last 3 years prior to the MGAB Benefit
Date; or
PP4SF-108892 F1
(ii) elected the twenty-year option, except for the Special Funds
which require special calculations, your MGAB Base is equal to
your initial premium and credit, plus any additional premium and
credit added to your Contract during the 2-year period after your
contract date, accumulated at the MGAB Base Rate, reduced pro rata
for any withdrawals and reduced for any transfers made within the
last 3 years prior to the MGAB Benefit Date. The MGAB Base Rate
for allocations other than allocations to the Special Funds is the
annual effective rate of 3.5265%. Accumulation of eligible
additional premiums starts on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus,
the MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus
premiums and credits added during the 2-year period after your
rider date. Withdrawals taken while the MGAB rider is in effect,
as well as transfers made within 3 years prior to the MGAB Benefit
Date, will reduce the value of your MGAB Base pro rata. This
means that the MGAB Base (and the MGAB Charge Base) will be
reduced by the same percent as the percent of contract value that
was withdrawn (or transferred). We will look to your contract
value immediately before the withdrawal or transfer when we
determine this percent.
For any Special Fund under the twenty-year option, if the actual
interest credited to and/or the investment earnings of the
contract value allocated to the Special Fund over the calculation
period is less than the amount calculated under the formula above,
that lesser amount becomes the increase in your MGAB Base for the
Special Fund for that period. THE MGAB BASE RATE FOR EACH SPECIAL
FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the Special
Funds may limit the MGAB benefit.
If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in
the Special Funds, may prevent the MGAB Base from doubling over
the waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both
the contract value in the subaccounts in which you are invested
and the contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the
subaccounts in which you are invested pro rata based on the
proportion of your contract value in the subaccounts on that date,
unless you have previously given us other allocation instructions.
If you do not have an investment in any subaccount on the MGAB
Benefit Date, we will allocate the MGAB to the Liquid Asset
subaccount on your behalf. After the crediting of the MGAB, the
amount of your annuity income, cash surrender value and death
benefits will reflect the crediting of the MGAB to your contract
value to the extent the contract value is used to determine such
value.
B. MINIMUM GUARANTEED INCOME BENEFIT ("MGIB"). On the MGIB Benefit
Date, we calculate your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a
calculation used to determine the MGIB. The MGIB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your cash surrender value and death
benefits. Any reset of contract value under provisions of the
Contract or other riders will not increase the MGIB Base or MGIB
Base Maximum.
PP4SF-108892 F2
(i) If you purchased the MGIB rider on the contract date, except
for the Special Funds which require special calculations, the
MGIB Base is equal to your initial premium and credit, plus any
additional premiums and credits added to your Contract during
the 5-year period after your contract date, accumulated at the
MGIB Base Rate (7% for all portfolios except the Special
Funds), reduced pro rata by all withdrawals taken while the
MGIB rider is in effect. Premiums and credits paid less than 5
years prior to the earliest MGIB Benefit Date are excluded from
the MGIB Base.
(ii)If you purchased the MGIB rider after the contract date,
except for the Special Funds which require special
calculations, your MGIB Base is equal to your contract value on
the rider date plus any eligible premiums and credits added to
your Contract during the 5-year period after your rider date,
accumulated at the MGIB Base Rate (7% for all portfolios except
the Special Funds), reduced pro rata by all withdrawals taken
while the MGIB rider is in effect. Eligible additional premium
payments and credits are those added more than 5 years before
the earliest MGIB Benefit Date and are included in the MGIB
Base. Premiums and credits paid after the 5th rider
anniversary are excluded from the MGIB Base.
(iii)For any Special Fund, if the actual earnings and/or the
interest credited to the contract value allocated to the
Special Fund over the calculation period is less than the
amount determined under the formula above, that lesser amount
becomes the change in your MGIB Base for the Special Fund. THE
MGIB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR
NEGATIVE. Thus, investing in the Special Funds may limit the
MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata to
the percentage of the contract value withdrawn.
We offer a 7% MGIB Base Rate, except for the Special Funds.
The Company may at its discretion discontinue offering this
rate. The MGIB Base Rate is an annual effective rate.
The MGIB Base is subject to the MGIB Base Maximum. The MGIB
Base Maximum is the amount calculated above until the earlier
of: (i) the date the oldest contract owner reaches age 80, or
(ii) the date the MGIB Base reaches two times the MGIB Eligible
Premiums and credits, adjusted for any withdrawals. MGIB
Eligible Premiums is the total of premiums paid more than 5
years before the earliest MGIB Benefit Date.
2. Then we determine the MGIB annuity income by multiplying your MGIB
Base (adjusted for any Market Value Adjustment, surrender charge
and premium taxes) by the income factor, and then divide by
$1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table
of Income Factors specified in the MGIB rider for the Income Option you
selected. The guaranteed factors contained in the MGIB rider generally
provide lower payout per $1,000 of value applied than the guaranteed
factors found in your Contract.
Then we compare the MGIB annuity income under the rider guarantee for
the option selected with the annuity income under your Contract guarantee
for the same option. The greater amount of income will be available to
you on the MGIB Benefit Date.
C. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB
Withdrawal Account is only a calculation which represents the remaining
amount available for periodic payments under the MGWB
PP4SF-108892 F3
rider. It does not represent a contract value, nor does it guarantee
performance of the subaccounts in which you are invested. It will not
affect your annuitization, surrender and death benefits. The MGWB
Withdrawal Account is equal to the Eligible Payment Amount adjusted for
any withdrawals. Withdrawals of up to 7% per year of the Eligible Payment
Amount will reduce the value of your MGWB Withdrawal Account by the dollar
amount of the withdrawal. Any withdrawals greater than 7% per year of the
Eligible Payment Amount will cause a reduction in both the MGWB Withdrawal
Account and the Eligible Payment Amount by the proportion that the withdrawal
bears to the contract value at the time of the withdrawal. The MGWB
Withdrawal Account is also reduced by the amount of any periodic payments
paid under the MGWB rider once your contract value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in
any amount permitted under your Contract so long as your contract value
is greater than zero. See "Withdrawals." However, making any
withdrawals in any year greater than 7% per year of the Eligible Payment
Amount will reduce the Eligible Payment Amount for future withdrawals and
payments under the MGWB rider by the proportion that the withdrawal bears
to the contract value at the time of the withdrawal. The MGWB rider will
remain in force and you may continue to make withdrawals each year so
long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii) your latest allowable annuity start date has not been
reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue
the contract), changed the ownership of the Contract or
surrendered the Contract.
The standard Contract provision limiting withdrawals to no more than 90%
of the cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by
the dollar amount of any withdrawal taken up to 7% per year of the
Eligible Payment Amount. Any withdrawal taken in excess of 7% per year
of the Eligible Payment Amount will reduce both the MGWB Withdrawal
Account and the Eligible Payment Amount pro rata in proportion to the
percentage of contract value withdrawn. If a withdrawal reduces the MGWB
Withdrawal Account to zero, the MGWB rider terminates and no further
benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event
your contract value is reduced to zero your Contract is given what we
refer to as Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been
reached;
(iii)you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract
or surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will
pay you the annual MGWB periodic payments, beginning on the next contract
anniversary, equal to the lesser of the remaining MGWB Withdrawal Account
or 7% annually of your Eligible Payment Amount until the earliest of (i)
your contract's latest annuity start date, (ii) the death of the owner;
or (iii) until your MGWB Withdrawal Account is exhausted. We will reduce
the MGWB Withdrawal Account by the amount of each payment. Once your
Contract is given Automatic Periodic Benefit Status, we will not accept
any additional premium payments in your Contract and the Contract will
not provide any benefits except those provided by the MGWB rider. Any
other rider terminates. Your Contract will remain in Automatic Periodic
Benefit Status until the earliest of (i) payment of all MGWB periodic
payments (ii) payment of the Commuted Value (defined below) or (iii) the
owner's death has occurred.
PP4SF-108892 F4
On the contract's latest annuity start date, in lieu of making the
remaining MGWB periodic payments, we will pay you the Commuted Value of
your MGWB periodic payments remaining. We may, at our option, extend
your annuity start date in order to continue the MGWB periodic payments.
The Commuted Value is the present value of any then remaining MGWB
periodic payments at the current interest rate plus 0.50%. The current
interest rate will be determined by the average of the Ask Yields for
U.S. Treasury Strips as quoted by a national quoting service for period(s)
applicable to the remaining payments. Once the last MGWB periodic payment
is made or we pay you the Commuted Value, your Contract and the MGWB rider
terminate.
PP4SF-108892 F5
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in
Delaware
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PP4SF-108892 Premium Plus 12/29/2000
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ING VARIABLE ANNUITIES |
GOLDEN AMERICAN LIFE INSURANCE COMPANY |
Golden American Life Insurance Company is a |
stock company domiciled in Delaware |
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108892 PREMIUM PLUS-SF 12/29/2000 |
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PROFILE AND PROSPECTUS OF
GOLDENSELECT PREMIUM PLUS-GALAXY/R/
(FORM FIVE)
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| PROFILE AND PROSPECTUS FOR GOLDENSELECT PREMIUM PLUS/R/
| FEATURING THE GALAXY VIP FUND
| Deferred Combination Variable and Fixed Annuity Contract, DECEMBER 29, 2000
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| Golden American Life Insurance Company
| Separate Account B of Golden American Life Insurance Company
| ING VARIABLE ANNUITIES
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
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PROFILE OF
GOLDENSELECT PREMIUM PLUS/R/
FEATURING
THE GALAXY VIP FUND
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
DECEMBER 29, 2000
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1. THE ANNUITY CONTRACT
The Contract offered in this prospectus is a deferred combination variable and
fixed annuity contract between you and Golden American Life Insurance Company.
It is offered exclusively to customers of Fleet Financial Group, Inc. and its
affiliates. The Contract features a minimum 4% credit to each premium you pay.
The Contract provides a means for you to invest on a tax-deferred basis in (i)
one or more of 32 mutual fund investment portfolios through our Separate Account
B and/or (ii) in a fixed account of Golden American with guaranteed interest
periods. The 37 mutual fund portfolios are listed on page 3 below. We currently
offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10 years in the
fixed account. We set the interest rates in the fixed account (which will never
be less than 3%) periodically. We may credit a different interest rate for each
interest period. The interest you earn in the fixed account as well as your
principal is guaranteed by Golden American as long as you do not take your money
out before the maturity date for the applicable interest period. If you withdraw
your money from the fixed account more than 30 days before the applicable
maturity date, we will apply a market value adjustment. A market value
adjustment could increase or decrease your contract value and/or the amount you
take out. Generally, the investment portfolios are designed to offer a better
return than the fixed account. However, this is NOT guaranteed. You may not make
any money, and you can even lose the money you invest.
Subject to state
availability, you may elect one of three optional riders offering specified
benefits featured in the prospectus for the Contract. The three optional benefit
riders are listed on page below. The optional benefit riders can provide
protection under certain circumstances in the event that unfavorable investment
performance has lowered your contract value below certain targeted growth. These
riders do not guarantee
PREMIUM PLUS PROFILE PROSPECTUS BEGINS AFTER
GPP4SF-108896 PAGE 12 OF THIS PROFILE
the performance of your investment portfolios. Separate
charges are assessed for the optional riders. You should carefully analyze and
completely evaluate each rider before you purchase any. Be aware that the
benefit provided by any of the riders will be affected by certain later actions
you may take - such as withdrawals and transfers. The riders are not available
to Contracts issued before January 1, 2000. To find out about availability,
check with our Customer Service Center.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the income phase. The accumulation phase is the period
between the contract date and the date on which you start receiving the annuity
payments under your Contract. The amounts you accumulate during the accumulation
phase will determine the amount of annuity payments you will receive. The income
phase begins on the annuity start date, which is the date you start receiving
regular annuity payments from your Contract. You determine (1) the amount and
frequency of premium payments, (2) the investments, (3) transfers between
investments, (4) the type of annuity to be paid after the accumulation phase,
(5) the beneficiary who will receive the death benefits, (6) the type of death
benefit, and (7) the amount and frequency of withdrawals.
2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity payments are the periodic payments you will begin receiving on the
annuity start date. You may choose one of the following annuity payment options:
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ANNUITY OPTIONS
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Option 1 Income for a fixed Payments are made for a
specified number of years to
you or your period
beneficiary.
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Option 2 Income for life with Payments are made for the
a period certain rest of your life or longer
for a specified period such
as 10 or 20 years or until
the total amount
used to buy this option has
been repaid. This option
comes with an added guarantee
that payments will continue
to your beneficiary for the
remainder of such period if
you should die during the
period.
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Option 3 Joint life income Payments are made for your
life and the life of another
person (usually your spouse).
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Option 4 Annuity plan Any other annuitization plan
that we choose to offer on
the annuity start date.
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Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. If variable and subject to the Investment
Company Act of 1940, it will comply with the requirements of such Act. Once you
elect an annuity option and begin to receive payments, it cannot be changed.
3. PURCHASE (BEGINNING OF THE ACCUMULATION PHASE)
You may purchase the Contract with an initial payment of $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($250 for a qualified Contract) at any time before you
turn 85 during the accumulation phase. Under certain circumstances, we may waive
the minimum initial and additional premium payment requirement. Any initial or
additional premium payment that would cause the contract value of all annuities
that you maintain with us to exceed $1,000,000 requires our prior approval. Each
time you make a premium payment, we will add a credit of at
GPP4SF-108896 2 PREMIUM PLUS PROFILE
least 4% of each
premium payment to your contract value. Within 1 year after any credit is added,
it may be deducted from your contract value under certain circumstances which
are described in the prospectus for the Contract. After 1 year, a credit added
to your contract value becomes permanent.
Who may purchase this Contract?
Contracts offered by the prospectus accompanying this Profile are available only
to customers of Fleet Boston Financial corporation and its affiliates. The
Contract may be purchased by individuals as part of a personal retirement plan
(a "non-qualified Contract"), or as a Contract that qualifies for special tax
treatment when purchased as either an Individual Retirement Annuity (IRA) or in
connection with a qualified retirement plan (each a "qualified Contract").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
The Contract is designed for people seeking long-term tax-deferred accumulation
of assets, generally for retirement or other long-term purposes. The
tax-deferred feature is more attractive to people in high federal and state tax
brackets. You should not buy this Contract if you are looking for a short-term
investment or if you cannot risk getting back less money than you put in.
4. THE INVESTMENT PORTFOLIOS
You can direct your money, and the credit we add, into (1) the fixed account
with guaranteed interest periods of 6 months, and 1, 3, 5, 7 and 10 years,
and/or (2) into any one or more of the following 37 mutual fund investment
portfolios through our Separate Account B. The investment portfolios are
described in the prospectuses for the GCG Trust, The Galaxy VIP Fund, the PIMCO
Variable Insurance Trust, the Warburg Pincus Trust, ING Variable Insurance Trust
and the Prudential Series Fund. Keep in mind that while an investment in the
fixed account earns a fixed interest rate, an investment in any investment
portfolio, depending on market conditions, may cause you to make or lose money.
The investment portfolios available under your Contract are:
THE GCG TRUST
Liquid Asset Series Rising Dividends Series Strategic Equity Series
Limited Maturity Bond Series Diversified Mid-Cap Series Special Situations
Global Fixed Income Series Managed Global Series Mid-Cap Growth Series
Fully Managed Series Large Cap Value Series Small Cap Series
Total Return Series All Cap Series Growth Series
Asset Allocation Growth Series Research Series Real Estate Series
Equity Income Series Capital Appreciation Series Hard Assets Series
Investors Series Growth and Income Series Developing World Series
Value Equity Series Capital Growth Series
THE GALAXY VIP FUND
Equity Fund Small Company Growth Fund High Quality Bond Fund
Growth and Income Fund Asset Allocation Fund
THE PIMCO VARIABLE INSURANCE TRUST ING VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio ING Global Brand Names Fund
PIMCO StocksPLUS Growth
and Income Portfolio
PRUDENTIAL SERIES FUND
THE WARBURG PINCUS TRUST Prudential Jennison Portfolio
International Equity Portfolio SP Jennison International Growth
Portfolio
GPP4SF-108896 3 PREMIUM PLUS PROFILE
Restricted Funds. We may designate any investment option as a Restricted Fund
and limit the amount you may allocate or transfer to a Restricted Fund. We may
establish any such limitation, at our discretion, as a percentage of premium or
contract value or as a specified dollar amount and change the limitation at any
time. Currently, we have not designated any investment option as a Restricted
Fund. We may, with 30 days notice to you, designate any investment portfolio as
a Restricted Fund or change the limitations on existing contracts with respect
to new premiums added to such investment portfolio and also with respect to new
transfers to such investment portfolio. For more detailed information, see
"Restricted Funds" in the prospectus for the Contract.
5. EXPENSES
The Contract has insurance features and investment features, and there are
charges related to each. For the insurance features, the Company deducts a
mortality and expense risk charge, an asset-based administrative charge and an
annual contract administrative charge of $40. We deduct the mortality and
expense risk charge and the asset-based administrative charges daily directly
from your contract value in the investment portfolios. The mortality and expense
risk charge (depending on the death benefit you choose) and the asset-based
administrative charge, on an annual basis, are as follows:
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STANDARD ENHANCED DEATH BENEFITS
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
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Mortality & Expense Risk Charge 1.30% 1.55% 1.65% 1.75%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 1.45% 1.70% 1.80% 1.90%
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If you choose to purchase one of the optional benefit riders we offer, we will
deduct a separate quarterly charge for the rider on each quarterly contract
anniversary and pro rata when the rider terminates. We deduct the rider charges
directly from your contract value in the investment portfolios; if the value in
the investment portfolios is insufficient, rider charges will be deducted from
the fixed account. The rider charges are as follows:
OPTIONAL BENEFIT RIDER CHARGES
Minimum Guaranteed Accumulation Benefit (MGAB) rider
Waiting Period Quarterly Charge
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10 Year............ 0.125% of the MGAB Charge Base* (0.50% annually)
20 Year............ 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit (MGIB) rider
MGIB Rate Quarterly Charge
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7%............... 0.125% of the MGIB Charge Base* (0.50% annually)
Minimum Guaranteed Withdrawal Benefit (MGWB) rider
Quarterly Charge
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0.125% of the MGWB Eligible Payment Amount* (0.50% annually)
* See prospectus for a description.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.56% to 1.75% annually (see following table) of the portfolio's average
daily net asset balance.
GPP4SF-108896 4 PREMIUM PLUS PROFILE
If you withdraw money from your Contract, or if you begin receiving annuity
payments, we may deduct a premium tax of 0%-3.5% to pay to your state.
We deduct
a surrender charge if you surrender your Contract or withdraw an amount
exceeding the free withdrawal amount. The free withdrawal amount in any year is
10% of your contract value on the date of the withdrawal less any prior
withdrawals during that contract year. The following table shows the schedule of
the surrender charge that will apply. The surrender charge is a percent of each
premium payment withdrawn.
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+
SINCE PREMIUM PAYMENT | | | | | | | | |
| | | | | | | | |
SURRENDER CHARGE 8% | 8% | 8% | 8% | 7% | 6% | 5% | 3% | 1% | 0%
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column is divided into two: one part reflects
the maximum mortality and expense risk charge, (based on the Max 7 Enhanced
Death Benefit), the asset-based administrative charge, the annual contract
administrative charge as 0.05% (based on an average contract value of $77,000),
and the highest optional rider charge as 0.75% in most cases, assuming the rider
base is equal to the initial premium and the rider base increases by 7% each
year. The second part reflects the same insurance charges, but without any rider
charges. The "Total Annual Investment Portfolio Charges" column reflects the
portfolio charges for each portfolio and are based on actual expenses as of
December 31, 1999, except for (i) portfolios that commenced operations during
2000 where the charges have been estimated, and (ii) newly formed portfolios
where the charges have been estimated. The column "Total Annual Charges"
reflects the sum of the previous two columns. The columns under the heading
"Examples" show you how much you would pay under the Contract for a 1-year
period and for a 10-year period.
As required by the Securities and Exchange
Commission, the examples assume that you invested $1,000 and received a $40
credit in a Contract that earns 5% annually and that you withdraw your money at
the end of Year 1 or at the end of Year 10 (based on the Max 7 Enhanced Death
Benefit). For Years 1 and 10, the examples show the total annual charges
assessed during that time and assume that you have elected the Max 7 Enhanced
Death Benefit. For these examples, the premium tax is assumed to be 0%.
GPP4SF-108896 5 PREMIUM PLUS PROFILE
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EXAMPLES:
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TOTAL ANNUAL TOTAL ANNUAL TOTAL CHARGES AT THE END OF:
INSURANCE CHARGES CHARGES 1 YEAR 10 YEARS
----------------- --------------- ---------------- ----------------
W/ THE W/O TOTAL W/ THE W/O W/ THE W/O W/ THE W/O
HIGHEST ANY INVESTMENT HIGHEST ANY HIGHEST ANY HIGHEST ANY
RIDER RIDER PORTFOLIO RIDER RIDER RIDER RIDER RIDER RIDER
INVESTMENT PORTFOLIO CHARGE CHARGE CHARGES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
-------------------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset 2.70% 1.95% 0.56% 3.26% 2.51% $114 $106 $370 $296
-------------------------------------------------------------------------------------------------------------------------
Limited Maturity Bond 2.70% 1.95% 0.57% 3.27% 2.52% $114 $107 $371 $297
-------------------------------------------------------------------------------------------------------------------------
Global Fixed Income 2.70% 1.95% 1.60% 4.30% 3.55% $125 $117 $463 $397
-------------------------------------------------------------------------------------------------------------------------
Fully Managed 2.70% 1.95% 0.97% 3.67% 2.92% $118 $111 $408 $337
-------------------------------------------------------------------------------------------------------------------------
Total Return 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
-------------------------------------------------------------------------------------------------------------------------
Asset Allocation Growth 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
-------------------------------------------------------------------------------------------------------------------------
Equity Income 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Investors 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
-------------------------------------------------------------------------------------------------------------------------
Value Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Rising Dividends 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Diversified Mid-Cap 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
-------------------------------------------------------------------------------------------------------------------------
Managed Global 2.70% 1.95% 1.25% 3.95% 3.20% $121 $114 $433 $364
-------------------------------------------------------------------------------------------------------------------------
Large Cap Value 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
-------------------------------------------------------------------------------------------------------------------------
All Cap 2.70% 1.95% 1.01% 3.71% 2.96% $119 $111 $412 $341
-------------------------------------------------------------------------------------------------------------------------
Research 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
-------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Growth and Income 2.70% 1.95% 1.11% 3.81% 3.06% $120 $112 $421 $351
-------------------------------------------------------------------------------------------------------------------------
Capital Growth 2.70% 1.95% 1.05% 3.75% 3.00% $119 $112 $415 $345
-------------------------------------------------------------------------------------------------------------------------
Strategic Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Special Situations 2.70% 1.95% 1.11% 3.81% 3.06% $120 $112 $421 $351
-------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth 2.70% 1.95% 0.91% 3.61% 2.86% $118 $110 $403 $331
-------------------------------------------------------------------------------------------------------------------------
Small Cap 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Growth 2.70% 1.95% 1.04% 3.74% 2.99% $119 $111 $414 $344
-------------------------------------------------------------------------------------------------------------------------
Real Estate 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Hard Assets 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Developing World 2.70% 1.95% 1.75% 4.45% 3.70% $126 $119 $476 $411
-------------------------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity 2.70% 1.95% 0.96% 3.66% 2.91% $118 $111 $407 $336
-------------------------------------------------------------------------------------------------------------------------
Growth & Income 2.70% 1.95% 1.49% 4.19% 3.44% $124 $116 $454 $387
-------------------------------------------------------------------------------------------------------------------------
Small Company Growth 2.70% 1.95% 1.60% 4.30% 3.55% $125 $117 $463 $397
-------------------------------------------------------------------------------------------------------------------------
Asset Allocation 2.70% 1.95% 1.02% 3.72% 2.97% $119 $111 $413 $342
-------------------------------------------------------------------------------------------------------------------------
High Quality Bond 2.70% 1.95% 0.64% 3.34% 2.59% $115 $107 $378 $304
-------------------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 2.70% 1.95% 0.75% 3.45% 2.70% $116 $108 $388 $315
-------------------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income 2.70% 1.95% 0.65% 3.35% 2.60% $115 $107 $379 $305
-------------------------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity 2.70% 1.95% 1.33% 4.02% 3.27% $122 $114 $439 $371
-------------------------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names 2.70% 1.95% 1.23% 3.93% 3.18% $121 $113 $431 $362
-------------------------------------------------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison 2.70% 1.95% 1.03% 3.73% 2.98% $119 $111 $413 $343
-------------------------------------------------------------------------------------------------------------------------
SP Jennison
International Growth 2.70% 1.95% 1.64% 4.34% 3.59% $125 $118 $467 $401
-------------------------------------------------------------------------------------------------------------------------
GPP4SF-108896 6 PREMIUM PLUS PROFILE
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" in the prospectus for the Contract.
6. TAXES
Under a qualified Contract, your premiums are generally pre-tax contributions
and accumulate on a tax-deferred basis. Premiums and earnings are generally
taxed as income when you make a withdrawal or begin receiving annuity payments,
presumably when you are in a lower tax bracket.
Under a non-qualified Contract, premiums are paid with after-tax dollars, and
any earnings will accumulate tax-deferred. You will be taxed on these earnings,
but not on premiums, when you withdraw them from the Contract. For owners of
most qualified Contracts, when you reach age 70 1/2 (or, in some cases, retire),
you will be required by federal tax laws to begin receiving payments from your
annuity or risk paying a penalty tax. In those cases, we can calculate and pay
you the minimum required distribution amounts at your request.
If you are younger than 59 1/2 when you take money out, in most cases, you will
be charged a 10% federal penalty tax on the taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page.
Withdrawals above the free withdrawal amount may be subject to a surrender
charge. We will apply a market value adjustment if you withdraw your money from
the fixed account more than 30 days before the applicable maturity date. Income
taxes and a penalty tax may apply to amounts withdrawn.
8. PERFORMANCE
The value of your Contract will fluctuate depending on the investment
performance of the portfolio(s) you choose. The following chart shows average
annual total returns for each portfolio that was in operation for the entire
year of 1999. These numbers reflect the deduction of the mortality and expense
risk charge (based on the Max 7 Enhanced Death Benefit), the asset-based
administrative charge, the annual contract fee and the maximum optional benefit
rider charge on a rider base that accumulates at 7%, but do not reflect
deductions for any surrender charges. If surrender charges were reflected, they
would have the effect of reducing performance. Please keep in mind that past
performance is not a guarantee of future results.
GPP4SF-108896 7 PREMIUM PLUS PROFILE
- --------------------------------------------------------------------------------
CALENDAR YEAR
INVESTMENT PORTFOLIO 1999 1998
- --------------------------------------------------------------------------------
Managed by A I M Capital Management, Inc.
Capital Appreciation(1) 21.65% 9.94%
Strategic Equity(2) 52.53% -1.61%
- --------------------------------------------------------------------------------
Managed by Alliance Capital Management L.P.
Capital Growth(2) 22.52% 9.25%
- --------------------------------------------------------------------------------
Managed by Baring International Investment Limited
Developing World(2) 57.89% --
Global Fixed Income -10.91% 9.13%
Hard Assets(2) 20.43% -31.31%
- --------------------------------------------------------------------------------
Managed by Capital Guardian Trust Company
Large Cap Value -- --
Managed Global(3) 59.44% 26.18%
Small Cap(3) 47.05% 18.05%
- --------------------------------------------------------------------------------
Managed by Eagle Asset Management, Inc.
Value Equity -1.96% -0.93%
- --------------------------------------------------------------------------------
Managed by Fidelity Management & Research Company
Asset Allocation Growth -- --
Diversified Mid-Cap -- --
- --------------------------------------------------------------------------------
Managed by ING Investment Management, LLC
Limited Maturity Bond -1.34% 4.26%
Liquid Asset 2.19% 2.49%
- --------------------------------------------------------------------------------
Managed by Janus Capital Corporation
Growth(2) 74.00% 23.75%
Growth and Income -- --
Special Situations -- --
- --------------------------------------------------------------------------------
Managed by Kayne Anderson Investment Management, LLC
Rising Dividends 13.08% 11.36%
- --------------------------------------------------------------------------------
Managed by Massachusetts Financial Services Company
Mid-Cap Growth 74.88% 19.83%
Research 21.23% 20.06%
Total Return 0.84% 8.88%
- --------------------------------------------------------------------------------
Managed by The Prudential Investment Corporation
Real Estate(4) -6.19% -15.56%
- --------------------------------------------------------------------------------
Managed by Salomon Brothers Management, Inc.
All Cap -- --
Investors -- --
- --------------------------------------------------------------------------------
Managed by T. Rowe Price Associates, Inc.
Equity Income(2) -3.16% 5.63%
Fully Managed 4.32% 3.31%
- --------------------------------------------------------------------------------
Managed By Pacific Investment Management Company
PIMCO High Yield Bond 0.49% --
PIMCO StocksPLUS Growth and Income 16.96% --
- --------------------------------------------------------------------------------
Managed by Credit Suisse Asset Management, LLC
International Equity 49.80% 2.79%
- --------------------------------------------------------------------------------
Managed by ING Investment Management Advisors B.V.
ING Global Brand Names -- --
- --------------------------------------------------------------------------------
Managed by Jennison Associates LLC
Prudential Jennison -- --
SP Jennison International Growth -- --
- --------------------------------------------------------------------------------
Managed by Fleet Investment Advisors Inc.
Equity Fund -- --
Growth and Income Fund -- --
Small Company Growth Fund -- --
Asset Allocation Fund -- --
High Yield Bond Fund -- --
GPP4SF-108896 8 PREMIUM PLUS PROFILE
--------------------
(1) Prior to April 1, 1999, a different firm managed the Portfolio.
(2) Prior to March 1, 1999, a different firm managed the Portfolio.
(3) Prior to February 1, 2000, a different firm managed the Portfolio.
(4) Prior to May 1, 2000, a different firm managed the Portfolio.
9. DEATH BENEFIT
The death benefit is payable when the first of the following persons dies: the
contract owner, joint owner, or annuitant (if a contract owner is not an
individual). Assuming you are the contract owner, if you die during the
accumulation phase, your beneficiary will receive a death benefit unless the
beneficiary is your surviving spouse and elects to continue the Contract. The
death benefit paid depends on the death benefit you have chosen. The death
benefit value is calculated at the close of the business day on which we receive
written notice and due proof of death, as well as required claim forms, at our
Customer Service Center. If your beneficiary elects to delay receipt of the
death benefit until a date after the time of your death, the amount of the
benefit payable in the future may be affected. If you die after the annuity
start date and you are the annuitant, your beneficiary will receive the death
benefit you chose under the annuity option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
THE FOLLOWING IS A DESCRIPTION OF THE DEATH BENEFIT OPTIONS FOR CONTRACT OWNERS
PURCHASING CONTRACTS ON OR AFTER January 1, 2001. IF YOU PURCHASED YOUR CONTRACT
PRIOR TO THAT DATE, PLEASE SEE APPENDIX E FOR A DESCRIPTION OF THE CALCULATION
OF DEATH BENEFITS APPLICABLE TO YOUR CONTRACT.
You may choose one of the following Death Benefits: (i) the Standard Death
Benefit, (ii) the Annual Ratchet Enhanced Death Benefit, (iii) the (7% Solution
Enhanced Death Benefit or (iv) the Max 7 Enhanced Death Benefit. The Annual
Ratchet Enhanced Death Benefit , the 7% Solution Enhanced Death Benefit, and the
Max 7 Enhanced Death Benefit are available only if the contract owner or the
annuitant (if the contract owner is not an individual) is not more than 79 years
old at the time of purchase. The Annual Ratchet, 7% Solution, and Max 7 Enhanced
Death Benefits may not be available where a Contract is held by joint owners.
Base Death Benefit. We use the Base Death Benefit to help determine the minimum
death benefit payable under each of the Enhanced Death Benefit options described
below. You do not elect the Base Death Benefit. The Base Death Benefit is equal
to the greater of:
1) the contract value minus any credits added within 1 year prior to
death; and
2) the cash surrender value.
The STANDARD DEATH BENEFIT equals the SUM of 1) and 2), less 3) where:
1) is the contract value allocated to Special Funds;
2) is the Standard Minimum Guaranteed Death Benefit for amounts
allocated to non-Special Funds as further
described in the prospectus; and
3) is any credits added within 1 year prior to death.
ENHANCED DEATH BENEFIT OPTIONS. Under the Enhanced Death Benefit options, if you
die before the annuity start date, your beneficiary will receive the greater of
the Base Death Benefit and the Enhanced Death Benefit option elected. For
purposes of calculating the Enhanced Death Benefits, certain investment
portfolios and the Fixed Account are designated as "Special Funds". In addition
to the Fixed Account, the investment portfolios designated currently as Special
Funds are the Liquid Asset Portfolio and the Limited Maturity Bond Portfolio.
Selecting a Special Fund may limit or reduce the enhanced death benefit. You
will automatically receive the Standard Death Benefit unless you elect one of
the enhanced death benefit options. The enhanced death benefit options are
available only at the time you purchase your Contract. The enhanced death
benefit options are not available where a Contract is owned by joint owners.
Once you choose a death benefit, it cannot be changed. We may in the future stop
or suspend offering any of the enhanced death benefit options to new Contracts.
A change in ownership of the Contract may affect the amount of the
GPP4SF-108896 9 PREMIUM PLUS PROFILE
death benefit
and the enhanced death benefit. The MGWB rider may also affect the death
benefit. See "Minimum Guaranteed Withdrawal Benefit (MGWB) Rider -- Death
Benefit during Automatic Periodic Benefit Status."
Each of the enhanced death benefit options is based on a minimum guaranteed
death benefit for that option. Please see "Death Benefit Choices" in the
prospectus for details on the calculation of the minimum
guaranteed death benefit for each enhanced death benefit and further details
on the effect of withdrawals and transfers on the calculation of the enhanced
death benefits.
The ANNUAL RATCHET ENHANCED DEATH BENEFIT equals the greater of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
Annual Ratchet Minimum Guaranteed Death Benefit for amounts
allocated to Non-Special Funds, less any credits added within 1
year prior to death as further described in the prospectus.
The 7% SOLUTION ENHANCED DEATH BENEFIT, equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the 7%
Solution Minimum Guaranteed Death Benefit for amounts allocated to
Non-Special Funds, less any credits added within 1 year prior to
death as further described in the prospectus.
The MAX 7 ENHANCED DEATH BENEFIT equals the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit
option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced
Death Benefit are calculated in the same manner as if each were the elected
benefit.
Note: In all cases described above, the amount of the death benefit could be
reduced by premium taxes owed and withdrawals not previously deducted.
The enhanced death benefits may not be available in all states.
We may, with 30 days notice to you, designate any investment portfolio as a
Special Fund on existing contracts with respect to new premiums added to such
investment portfolio and also with respect to new transfers to such investment
portfolio. Keep in mind that selecting a Special Fund may limit or reduce the
Enhanced Death Benefit.
For the period during which a portion of the contract
value is allocated to a Special Fund, we may, at our discretion, reduce the
mortality and expense risk charge attributable to that portion of the contract
value. The reduced mortality and expense risk charge will be applicable only
during the period contract value is allocated to a Special Fund.
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after you receive it,
you will receive a refund of the adjusted contract value. We determine your
contract value at the close of business on the day we receive your written
refund request. For purposes of the refund during the free look period, (i) we
adjust your contract value for any market value adjustment (if you have invested
in the fixed account), (ii) then we exclude any credit initially applied, and
(iii) then we include a refund of any charges deducted from your contract value.
Because of the market risks associated with investing in the portfolios and the
potential positive or negative effect of the market value adjustment, the
contract value returned may be greater or less than the premium payment you
paid. Some states require us to return to you the amount of the paid premium,
excluding any credit, (rather than the contract value) in which case you will
not be subject to investment risk during the free look period. Also, in some
states, you may be entitled to a longer free look period.
GPP4SF-108896 10 PREMIUM PLUS PROFILE
TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You can make
transfers among your investment portfolios and your investment in the fixed
account as frequently as you wish without any current tax implications. The
minimum amount for a transfer is $100. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. The Company may,
in the future, charge a $25 fee for any transfer after the twelfth transfer in a
contract year or limit the number of transfers allowed. Keep in mind that if you
transfer or otherwise withdraw your money from the fixed account more than 30
days before the applicable maturity date, we will apply a market value
adjustment. A market value adjustment could increase or decrease your contract
value and/or the amount you transfer or withdraw. Keep in mind that transfers
between Special Funds and Non-Special Funds will impact your death benefit and
benefits under an optional benefit rider, if any. Also, a transfer to a
Restricted Fund will not be permitted to the extent that it would increase the
contract value in the Restricted Fund to more than the applicable limits
following the transfer. Transfers from Restricted Funds are not limited. If the
result of multiple transfers is to lower the percentage of total contract value
in the Restricted Fund, the reallocation will be permitted even if the
percentage of contract value in the Restricted Fund is greater than the limit.
See "Restricted Funds" in the prospectus for more information.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations -- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
OPTIONAL RIDERS. Subject to state availability, you may purchase one of
three optional benefit riders for an additional charge. You may not add more
than one of these three riders to your Contract. There is a separate charge for
each rider. Once elected, the riders generally may not be cancelled. This means
once added the rider may not be removed and charges will be assessed regardless
of the performance of your Contract.
The following describes the optional riders for contract owners purchasing
Contracts on or after January 1, 2001. If you purchased your Contract prior to
that date, please see Appendix F for a description of the calculation of the
optional rider benefits applicable under your Contract.
Minimum Guaranteed Accumulation Benefit (MGAB) Rider. The MGAB is an
optional benefit which offers you the ability to receive a one-time
adjustment to your contract value in the event your contract value on a
specified date is below the MGAB rider guarantee. When added at issue, the
MGAB rider guarantees that your contract value will at least equal your
initial premium payment plus credits at the end of ten years, or, at least
equal two times your initial premium payment plus credits at the end of
twenty years, depending on the waiting period you select, reduced pro rata
for withdrawals and certain transfers. The MGAB rider offers a ten-year
option and a twenty-year option, of which you may purchase only one.
Investment in Special Funds may limit or reduce the benefits provided
under the rider. As is more fully described in the prospectus, rider
benefits are generally based on the contract value for allocations to
Special Funds. The MGAB rider may offer you protection in the event of a
lower contract value that may result from unfavorable investment
performance of your Contract. There are exceptions, conditions,
eligibility requirements, and important considerations associated with the
MGAB rider. See "Optional Riders" in the prospectus for more complete
information.
Minimum Guaranteed Income Benefit (MGIB) Rider. The MGIB rider is an
optional benefit which guarantees a minimum amount of income that will be
available to you upon annuitization, regardless of fluctuating market
conditions. Ordinarily, the amount of income that will be available to you
upon annuitization is based upon your contract value, the annuity option
you selected and the guaranteed or then current income factors in effect.
If you purchase the MGIB rider, the minimum amount of income that will be
available to you upon annuitization on the MGIB Benefit Date is the
greater of the amounts that are ordinarily available to you under your
Contract and the MGIB annuity benefit, which is based on your MGIB Base,
the MGIB annuity option you selected and the MGIB guaranteed income
factors specified in your rider. Your MGIB Base generally depends on the
amount of premiums you pay during the first five contract years after you
purchase the rider, the credit(s) applied, and when you pay the premiums,
accumulated at the MGIB rate, less adjustments for withdrawals and
transfers. Investment in Special Funds may limit or reduce the benefits
provided under the rider. As is more fully described in the prospectus,
rider benefits are generally based on the contract value for allocations
to Special Funds.
GPP4SF-108896 11 PREMIUM PLUS PROFILE
There are exceptions, conditions, eligibility
requirements, and important considerations associated with the MGIB rider.
You should read the prospectus for more complete information.
Minimum Guaranteed Withdrawal Benefit (MGWB) Rider. The MGWB rider is
an optional benefit which guarantees that you will receive annual periodic
payments, which, when added together, equal all premium payments and
credits paid during the first two contract years, less adjustments for any
prior withdrawals and adjusted by transfers to Special Funds. If your
contract value is reduced to zero, your periodic payments will be 7% of
your Eligible Payment Amount every year. (Of course, any applicable income
and penalty taxes will apply to amounts withdrawn.) Your original Eligible
Payment Amount is your premium payments and credits received during the
first two contract years. Withdrawals that you make in excess of the above
periodic payment amount may substantially reduce the guarantee. Investment
in Special Funds may limit or reduce the benefits provided under the
rider. As is more fully described in the prospectus, rider benefits are
generally based on the contract value for allocations to Special Funds.
There are exceptions, conditions, eligibility requirements, and important
considerations associated with the MGWB rider. You should read the
prospectus for more complete information.
ADDITIONAL FEATURES. This Contract has other features you may be interested in.
These include:
Dollar Cost Averaging. This is a program that allows you to invest a
fixed amount of money in the investment portfolios each month. It may give
you a lower average cost per unit over time than a single one-time
purchase. Dollar cost averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses
in a declining market. This option is currently available only if you have
$1,200 or more in the Limited Maturity Bond or the Liquid Asset investment
portfolios or in the fixed account with either a 6-month or 1-year
guaranteed interest period. Transfers from the fixed account under this
program will not be subject to a market value adjustment. If you invest in
Restricted Funds, your ability to dollar cost average may be limited.
Please see "Transfers Among Your Investments" in the prospectus for more
complete information.
Systematic Withdrawals. During the accumulation phase, you can arrange
to have money sent to you at regular intervals throughout the year. Within
limits these withdrawals will not result in any surrender charge.
Withdrawals from your money in the fixed account under this program are
not subject to a market value adjustment. Of course, any applicable income
and penalty taxes will apply on amounts withdrawn. . If you invest in
Restricted Funds, your systematic withdrawals may be affected. Please see
"Withdrawals" in the prospectus for more complete information.
Automatic Rebalancing. If your contract value is $10,000 or more, you
may elect to have the Company automatically readjust the money between
your investment portfolios periodically to keep the blend you select.
Investments in the fixed account are not eligible for automatic
rebalancing. If you invest in Restricted Funds, automatic rebalancing may
be affected. Please see "Transfers Among Your Investments" in the
prospectus for more complete information.
11. INQUIRIES
If you need more information after reading this profile and the prospectus,
please contact us at:
CUSTOMER SERVICE CENTER
P.O. BOX 2700
WEST CHESTER, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
GPP4SF-108896 12 PREMIUM PLUS PROFILE
_-------------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT PREMIUM PLUS(R)
FEATURING THE GALAXY VIP FUND
- --------------------------------------------------------------------------------
DECEMBER 29, 2000
This prospectus describes GoldenSelect Premium Plus, a group and individual
deferred variable annuity contract (the "Contract") offered by Golden American
Life Insurance Company ("Golden American," the "Company," "we" or "our"). The
Contract is available in connection with certain retirement plans that qualify
for special federal income tax treatment ("qualified Contracts") as well as
those that do not qualify for such treatment ("non-qualified Contracts").
The Contract provides a means for you to invest your premium payments and
credits in one or more of 32 mutual fund investment portfolios. You may also
allocate premium payments and credits to our Fixed Account with guaranteed
interest periods. Your contract value will vary daily to reflect the investment
performance of the investment portfolio(s) you select and any interest credited
to your allocations in the Fixed Account. The investment portfolios available
under your Contract and the portfolio managers are listed on the back of this
cover.
We will credit your Fixed Interest Allocation(s) with a fixed rate of
interest. We set the interest rates periodically. We will not set the interest
rate to be less than a minimum annual rate of 3%. You may choose guaranteed
interest periods of 6 months, and 1, 3, 5, 7 and 10 years. The interest earned
on your money as well as your principal is guaranteed as long as you hold them
until the maturity date. If you take your money out from a Fixed Interest
Allocation more than 30 days before the applicable maturity date, we will apply
a market value adjustment ("Market Value Adjustment"). A Market Value Adjustment
could increase or decrease your contract value and/or the amount you take out.
You bear the risk that you may receive less than your principal if we take a
Market Value Adjustment. For Contracts sold in some states, not all Fixed
Interest Allocations or subaccounts are available. You have a right to return a
Contract within 10 days after you receive it for a refund of the adjusted
contract value less credits we added (which may be more or less than the premium
payments you paid), or if required by your state, the original amount of your
premium payment. Longer free look periods apply in some states and in certain
situations.
This prospectus provides information that you should know before investing
and should be kept for future reference. A Statement of Additional Information
("SAI"), dated, 2000, has been filed with the Securities and Exchange Commission
("SEC"). It is available without charge upon request. To obtain a copy of this
document, write to our Customer Service Center at P.O. Box 2700, West Chester,
Pennsylvania 19380 or call (800) 366-0066, or access the SEC's website
(http://www.sec.gov). The table of contents of the SAI is on the last page of
this prospectus and the SAI is made part of this prospectus by reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE EXPENSES FOR A CONTRACT PROVIDING A
PREMIUM CREDIT, AS THIS CONTRACT DOES, MAY BE HIGHER THAN FOR CONTRACTS NOT
PROVIDING A PREMIUM CREDIT. OVER TIME, AND UNDER CERTAIN CIRCUMSTANCES, THE
AMOUNT OF THE PREMIUM CREDIT MAY BE MORE THAN OFFSET BY THE ADDITIONAL FEES AND
CHARGES ASSOCIATED WITH THE PREMIUM CREDIT.
AN INVESTMENT IN THE SUBACCOUNTS THROUGH THE GCG TRUST, THE GALAXY VIP FUND, THE
PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST OR THE PRUDENTIAL SERIES FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT
PROSPECTUS FOR THE GCG TRUST, THE GALAXY VIP FUND,THE PIMCO VARIABLE INSURANCE
TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL
SERIES FUND.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
GPP4SF-108896
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED (AN AFFILIATE)
Developing World Series
Global Fixed Income Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
FIDELITY MANAGEMENT & RESEARCH COMPANY
Asset Allocation Growth Series
Diversified Mid-Cap Series
ING INVESTMENT MANAGEMENT, LLC (AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
JANUS CAPITAL CORPORATION
Growth Series
Growth and Income Series
Special Situations Series
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
THE PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
FLEET INVESTMENT ADVISORS INC.
Equity Fund
Growth and Income Fund
Small Company Growth Fund
Asset Allocation Fund
High Yield Bond Fund
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
CREDIT SUISSE ASSET MANAGEMENT, LLC
International Equity Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V. (AN AFFILIATE)
ING Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
SP Jennison International Growth Portfolio
The above mutual fund investment portfolios are purchased and held by
corresponding divisions of our Separate Account B. We refer to the divisions as
"subaccounts" and the money you place in the Fixed Account's guaranteed interest
periods as "Fixed Interest Allocations" in this prospectus.
GPP4SF-108896
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms............................................ 1
Fees and Expenses................................................. 2
Performance Information........................................... 12
Accumulation Unit............................................. 12
Net Investment Factor......................................... 12
Condensed Financial Information............................... 12
Financial Statements.......................................... 12
Performance Information....................................... 12
Golden American Life Insurance Company............................ 13
The Trusts........................................................ 14
Golden American Separate Account B................................ 15
The Investment Portfolios......................................... 15
Investment Objectives......................................... 25
Investment Management Fees.................................... 20
Restricted Funds.............................................. 21
The Fixed Interest Allocation..................................... 22
Selecting a Guaranteed Interest Period........................ 22
Guaranteed Interest Rates..................................... 22
Transfers from a Fixed Interest Allocation.................... 23
Withdrawals from a Fixed Interest Allocation.................. 23
Market Value Adjustment....................................... 24
Special Funds..................................................... 25
The Annuity Contract.............................................. 25
Contract Date and Contract Year............................... 25
Annuity Start Date............................................ 25
Contract Owner................................................ 25
Annuitant..................................................... 26
Beneficiary................................................... 27
Purchase and Availability of the Contract..................... 27
Crediting of Premium Payments................................. 27
Additional Credit to Premium.................................. 29
Administrative Procedures..................................... 29
Contract Value................................................ 29
Cash Surrender Value.......................................... 30
Surrendering to Receive the Cash Surrender Value.............. 30
The Subaccounts............................................... 31
Addition, Deletion or Substitution of Subaccounts and Other
Changes.................................................... 31
The Fixed Account............................................. 31
Optional Riders............................................... 31
Rider Date.................................................. 31
No Cancellation............................................. 32
Termination................................................. 32
Minimum Guaranteed Accumulation Benefit Rider............... 32
Minimum Guaranteed Income Benefit Rider..................... 34
Minimum Guaranteed Withdrawal Benefit Rider................. 36
Other Contracts............................................... 36
Other Important Provisions.................................... 39
GPP4SF-108896 i
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Withdrawals....................................................... 39
Regular Withdrawals........................................... 40
Systematic Withdrawals........................................ 40
IRA Withdrawals............................................... 41
Transfers Among Your Investments.................................. 42
Transfers by Third Parties.................................... 42
Dollar Cost Averaging......................................... 43
Automatic Rebalancing......................................... 44
Death Benefit Choices............................................. 45
Death Benefit During the Accumulation Phase................... 45
Standard Death Benefit........................................ 46
Enhanced Death Benefits....................................... 46
Death Benefit During the Income Phase......................... 48
Continuation after Death-- Spouse............................. 48
Continuation after Death-- Non Spouse......................... 49
Required Distributions upon Contract Owner's Death............ 49
Charges and Fees.................................................. 50
Charge Deduction Subaccount................................... 50
Charges Deducted from the Contract Value...................... 50
Surrender Charge............................................ 50
Waiver of Surrender Charge for Extended Medical Care........ 50
Free Withdrawal Amount...................................... 50
Surrender Charge for Excess Withdrawals..................... 51
Premium Taxes............................................... 51
Administrative Charge....................................... 51
Transfer Charge............................................. 51
Charges Deducted from the Subaccounts......................... 51
Mortality and Expense Risk Charge........................... 51
Asset-Based Administrative Charge........................... 52
Optional Rider Charges...................................... 52
Trust Expenses................................................ 53
The Annuity Options............................................... 53
Annuitization of Your Contract................................ 53
Selecting the Annuity Start Date.............................. 54
Frequency of Annuity Payments................................. 54
The Annuity Options........................................... 54
Income for a Fixed Period................................... 54
Income for Life with a Period Certain....................... 54
Joint Life Income........................................... 54
Annuity Plan................................................ 55
Payment When Named Person Dies................................ 55
Other Contract Provisions......................................... 55
Reports to Contract Owners.................................... 55
Suspension of Payments........................................ 55
In Case of Errors in Your Application......................... 55
Assigning the Contract as Collateral.......................... 55
Contract Changes-Applicable Tax Law........................... 56
Free Look..................................................... 56
GPP4SF-108896 ii
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Group or Sponsored Arrangements............................... 56
Selling the Contract.......................................... 56
Other Information................................................. 57
Voting Rights................................................. 57
State Regulation.............................................. 57
Legal Proceedings............................................. 57
Legal Matters................................................. 58
Experts....................................................... 58
Federal Tax Considerations........................................ 58
More Information About Golden American............................ 65
Unaudited Financial Statements of Golden American Life Insurance
Company.......................................................... 88
Financial Statements of Golden American Life Insurance Company.... 98
Statement of Additional Information
Table of Contents............................................. 128
Appendix A
Condensed Financial Information............................... A1
Appendix B
Market Value Adjustment Examples.............................. B1
Appendix C
Surrender Charge for Excess Withdrawals Example............... C1
Appendix D
Withdrawal Adjustment for 7% Solution Death Benefit Examples.. D1
Appendix E
Death Benefits for Contract Owners Who Purchased Contracts
Prior to January 1, 2001.................................... E1
Appendix F
Optional Rider Benefits for Contract Owners Who Purchased
Contracts Prior to January 1, 2001.......................... F1
GPP4SF-108896 iii
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- --------------------------------------------------------------------------------
INDEX OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following special terms are used throughout this prospectus. Refer to the
page(s) listed for an explanation of each term:
SPECIAL TERM PAGE
Accumulation Unit 12
Annual Ratchet Enhanced Death Benefit 47
Annuitant 26
Annuity Start Date 25
Cash Surrender Value 30
Max 7 Enhanced Death Benefit 48
Contract Date 25
Contract Owner 25
Contract Value 29
Contract Year 25
Fixed Interest Allocation 22
Free Withdrawal Amount 50
Market Value Adjustment 24
Net Investment Factor 12
Non-Special Fund 32
Restricted Fund 21
Rider Date 31
7% Solution Enhanced Death Benefit 46
Special Fund 25
Standard Death Benefit 46
The following terms as used in this prospectus have the same or substituted
meanings as the corresponding terms currently used in the Contract:
TERM USED IN THIS PROSPECTUS CORRESPONDING TERM USED IN THE CONTRACT
Accumulation Unit Value Index of Investment Experience
Annuity Start Date Annuity Commencement Date
Contract Owner Owner or Certificate Owner
Contract Value Accumulation Value
Transfer Charge Excess Allocation Charge
Fixed Interest Allocation Fixed Allocation
Free Look Period Right to Examine Period
Guaranteed Interest Period Guarantee Period
Subaccount(s) Division(s)
Net Investment Factor Experience Factor
Regular Withdrawals Conventional Partial Withdrawals
Withdrawals Partial Withdrawals
GPP4SF-108896 1
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+
SINCE PREMIUM PAYMENT | | | | | | | | |
| | | | | | | | |
SURRENDER CHARGE 8% | 8% | 8% | 8% | 7% | 6% | 5% | 3% | 1% | 0%
Transfer Charge......................... $25 per transfer, if you make
more than 12 transfers in a contract year **
* If you invested in a Fixed Interest Allocation, a Market Value
Adjustment may apply to certain transactions. This may increase or
decrease your contract value and/or your transfer or surrender
amount.
** We currently do not impose this charge, but may do so in the future.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE*
Administrative Charge................... $40
(We waive this charge if the total of your premium payments is $100,000
or more or if your contract value at the end of a contract year is
$100,000 or more.)
* We deduct this charge on each contract anniversary and on surrender.
SEPARATE ACCOUNT ANNUAL CHARGES*
- -----------------------------------------------------------------------------------------------
STANDARD ENHANCED DEATH BENEFIT
DEATH BENEFIT ANNUAL RATCHET 7% SOLUTION MAX 7
- -----------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge 1.30% 1.55% 1.65% 1.75%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 1.45% 1.70% 1.80% 1.90%
- -----------------------------------------------------------------------------------------------
*As a percentage of average daily assets in each subaccount. The
Separate Account Annual Charges are deducted daily.
OPTIONAL RIDER CHARGES*
Minimum Guaranteed Accumulation Benefit rider:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year........... 0.125% of the MGAB Charge Base(1) (0.50% annually)
20 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
Minimum Guaranteed Income Benefit rider:
MGIB Rate Quarterly Charge
--------- ----------------
7%................ 0.125% of the MGIB Charge Base(2) (0.50% annually)
Minimum Guaranteed Withdrawal Benefit rider:
Quarterly Charge
----------------
0.125% of the MGWB Eligible Payment Amount(3) (0.50% annually)
GPP4SF-108896 2
* We deduct optional rider charges from the subaccounts in which you
are invested on each quarterly contract anniversary and pro rata
on termination of the Contract; if the value in the subaccounts is
insufficient, the optional rider charges will be deducted from the
Fixed Interest Allocation nearest maturity.
(1) The MGAB Charge Base is the total of premiums and credits added
during the two year period commencing on the rider date if you
purchase the rider on the contract date, or, your contract value on
the rider date plus premiums and credits added during the two year
period commencing on the rider date if you purchased the rider after
the contract date, reduced pro rata for all withdrawals taken while
the MGAB rider is in effect, and reduced pro rata for transfers made
during the three year period before the MGAB Benefit Date. The MGAB
Charge Base is tracked separately for Special and Non-Special Funds,
based on initial allocation of premium (or contract value),
subsequent allocation of eligible premium, withdrawals and transfers.
Withdrawals and transfers may reduce the Charge Base by more than the
amount withdrawn or transferred.
(2) The MGIB Charge Base generally depends on the amount of premiums you
pay during the first five contract years after you purchase the
rider, and the credit(s) applied, when you pay the premiums, and less
a pro rata deduction for any withdrawal made while the MGIB rider is
in effect. The MGIB Charge Base is tracked separately for Special and
Non-Special Funds, based on initial allocation of premium (or
contract value), subsequent allocation of eligible premium,
withdrawals and transfers. Withdrawals and transfers between Special
and Non-Special Funds may reduce the MGIB Charge Base by more than
the amount withdrawn or transferred.
(3) The MGWB Eligible Payment Amount is (i) the total of premiums and
credit paid during the 2-year period commencing on the rider date if
you purchase the rider on the contract date; or (ii) your contract
value on the rider date plus subsequent premiums and credits received
during the two-year period commencing on the rider date.
GPP4SF-108896 3
THE GCG TRUST ANNUAL EXPENSES (as a percentage of the average daily net assets
of a portfolio):
-----------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(2) EXPENSES(3)
-----------------------------------------------------------------------------------------------
Liquid Asset 0.56% 0.00% 0.56%
-----------------------------------------------------------------------------------------------
Limited Maturity Bond 0.56% 0.01% 0.57%
-----------------------------------------------------------------------------------------------
Global Fixed Income 1.60% 0.00% 1.60%
-----------------------------------------------------------------------------------------------
Fully Managed 0.96% 0.01% 0.97%
-----------------------------------------------------------------------------------------------
Total Return 0.91% 0.00% 0.91%
-----------------------------------------------------------------------------------------------
Asset Allocation Growth 1.00% 0.01% 1.01%
-----------------------------------------------------------------------------------------------
Equity Income 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
-----------------------------------------------------------------------------------------------
Value Equity 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Rising Dividends 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Diversified Mid-Cap 1.00% 0.01% 1.01%
-----------------------------------------------------------------------------------------------
Managed Global 1.25% 0.00% 1.25%
-----------------------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
-----------------------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
-----------------------------------------------------------------------------------------------
Research 0.91% 0.00% 0.91%
-----------------------------------------------------------------------------------------------
Capital Appreciation 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Growth and Income 1.10% 0.01% 1.11%
-----------------------------------------------------------------------------------------------
Capital Growth 1.04% 0.01% 1.05%
-----------------------------------------------------------------------------------------------
Strategic Equity 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Special Situations 1.10% 0.01% 1.11%
-----------------------------------------------------------------------------------------------
Mid-Cap Growth 0.91% 0.00% 0.91%
-----------------------------------------------------------------------------------------------
Small Cap 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Growth 1.04% 0.00% 1.04%
-----------------------------------------------------------------------------------------------
Real Estate 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Hard Assets 0.96% 0.00% 0.96%
-----------------------------------------------------------------------------------------------
Developing World 1.75% 0.00% 1.75%
-----------------------------------------------------------------------------------------------
(1) Fees decline as the total assets of certain combined portfolios
increase. See the prospectus for the GCG Trust for more
information.
(2) 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, 1999, except for (i) portfolios that commenced
operations in 2000 and (ii) newly formed portfolios where the
charges have been estimated.
(3) Total Expenses are based on actual expenses for the fiscal year
ended December 31, 1999.
GPP4SF-108896 4
THE GALAXY VIP FUND ANNUAL EXPENSES (as a percentage of the average daily net
assets of the portfolio):
--------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1) REIMBURSEMENT(1) REIMBURSEMENT(1)
--------------------------------------------------------------------------------------------
Equity 0.75% 0.21% 0.96%
Growth and Income 0.75% 0.74% 1.49%
Small Company Growth 0.75% 0.85% 1.60%
Asset Allocation 0.75% 0.27% 1.02%
High Quality Bond 0.29% 0.35% 0.64%
--------------------------------------------------------------------------------------------
(1) Total Expenses are based on actual expenses for the fiscal year ended
December 31, 1999. Fleet Investment Advisors Inc. and/or the
administrator have agreed to waive certain fees and/or reimburse fund
expenses of 4.37% and 0.39% for the Small Company Growth Fund and
High Quality Bond Fund, respectively, through December
31, 2000. Without this agreement, and based on actual waivers and
reimbursements for the fiscal year ended December 31, 1999, total
expenses would have been 0.96%, 1.49%, 5.97%, 1.02% and 1.03% for the
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Asset
Allocation Fund and High Quality Bond Fund, respectively.
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
----------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE(1) EXPENSES(1) EXPENSES(1)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.50% 0.75%
PIMCO StocksPLUS Growth and Income 0.40% 0.25% 0.65%
----------------------------------------------------------------------------------
(1) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the
payment of organizational expenses and Trustees' fees, 0.65% and
0.75% for the High Yield Bond and the StocksPLUS Growth and Income
Portfolios, respectively, of average daily net assets. Without such
reductions, total annual operating expenses for the fiscal year
ended December 31, 1999 would have remained unchanged for both
Portfolios. Under the Expense Limitation Agreement, PIMCO may
recoup any such waivers and reimbursements in future periods, not
exceeding three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit. The fees
expressed are restated as of April 1, 2000.
THE WARBURG PINCUS TRUST ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
-----------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES(1)
-----------------------------------------------------------------------------
International Equity 1.00% 0.32% 1.32%
-----------------------------------------------------------------------------
(1) Total expenses are based on actual expenses for the fiscal year ended
December 31, 1999.
GPP4SF-108896 5
ING VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio):
-----------------------------------------------------------------------------------------------------------------------
OTHER TOTAL EXPENSES
MANAGEMENT 12B-1 FEE (3) EXPENSES AFTER FEE WAIVER
FEE AFTER AFTER AFTER EXPENSE AND EXPENSE
PORTFOLIO FEE WAIVER(1) (2) FEE WAIVER REIMBURSEMENT(1) (2) REIMBURSEMENT(1) (2)
-----------------------------------------------------------------------------------------------------------------------
ING Global Brand Names 0.30% 0.15% 0.78% 1.23%
-----------------------------------------------------------------------------------------------------------------------
(1) Since the portfolio had not commenced operations as of December 31,
1999, expenses as shown are based on estimates of the portfolio's
operating expenses for the portfolio's first fiscal year.
(2) ING Mutual Funds Management Co. LLC, the investment manager, has
entered into an expense limitation contract with the portfolio,
under which it will limit expenses of the portfolio as shown,
excluding interest, taxes, brokerage, and extraordinary expenses
through December 31, 2000. Fee waiver and/or reimbursements by the
investment manager may vary in order to achieve such contractually
obligated Total Expenses. Without this contract, and based on
estimates for the fiscal year ending December 31, 2000, total
expenses are estimated to be 2.03% for the portfolio.
(3) Pursuant to a Plan of Distribution adopted by the portfolio under
Rule 12b-1 under the Investment Company Act of 1940, as amended,
the portfolio pays its distributor an annual fee of up to 0.25% of
average daily net assets attributable to portfolio shares. The
distribution fee may be used by the distributor for the purpose of
financing any activity which is primarily intended to result in the
sale of shares of the portfolio. For more information see the
portfolio's Statement of Additional Information.
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
-----------------------------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES(2) EXPENSES(2)
-----------------------------------------------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.18% 1.03%
SP Jennison International
Growth 0.85% 0.25% 0.54% 1.64%
-----------------------------------------------------------------------------------------------------------------------
(1) The 12b-1 fees for the Prudential Jennison Portfolio and the SP
Jennison International Growth Portfolio are imposed to enable the
portfolios to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses
for delivery to prospective investors and advertising costs for the
portfolio. Over a long period of time, the total amount of 12b-1
fees paid may exceed the amount of sales charges imposed by the
product.
(2) Since the SP Jennison International Portfolio had not commenced
operations as of December 31, 1999, expenses as shown are based on
estimates of the portfolio's operating expenses for the portfolio's
first fiscal year.
The purpose of the foregoing tables is to help you understand the various costs
and expenses that you will bear directly and indirectly. See the prospectuses of
the GCG Trust, the PIMCO Variable Insurance Trust, Warburg Pincus Trust, ING
Variable Insurance Trust and the Prudential Series Fund for additional
information on management or advisory fees and in some cases on other portfolio
expenses.
Premium taxes (which currently range from 0% to 3.5% of premium payments) may
apply, but are not reflected in the tables above or in the examples below.
GPP4SF-108896 6
EXAMPLES:
The following four examples are designed to show you the expenses you would pay
on a $1,000 investment, plus a credit of $40, that earns 5% annually. Each
example assumes election of the Max 7 Enhanced Death Benefit. The examples
reflect the deduction of a mortality and expense risk charge, an asset-based
administrative charge, and the annual contract administrative charge as an
annual charge of 0.05% of assets (based on an average contract value of
$77,000). In addition, Examples 1 and 2 assume you elected an optional benefit
rider with the highest charge 0.75% annually where the rider base is equal to
the initial premium and increases by 7% annually, and assume the rider charge is
assessed each quarter on a base equal to the hypothetical $1,000 premium
increasing at 7% per year (the assumed net rate for Liquid Asset and Limited
Maturity Bond portfolios). The annual charge of 0.75% results from the
assumption of a 7% annual increase in the rider base but only a 5% earnings
increase in the contract value before expenses. Thus, 0.75% represents an annual
charge over the 10-year period which is equivalent to an increasing charge of
0.125% per quarter over the same period. Each example also assumes that any
applicable expense reimbursements of underlying portfolio expenses will continue
for the periods shown. If the Standard Death Benefit, the Annual Ratchet
Enhanced Death Benefit or 7% Solution Enhanced Death Benefit is elected instead
of the Max 7 Enhanced Death Benefit used in the examples, the actual expenses
will be less than those represented in the examples. Note that surrender charges
may apply if you choose to annuitize your Contract within the first 5 contract
years, and under certain circumstances, within the first 9 contract years. Thus,
in the event you annuitize your Contract under circumstances which require a
surrender charge, you should refer to Examples 1 and 3 below which assume
applicable surrender charges.
GPP4SF-108896 7
Example 1:
If you surrender your Contract at the end of the applicable time period and
elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
--------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $114 $184 $247 $370
--------------------------------------------------------------------------------------------------------------
Limited Maturity Bond $114 $185 $248 $371
--------------------------------------------------------------------------------------------------------------
Global Fixed Income $125 $216 $298 $463
--------------------------------------------------------------------------------------------------------------
Fully Managed $118 $197 $267 $408
--------------------------------------------------------------------------------------------------------------
Total Return $118 $195 $264 $403
--------------------------------------------------------------------------------------------------------------
Asset Allocation Growth $119 $198 $269 $412
--------------------------------------------------------------------------------------------------------------
Equity Income $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Investors $119 $198 $269 $412
--------------------------------------------------------------------------------------------------------------
Value Equity $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Rising Dividends $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Diversified Mid-Cap $119 $198 $269 $412
--------------------------------------------------------------------------------------------------------------
Managed Global $121 $205 $281 $433
--------------------------------------------------------------------------------------------------------------
Large Cap Value $119 $198 $269 $412
--------------------------------------------------------------------------------------------------------------
All Cap $119 $198 $269 $412
--------------------------------------------------------------------------------------------------------------
Research $118 $195 $264 $403
--------------------------------------------------------------------------------------------------------------
Capital Appreciation $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Growth and Income $120 $201 $274 $421
--------------------------------------------------------------------------------------------------------------
Capital Growth $119 $199 $271 $415
--------------------------------------------------------------------------------------------------------------
Strategic Equity $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Special Situations $120 $201 $274 $421
--------------------------------------------------------------------------------------------------------------
Mid-Cap Growth $118 $195 $264 $403
--------------------------------------------------------------------------------------------------------------
Small Cap $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Growth $119 $199 $271 $414
--------------------------------------------------------------------------------------------------------------
Real Estate $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Hard Assets $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Developing World $126 $220 $305 $476
--------------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity $118 $197 $267 $407
--------------------------------------------------------------------------------------------------------------
Growth and Income $124 $212 $292 $454
--------------------------------------------------------------------------------------------------------------
Small Company Growth $125 $216 $298 $463
--------------------------------------------------------------------------------------------------------------
Asset Allocation $119 $198 $270 $413
--------------------------------------------------------------------------------------------------------------
High Quality Bond $115 $187 $251 $378
--------------------------------------------------------------------------------------------------------------
THE PIMCO TRUST
PIMCO High Yield Bond $116 $190 $256 $388
--------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $115 $187 $252 $379
--------------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $122 $207 $284 $439
--------------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $121 $205 $280 $431
--------------------------------------------------------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $119 $199 $270 $413
--------------------------------------------------------------------------------------------------------------
SP Jennison International Growth $125 $217 $299 $467
--------------------------------------------------------------------------------------------------------------
GPP4SF-108896 8
Example 2:
If you do not surrender your Contract at the end of the applicable time period
and elected an optional benefit rider with the highest charge, you would pay the
following expenses for each $1,000 invested:
--------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $34 $104 $177 $370
--------------------------------------------------------------------------------------------------------------
Limited Maturity Bond $34 $105 $178 $371
--------------------------------------------------------------------------------------------------------------
Global Fixed Income $45 $136 $228 $463
--------------------------------------------------------------------------------------------------------------
Fully Managed $38 $117 $197 $408
--------------------------------------------------------------------------------------------------------------
Total Return $38 $115 $194 $403
--------------------------------------------------------------------------------------------------------------
Asset Allocation Growth $39 $118 $199 $412
--------------------------------------------------------------------------------------------------------------
Equity Income $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Investors $39 $118 $199 $412
--------------------------------------------------------------------------------------------------------------
Value Equity $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Rising Dividends $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Diversified Mid-Cap $39 $118 $199 $412
--------------------------------------------------------------------------------------------------------------
Managed Global $41 $125 $211 $433
--------------------------------------------------------------------------------------------------------------
Large Cap Value $39 $118 $199 $412
--------------------------------------------------------------------------------------------------------------
All Cap $39 $118 $199 $412
--------------------------------------------------------------------------------------------------------------
Research $38 $115 $194 $403
--------------------------------------------------------------------------------------------------------------
Capital Appreciation $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Growth and Income $40 $121 $204 $421
--------------------------------------------------------------------------------------------------------------
Capital Growth $39 $119 $201 $415
--------------------------------------------------------------------------------------------------------------
Strategic Equity $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Special Situations $40 $121 $204 $421
--------------------------------------------------------------------------------------------------------------
Mid-Cap Growth $38 $115 $194 $403
--------------------------------------------------------------------------------------------------------------
Small Cap $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Growth $39 $119 $201 $414
--------------------------------------------------------------------------------------------------------------
Real Estate $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Hard Assets $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Developing World $46 $140 $235 $476
--------------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity $38 $117 $197 $407
--------------------------------------------------------------------------------------------------------------
Growth and Income $44 $132 $222 $454
--------------------------------------------------------------------------------------------------------------
Small Company Growth $45 $136 $228 $463
--------------------------------------------------------------------------------------------------------------
Asset Allocation $39 $118 $200 $413
--------------------------------------------------------------------------------------------------------------
High Quality Bond $35 $107 $181 $378
--------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $36 $110 $186 $388
--------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $35 $107 $182 $379
--------------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $42 $127 $214 $439
--------------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $41 $125 $210 $431
--------------------------------------------------------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $39 $119 $200 $413
--------------------------------------------------------------------------------------------------------------
SP Jennison International Growth $45 $137 $229 $467
--------------------------------------------------------------------------------------------------------------
GPP4SF-108896 9
Example 3:
If you surrender your Contract at the end of the applicable time period and did
not elect any optional benefit rider, you would pay the following expenses for
each $1,000 invested:
--------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $106 $161 $209 $296
--------------------------------------------------------------------------------------------------------------
Limited Maturity Bond $107 $162 $209 $297
--------------------------------------------------------------------------------------------------------------
Global Fixed Income $117 $193 $261 $397
--------------------------------------------------------------------------------------------------------------
Fully Managed $111 $174 $230 $337
--------------------------------------------------------------------------------------------------------------
Total Return $110 $172 $227 $331
--------------------------------------------------------------------------------------------------------------
Asset Allocation Growth $111 $175 $232 $341
--------------------------------------------------------------------------------------------------------------
Equity Income $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Investors $111 $175 $232 $341
--------------------------------------------------------------------------------------------------------------
Value Equity $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Rising Dividends $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Diversified Mid-Cap $111 $175 $232 $341
--------------------------------------------------------------------------------------------------------------
Managed Global $114 $183 $244 $364
--------------------------------------------------------------------------------------------------------------
Large Cap Value $111 $175 $232 $341
--------------------------------------------------------------------------------------------------------------
All Cap $111 $175 $232 $341
--------------------------------------------------------------------------------------------------------------
Research $110 $172 $227 $331
--------------------------------------------------------------------------------------------------------------
Capital Appreciation $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Growth and Income $112 $178 $237 $351
--------------------------------------------------------------------------------------------------------------
Capital Growth $112 $176 $234 $345
--------------------------------------------------------------------------------------------------------------
Strategic Equity $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Special Situations $112 $178 $237 $351
--------------------------------------------------------------------------------------------------------------
Mid-Cap Growth $110 $172 $227 $331
--------------------------------------------------------------------------------------------------------------
Small Cap $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Growth $111 $176 $233 $344
--------------------------------------------------------------------------------------------------------------
Real Estate $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Hard Assets $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Developing World $119 $198 $269 $411
--------------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity $111 $174 $229 $336
--------------------------------------------------------------------------------------------------------------
Growth and Income $116 $190 $256 $387
--------------------------------------------------------------------------------------------------------------
Small Company Growth $117 $193 $261 $397
--------------------------------------------------------------------------------------------------------------
Asset Allocation $111 $176 $232 $342
--------------------------------------------------------------------------------------------------------------
High Quality Bond $107 $164 $213 $304
--------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $108 $167 $219 $315
--------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $107 $164 $214 $305
--------------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $114 $185 $248 $371
--------------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $113 $182 $243 $362
--------------------------------------------------------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $111 $176 $233 $343
--------------------------------------------------------------------------------------------------------------
SP Jennison International Growth $118 $194 $263 $401
--------------------------------------------------------------------------------------------------------------
GPP4SF-108896 10
Example 4:
If you do not surrender your Contract at the end of the applicable time period
and did not elect any optional benefit rider, you would pay the following
expenses for each $1,000 invested:
--------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $26 $ 81 $139 $296
--------------------------------------------------------------------------------------------------------------
Limited Maturity Bond $27 $ 82 $139 $297
--------------------------------------------------------------------------------------------------------------
Global Fixed Income $37 $113 $191 $397
--------------------------------------------------------------------------------------------------------------
Fully Managed $31 $ 94 $160 $337
--------------------------------------------------------------------------------------------------------------
Total Return $30 $ 92 $157 $331
--------------------------------------------------------------------------------------------------------------
Asset Allocation Growth $31 $ 95 $162 $341
--------------------------------------------------------------------------------------------------------------
Equity Income $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Investors $31 $ 95 $162 $341
--------------------------------------------------------------------------------------------------------------
Value Equity $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Rising Dividends $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Diversified Mid-Cap $31 $ 95 $162 $341
--------------------------------------------------------------------------------------------------------------
Managed Global $34 $103 $174 $364
--------------------------------------------------------------------------------------------------------------
Large Cap Value $31 $ 95 $162 $341
--------------------------------------------------------------------------------------------------------------
All Cap $31 $ 95 $162 $341
--------------------------------------------------------------------------------------------------------------
Research $30 $ 92 $157 $331
--------------------------------------------------------------------------------------------------------------
Capital Appreciation $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Growth and Income $32 $ 98 $167 $351
--------------------------------------------------------------------------------------------------------------
Capital Growth $32 $ 96 $164 $345
--------------------------------------------------------------------------------------------------------------
Strategic Equity $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Special Situations $32 $ 98 $167 $351
--------------------------------------------------------------------------------------------------------------
Mid-Cap Growth $30 $ 92 $157 $331
--------------------------------------------------------------------------------------------------------------
Small Cap $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Growth $31 $ 96 $163 $344
--------------------------------------------------------------------------------------------------------------
Real Estate $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Hard Assets $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Developing World $39 $118 $199 $411
--------------------------------------------------------------------------------------------------------------
THE GALAXY VIP FUND
Equity $31 $ 94 $159 $336
--------------------------------------------------------------------------------------------------------------
Growth and Income $36 $110 $186 $387
--------------------------------------------------------------------------------------------------------------
Small Company Growth $37 $113 $191 $397
--------------------------------------------------------------------------------------------------------------
Asset Allocation $31 $ 96 $162 $342
--------------------------------------------------------------------------------------------------------------
High Quality Bond $27 $ 84 $143 $304
--------------------------------------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $28 $ 87 $149 $315
--------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS
Growth and Income $27 $ 84 $144 $305
--------------------------------------------------------------------------------------------------------------
THE WARBURG PINCUS TRUST
International Equity $34 $105 $178 $371
--------------------------------------------------------------------------------------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names $33 $102 $173 $362
--------------------------------------------------------------------------------------------------------------
PRUDENTIAL SERIES FUND
Prudential Jennison $31 $ 96 $163 $343
--------------------------------------------------------------------------------------------------------------
SP Jennison International Growth $38 $114 $193 $401
--------------------------------------------------------------------------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN SUBJECT TO THE
TERMS OF YOUR CONTRACT.
GPP4SF-108896 11
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each subaccount
of Separate Account B has its own accumulation unit value. The accumulation
units are valued each business day that the New York Stock Exchange is open for
trading. Their values may increase or decrease from day to day according to a
Net Investment Factor, which is primarily based on the investment performance of
the applicable investment portfolio. Shares in the investment portfolios are
valued at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
2) We add to (1) the amount of any dividend or capital gains
distribution declared for the subaccount and reinvested in such
subaccount. We subtract from that amount a charge for our taxes, if
any.
3) We divide (2) by the net asset value of the subaccount at the end
of the preceding business day.
4) We then subtract the applicable daily mortality and expense risk
charge and the daily asset-based administrative charge from
the subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus and (ii) the total
investment value history of each such subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 1999 are included in the Statement of Additional Information. The
unaudited consolidated financial statements of Golden American for the nine
months ended September 30, 2000 and audited consolidated financial statements of
Golden American for the years ended December 31, 1999, 1998 and 1997 are
included in this prospectus.
PERFORMANCE INFORMATION
From time to time, we may advertise or include in reports to contract owners
performance information for the subaccounts of Separate Account B, including the
average annual total return performance, yields and other nonstandard measures
of performance. Such performance data will be computed, or accompanied by
performance data computed, in accordance with standards defined by the SEC.
Except for the Liquid Asset subaccount, quotations of yield for the subaccounts
will be based on all investment income per unit (contract value divided by the
accumulation unit) earned during a given 30-day period, less expenses accrued
during such period. Information on standard total average annual return
performance will include average annual rates of total return for 1, 5 and 10
year periods, or lesser periods depending on how long Separate Account B has
been investing in the portfolio. We may show other total returns for periods of
less than one year. Total return figures will be based on the actual historic
performance of the subaccounts of Separate Account B, assuming an investment at
the beginning of the period when the separate account first invested in the
portfolios, withdrawal of the investment at the end of the period, adjusted to
reflect the deduction of all applicable portfolio and current contract charges.
We may also show rates of total return on amounts invested at the beginning of
the period with no withdrawal at the end of the period. Total return figures
which assume no withdrawals at the end of the period will reflect all recurring
charges, but will not reflect the surrender charge. Quotations of average annual
return for the
GPP4SF-108896 12
Managed Global subaccount take into account the period before
September 3, 1996, during which it was maintained as a subaccount of Golden
American Separate Account D. In addition, we may present historic performance
data for the investment portfolios since their inception reduced by some or all
of the fees and charges under the Contract. Such adjusted historic performance
includes data that precedes the inception dates of the subaccounts of Separate
Account B. This data is designed to show the performance that would have
resulted if the Contract had been in existence before the separate account began
investing in the portfolios.
Current yield for the Liquid Asset subaccount is
based on income received by a hypothetical investment over a given 7-day period,
less expenses accrued, and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks). We calculate "effective yield" for the
Liquid Asset subaccount in a manner similar to that used to calculate yield, but
when annualized, the income earned by the investment is assumed to be
reinvested. The "effective yield" will thus be slightly higher than the "yield"
because of the compounding effect of earnings. We calculate quotations of yield
for the remaining subaccounts on all investment income per accumulation unit
earned during a given 30-day period, after subtracting fees and expenses accrued
during the period, assuming no surrender and the selection of the Max 7 Enhanced
Death Benefit and the MGIB optional benefit rider.
We may compare performance information for a subaccount to: (i) the Standard &
Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money Market
Institutional Averages, or any other applicable market indices, (ii) other
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services (a widely used independent research firm which ranks
mutual funds and other investment companies), or any other rating service, and
(iii) the Consumer Price Index (measure for inflation) to determine the real
rate of return of an investment in the Contract. Our reports and promotional
literature may also contain other information including the ranking of any
subaccount based on rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services or by similar rating
services.
Performance information reflects only the performance of a hypothetical contract
and should be considered in light of other factors, including the investment
objective of the investment portfolio and market conditions. Please keep in mind
that past performance is not a guarantee of future results.
- --------------------------------------------------------------------------------
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 based in The
Netherlands. 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, which is authorized to sell annuities in New York and Delaware.
Golden American's consolidated financial statements appear in this prospectus.
Equitable of Iowa is the holding company for Golden American, Directed Services,
Inc., 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, a portfolio manager of the GCG Trust. ING also
owns Baring International Investment Limited, another portfolio manager of the
GCG Trust and ING Investment Management Advisors B.V., a portfolio manager of
the ING Variable Insurance Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
GPP4SF-108896 13
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies not affiliated with
Golden American. Pending SEC approval, shares of the GCG Trust may also be sold
to certain qualified pension and retirement plans. The address of the GCG Trust
is 1475 Dunwoody Drive, West Chester, PA 19380.
The Galaxy VIP Fund is a mutual fund whose shares are offered to separate
accounts of various life insurance companies for variable annuity contracts,
including certain variable contracts of Golden American and its affiliates. The
principal address of The Galaxy VIP Fund is 4400 Computer Drive, Westborough, MA
01581.
The PIMCO Variable Insurance Trust is also a mutual fund whose shares are
available to separate accounts of insurance companies, including Golden
American, for both variable annuity contracts and variable life insurance
policies and to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
CA 92660.
The Warburg Pincus Trust is also a mutual fund whose shares are available to
separate accounts of life insurance companies, including Golden American and
Equitable Life Insurance Company of Iowa, and to certain qualified and
retirement plans. The address of the Warburg Pincus Trust is 153 East 53rd
Street, New York, NY 10022.
ING Variable Insurance Trust is also a mutual fund
whose shares are offered to separate accounts funding variable annuity contracts
offered by Golden American. Pending SEC approval, shares of ING Variable
Insurance Trust may also be sold to variable annuity and variable life insurance
policies offered by other insurance companies, both affiliated and unaffiliated
with Golden American. The address of ING Variable Insurance Trust is 1475
Dunwoody Drive, West Chester, PA 19380.
The Prudential Series Fund, Inc. is also a mutual fund whose shares are
available to separate accounts funding variable annuity and variable life
insurance polices offered by The Prudential Insurance Company of America, its
affiliated insurers and other life insurance companies not affiliated with
Prudential, including Golden American. The address of the Prudential Series Fund
is 751 Broad Street, Newark, NJ 07102.
In the event that, due to differences in tax treatment or other considerations,
the interests of contract owners of various contracts participating in the
Trusts conflict, we, the Boards of Trustees of the GCG Trust, The Galaxy VIP
Fund, the PIMCO Variable Insurance Trust, the Warburg Pincus Trust, and the ING
Variable Insurance Trust, the Board of Directors of the Prudential Series Fund,
and the management of Directed Services, Inc., Fleet Investment Advisors, Inc.,
Pacific Investment Management Company, Credit Suisse Asset Management, LLC, ING
Mutual Funds Management Co. LLC, The Prudential Insurance Company of America and
any other insurance companies participating in the Trusts will monitor events to
identify and resolve any material conflicts that may arise.
YOU WILL FIND COMPLETE INFORMATION ABOUT THE GCG TRUST, THE GALAXY VIP FUND, THE
PIMCO VARIABLE INSURANCE TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE
TRUST, AND THE PRUDENTIAL SERIES FUND IN THE ACCOMPANYING PROSPECTUS FOR EACH
TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
GPP4SF-108896 14
- --------------------------------------------------------------------------------
GOLDEN AMERICAN SEPARATE ACCOUNT B
- --------------------------------------------------------------------------------
Golden American Separate Account B ("Separate Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with the SEC
as a unit investment trust under the Investment Company Act of 1940 as amended
(the "1940 Act"). Separate Account B is a separate investment account used for
our variable annuity contracts. We own all the assets in Separate Account B but
such assets are kept separate from our other accounts.
Separate Account B is
divided into subaccounts. Each subaccount invests exclusively in shares of one
investment portfolio of the GCG Trust, The Galaxy VIP Fund, the PIMCO Variable
Insurance Trust, the Warburg Pincus Trust, the ING Variable Insurance Trust or
the Prudential Series Fund. Each investment portfolio has its own distinct
investment objectives and policies. Income, gains and losses, realized or
unrealized, of a portfolio are credited to or charged against the corresponding
subaccount of Separate Account B without regard to any other income, gains or
losses of the Company. Assets equal to the reserves and other contract
liabilities with respect to each are not chargeable with liabilities arising out
of any other business of the Company. They may, however, be subject to
liabilities arising from subaccounts whose assets we attribute to other variable
annuity contracts supported by Separate Account B. If the assets in Separate
Account B exceed the required reserves and other liabilities, we may transfer
the excess to our general account. We are obligated to pay all benefits and make
all payments provided under the Contracts.
We currently offer other variable annuity contracts that invest in Separate
Account B but are not discussed in this prospectus. Separate Account B may also
invest in other investment portfolios which are not available under your
Contract. Under certain circumstances, we may make certain changes to the
subaccounts. For more information, see "The Annuity Contract -- Addition,
Deletion, or Substitution of Subaccounts and Other Changes."
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU MAY LOSE YOUR PRINCIPAL.
INVESTMENT OBJECTIVES
The investment objective of each investment portfolio is set forth below. You
should understand that there is no guarantee that any portfolio will meet its
investment objectives. Meeting objectives depends on various factors, including,
in certain cases, how well the portfolio managers anticipate changing economic
and market conditions. Separate Account B also has other subaccounts investing
in other portfolios which are not available to the Contract described in this
prospectus. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT
PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE
TRUST, THE WARBURG PINCUS TRUST, ING VARIABLE INSURANCE TRUST AND THE PRUDENTIAL
SERIES FUND. YOU SHOULD READ THESE PROSPECTUSES BEFORE INVESTING.
GPP4SF-108896 15
--------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset 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 instrumentalities,
bank obligations, commercial paper
and short-term corporate debt
securities. All securities will
mature in less than one year.
-----------------------------------
Limited Maturity Bond 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 Seeks high total return.
Invests primarily in high-grade
fixed income securities, both
foreign and domestic.
-----------------------------------
Fully Managed 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.
-----------------------------------
Total Return Seeks above-average income
(compared to a portfolio entirely
invested in equity securities)
consistent with the prudent
employment of capital. Growth of
capital and income is a secondary
goal.
Invests primarily in a
combination of equity and fixed
income securities.
-----------------------------------
Asset Allocation Growth Seeks to maximize
total return over the long- term by
allocating assets among stocks,
bonds, short-term instruments and
other investments.
Allocates
investments primarily in a neutral
mix over time of 70% of its assets
in stocks, 25% of its assets in
bonds, and 5% of its assets in
short-term and money market
investments.
-----------------------------------
Equity Income 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.
-----------------------------------
Investors Seeks long-term growth of capital.
Current income is a secondary
objective.
Invests primarily in equity
securities of U.S. companies and
to a lesser degree, debt
securities.
-----------------------------------
Value Equity 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.
-----------------------------------
GPP4SF-108896 16
--------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
Rising Dividends 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."
-----------------------------------
Diversified Mid-Cap Seeks long-term capital growth.
Normally invests at least 65% of
its total assets in common stocks
of companies with medium market
capitalizations.
-----------------------------------
Managed Global Seeks capital appreciation. Current
income is only an incidental
consideration.
Invests primarily in common stocks
traded in securities markets
throughout the world.
-----------------------------------
Large Cap Value Seeks long-term growth of capital
and income.
Invests primarily in equity and
equity-related securities of
companies with market
capitalization greater than $1
billion.
-----------------------------------
All Cap Seeks capital appreciation
through investment in securities
which the portfolio manager
believes have above-average capital
appreciation potential.
Invests primarily in equity
securities of U.S. companies of
any size.
-----------------------------------
Research 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.
-----------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity
securities believed by the
portfolio manager to be
undervalued.
-----------------------------------
Growth and Income Seeks long-term capital growth and
current income.
Normally invests up to 75% of its
assets in equity securities
selected primarily for their growth
potential and at least 25% of its
assets in securities the portfolio
manager believes have income
potential.
-----------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks
of companies where the potential
for change (earnings acceleration)
is significant.
-----------------------------------
Strategic Equity Seeks capital appreciation.
Invests primarily in common stocks
of medium- and small-sized
companies.
-----------------------------------
Special Situations Seeks capital appreciation.
Invests primarily in common stocks
selected for their capital
appreciation potential. The
Portfolio emphasizes "special
situation" companies that the
portfolio manager believes have
been overlooked or undervalued by
other investors.
-----------------------------------
GPP4SF-108896 17
--------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
Mid-Cap Growth 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.
-----------------------------------
Small Cap 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.
-----------------------------------
Growth 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.
-----------------------------------
Real Estate Seeks capital appreciation.
Current income is a secondary
objective.
Invests primarily in publicly
traded real estate equity
securities.
-----------------------------------
Hard Assets 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.
-----------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity
securities of companies in
developing or emerging countries.
-----------------------------------
THE GALAXY VIP FUND
Equity Seeks long-term growth by investing
in companies that the portfolio
manager believes have above-average
earnings potential.
Invests
normally at least 75% of its total
assets in common stocks and
securities convertible into common
stocks issued by U.S. companies.
-----------------------------------
Growth and Income Seeks to provide a
relatively high total return
through long-term capital
appreciation and current income.
Invests normally at least 65% of
its total assets in the common
stocks of U.S. companies with large
market capitalizations (generally
over $2 billion) that have
prospects for above-average growth
and dividends.
-----------------------------------
Small Company Growth Seeks capital appreciation.
Invests normally at least 65% of
its total assets in the equity
securities, primarily common
stocks, of small companies that
have market capitalizations of $1.5
billion or less. The portfolio
invests primarily in the common
stock of U.S. companies, but may
invest up to 20% of its total
assets in foreign equity
securities.
-----------------------------------
GPP4SF-108896 18
--------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
Asset Allocation Seeks a high total return by
providing both a current level of
income that is greater than that
provided by the popular stock
market averages, as
well as long-term growth in the
value of the portfolio's assets.
Invests in a mix of stocks and
bonds that the portfolio manager
believes will produce both income
and long-term capital growth. This
mix will change from time to time
as a result of economic and market
conditions. However, the portfolio
keeps at least 25% of its total
assets in fixed income investments,
including debt securities and
preferred stocks, at all times.
-----------------------------------
High Quality Bond Seeks a high level of current
income consistent with prudent risk
of capital.
Invests primarily in obligations
issued or guaranteed by the U.S.
Government, its agencies and
instrumentalities, as well as in
corporate debt obligations such as
notes and bonds. The portfolio
also invests in asset-backed and
mortgage-backed securities and in
money market instruments, such as
commercial paper and bank
obligations. Normally, at least
65% of the portfolio's total
assets will be invested in high
quality debt obligations that have
one of the top two ratings assigned
by Standard & Poor's Ratings Group
or Moody's Investors Services,
Inc. or are unrated securities
determined by the portfolio manager
to be of comparable quality.
-----------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return,
consistent with preservation of
capital and prudent investment
management.
Invests 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 Seeks to achieve a total return
which exceeds the total return
performance Growth and Income of
the S&P 500.
Invests primarily in common stocks,
options, futures, options on
futures and swaps.
-----------------------------------
THE WARBURG PINCUS TRUST
International Equity Seeks long-term appreciation.
Invests primarily in a broadly
diversified portfolio of equity
securities of companies that have
their principal business activities
outside of the United States.
-----------------------------------
ING VARIABLE INSURANCE TRUST
ING Global Brand Names Fund Seeks to provide investors with
long-term capital appreciation.
Invests at
least 65% of its total assets in
equity securities of companies that
have a well recognized franchise, a
global presence and derive most of
their revenues from sales of
consumer goods.
-----------------------------------
GPP4SF-108896 19
--------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that
have shown growth in earnings and
sales, high return on equity and
assets or other strong financial
data and are also attractively
valued in the opinion of the
manager. Dividend income from
investments will be incidental.
-----------------------------------
SP Jennison International Growth Seeks long-term growth of capital.
Invests primarily in equity-related
securities of issuers located in at
least five different foreign
countries.
-----------------------------------
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios. Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios. Directed Services (and not the GCG Trust) pays each portfolio
manager a monthly fee for managing the assets of a portfolio, based on the
annual rates of the average daily net assets of a portfolio. For a list of the
portfolio managers, see the front cover of this prospectus. Directed Services
does not bear the expense of brokerage fees and other transactional expenses for
securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and
expenses of the independent trustees, and extraordinary expenses, such as
litigation or indemnification expenses.
Fleet Investment Advisors Inc. serves as the investment advisor of The Galaxy
VIP Fund. The Galaxy VIP Fund pays Fleet Investment Advisors a monthly advisory
fee based on the average daily net assets of each investment portfolio. Each
portfolio pays its own administrative costs. Except for agreements to reimburse
certain expenses of some portfolios, Fleet Investment Advisors does not bear any
portfolio expenses.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee based
on the average daily net assets of each of the investment portfolios, for
managing the assets of the portfolios and for administering the PIMCO Variable
Insurance Trust. PIMCO does not bear the expense of brokerage fees and other
transactional expenses for securities, taxes (if any) paid by a portfolio,
interest on borrowing, fees and expense of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
Credit Suisse Asset Management, LLC serves as the investment advisor of the
Warburg Pincus Trust. The Warburg Trust pays Credit Suisse Asset Management a
monthly advisory fee based on the average daily net assets of the investment
portfolio and also procures the services necessary for the operation of its
portfolios. The Warburg Trust pays monthly administrative fees to two
co-administrators for administrative services, one of which is an affiliate of
Credit Suisse Asset Management. The monthly administrative fee is based on the
portfolio's average daily net assets. Credit Suisse Asset Management does not
bear any portfolio expenses.
ING Mutual Funds Management Co. LLC ("ING MFMC") serves as the overall manager
of ING Variable Insurance Trust. ING MFMC supervises all aspects of the Trust's
operations and provides investment advisory services to the portfolios of the
Trust, including engaging portfolio managers, as well as monitoring
GPP4SF-108896 20
and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING MFMC, as well as each portfolio manager it engages, is a wholly
owned indirect subsidiary of ING Groep N.V.
The Prudential Insurance Company of America ("Prudential") and its subsidiary,
Prudential Investments Fund Management LLC ("PIFM") serve as the overall
investment advisers to the Prudential Series Fund. Prudential and PIFM are
responsible for the management of the Prudential Series Fund and provide
investment advice and related services. For the Prudential Jennison Portfolio
and SP Jennison International Growth Portfolio, Prudential and PIFM engage
Jennison Associates LLC to serve as sub-adviser and to provide day-to-day
management. Prudential and PIFM pay the sub-adviser out of the fee they receive
from the Prudential Series Fund.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, three portfolios deduct a
distribution or 12b-1 fee, which is used to finance any activity that is
primarily intended to result in the sale of shares of the applicable portfolio.
For 1999, total portfolio fees and charges ranged from 0.56% to 1.75%. See "Fees
and Expenses" in this prospectus.
We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
RESTRICTED FUNDS
We may designate any investment option as a Restricted Fund and limit the amount
you may allocate or transfer to a Restricted Fund. We may establish any such
limitation, at our discretion, as a percentage of premium or contract value or
as a specified dollar amount and change the limitation at any time. Currently,
we have not designated any investment option as a Restricted Fund. We may, with
30 days notice to you, designate any investment portfolio as a Restricted Fund
or change the limitations on existing contracts with respect to new premiums
added to such investment portfolio and also with respect to new transfers to
such investment portfolio. If a change is made with regard to designation as a
Restricted Fund or applicable limitations, such change will apply only to
transactions effected after such change.
We limit your investment in the
Restricted Funds on both an aggregate basis for all Restricted Funds and for
each individual Restricted Fund. The aggregate limits for investment in all
Restricted Funds are expressed as a percentage of contract value, percentage of
premium and maximum dollar amount. Currently, your investment in two or more
Restricted Funds would be subject to each of the following three limitations: no
more than 30 percent of contract value, up to 100 percent of each premium and no
more than $999,999,999. We may change these limits, in our discretion, for new
contracts, premiums, transfers or withdrawals.
We also limit your investment in each individual Restricted Fund. The limits for
investment in each Restricted Fund are expressed as a percentage of contract
value, percentage of premium and maximum dollar amount. Currently, the limits
for investment in an individual Restricted Fund are the same as the aggregate
limits set forth above. We may change these limits, in our discretion, for new
contracts, premiums, transfers or withdrawals.
We monitor the aggregate and individual limits on investments in Restricted
Funds for each transaction (e.g. premium payments, reallocations, withdrawals,
dollar cost averaging). If the contract value in the Restricted Fund has
increased beyond the applicable limit due to market growth, we will not require
the reallocation or withdrawal of contract value from the Restricted Fund.
However, if an aggregate limit has been exceeded, withdrawals must be taken
either from the Restricted Funds or taken pro-rata from all investment options
in which contract value is allocated, so that the percentage of contract value
in the Restricted Funds following the withdrawal is less than or equal to the
percentage of contract value in the Restricted Funds prior to the withdrawal.
GPP4SF-108896 21
We will not permit a transfer to the Restricted Funds to the extent that it
would increase the contract value in the Restricted Fund or in all Restricted
Funds to more than the applicable limits set forth above. We will not limit
transfers from Restricted Funds. If the result of multiple reallocations is to
lower the percentage of total contract value in Restricted Funds, the
reallocation will be permitted even if the percentage of contract value in a
Restricted Fund is greater than its limit.
Please see "Withdrawals" and "Transfers Among Your Investments" in this
prospectus for more information on the effect of Restricted Funds.
- --------------------------------------------------------------------------------
THE FIXED INTEREST ALLOCATION
- --------------------------------------------------------------------------------
You may allocate premium payments and transfer your contract value to the
guaranteed interest periods of our Fixed Account at any time during the
accumulation period. Every time you allocate money to the Fixed Account, we set
up a Fixed Interest Allocation for the guaranteed interest period you select. We
currently offer guaranteed interest periods of 6 months, 1, 3, 5, 7 and 10
years, although we may not offer all these periods in the future. You may select
one or more guaranteed interest periods at any one time. We will credit your
Fixed Interest Allocation with a guaranteed interest rate for the interest
period you select, so long as you do not withdraw money from that Fixed Interest
Allocation before the end of the guaranteed interest period. Each guaranteed
interest period ends on its maturity date which is the last day of the month in
which the interest period is scheduled to expire.
If you surrender, withdraw, transfer or annuitize your investment in a Fixed
Interest Allocation more than 30 days before the end of the guaranteed interest
period, we will apply a Market Value Adjustment to the transaction. A Market
Value Adjustment could increase or decrease the amount you surrender, withdraw,
transfer or annuitize, depending on current interest rates at the time of the
transaction. YOU BEAR THE RISK THAT YOU MAY RECEIVE LESS THAN YOUR PRINCIPAL IF
WE APPLY A MARKET VALUE ADJUSTMENT.
Assets supporting amounts allocated to the Fixed Account are available to fund
the claims of all classes of our customer, contract owners and other creditors.
Interests under your Contract relating to the Fixed Account are registered under
the Securities Act of 1933, but the Fixed Account is not registered under the
1940 Act.
SELECTING A GUARANTEED INTEREST PERIOD
You may select one or more Fixed Interest Allocations with specified guaranteed
interest periods. A guaranteed interest period is the period that a rate of
interest is guaranteed to be credited to your Fixed Interest Allocation. We may
at any time decrease or increase the number of guaranteed interest periods
offered. In addition, we may offer DCA Fixed Interest Allocations, which are
6-month and 1-year Fixed Interest Allocations available exclusively in
connection with our dollar cost averaging program. For more information on DCA
Fixed Interest Allocations, see "Transfers Among Your Investments -- Dollar Cost
Averaging."
Your contract value in the Fixed Account is the sum of your Fixed
Interest Allocations and the interest credited as adjusted for any withdrawals
(including any Market Value Adjustment applied to such withdrawal), transfers or
other charges we may impose. Your Fixed Interest Allocation will be credited
with the guaranteed interest rate in effect for the guaranteed interest period
you selected when we receive and accept your premium or reallocation of contract
value. We will credit interest daily at a rate which yields the quoted
guaranteed interest rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is guaranteed as
long as you do not take your money out until its maturity date. We do not have a
specific formula for establishing the guaranteed interest rates for the
different guaranteed interest periods. We determine guaranteed interest rates at
our sole discretion. To find out the current guaranteed interest rate for a
guaranteed interest period you are
GPP4SF-108896 22
interested in, please contact our Customer
Service Center or your registered representative. The determination may be
influenced by the interest rates on fixed income investments in which we may
invest with the amounts we receive under the Contracts. We will invest these
amounts primarily in investment-grade fixed income securities (i.e., rated by
Standard & Poor's rating system to be suitable for prudent investors) although
we are not obligated to invest according to any particular strategy, except as
may be required by applicable law. You will have no direct or indirect interest
in these investments. We will also consider other factors in determining the
guaranteed interest rates, including regulatory and tax requirements, sales
commissions and administrative expenses borne by us, general economic trends and
competitive factors. We cannot predict the level of future interest rates but no
Fixed Interest Allocation will ever have a guaranteed interest rate of less than
3% per year.
We may from time to time at our discretion offer interest rate
specials for new premiums that are higher than the current base interest rate
then offered. Renewal rates for such rate specials will be based on the base
interest rate and not on the special rates initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to one or
more new Fixed Interest Allocations with new guaranteed interest periods, or to
any of the subaccounts of Separate Account B. We will transfer amounts from your
Fixed Interest Allocations starting with the guaranteed interest period nearest
its maturity date until we have honored your transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract value
remaining in a Fixed Interest Allocation to less than $100, we will treat such
transfer request as a request to transfer the entire contract value in such
Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be
subject to a Market Value Adjustment. If you have a special Fixed Interest
Allocation that was offered exclusively with our dollar cost averaging program,
cancelling dollar cost averaging will cause a transfer of the entire contract
value in such Fixed Interest Allocation to the Liquid Asset subaccount, and such
a transfer will be subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer amounts
from the applicable Fixed Interest Allocation to the subaccounts and/or to new
Fixed Interest Allocations with guaranteed interest periods of any length we are
offering at that time. You may not, however, transfer amounts to any Fixed
Interest Allocation with a guaranteed interest period that extends beyond the
annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed Interest
Allocations, or earlier if required by state law, we will send you a notice of
the guaranteed interest periods that are available. You must notify us which
subaccounts or new guaranteed interest periods you have selected before the
maturity date of your Fixed Interest Allocations. If we do not receive timely
instructions from you, we will transfer the contract value in the maturing Fixed
Interest Allocation to a new Fixed Interest Allocation with a guaranteed
interest period that is the same as the expiring guaranteed interest period. If
such guaranteed interest period is not available or would go beyond the annuity
start date, we will transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does not go
beyond the annuity start date. If no such guaranteed interest period is
available, we will transfer the contract value to a subaccount specially
designated by the Company for such purpose. Currently we use the Liquid Asset
subaccount for such purpose.
Please be aware that the benefit we pay under certain optional benefit riders
will be adjusted by any transfers you make to and from the Fixed Interest
Allocations during specified periods while the rider is in effect. See "Optional
Riders."
WITHDRAWALS FROM A FIXED INTEREST ALLOCATION
During the accumulation phase, you may withdraw a portion of your contract value
in any Fixed Interest Allocation. You may make systematic withdrawals of only
the interest earned during the prior month, quarter or year, depending on the
frequency chosen, from a Fixed Interest Allocation under our systematic
withdrawal option. Systematic withdrawals from a Fixed Interest Allocation are
not permitted if such Fixed Interest Allocation is currently participating in
the dollar cost averaging program. A withdrawal from a
GPP4SF-108896 23
Fixed Interest Allocation
may be subject to a Market Value Adjustment and, in some cases, a surrender
charge. Be aware that withdrawals may have federal income tax consequences,
including a 10% penalty tax, as well as state income tax consequences.
If you tell us the Fixed Interest Allocation from which your withdrawal will be
made, we will assess the withdrawal against that Fixed Interest Allocation. If
you do not, we will assess your withdrawal against the subaccounts in which you
are invested, unless the withdrawal exceeds the contract value in the
subaccounts. If there is no contract value in those subaccounts, we will deduct
your withdrawal from your Fixed Interest Allocations starting with the
guaranteed interest periods nearest their maturity dates until we have honored
your request.
Please be aware that the benefit we pay under any of the optional riders will be
reduced by any withdrawals you make from the Fixed Interest Allocations during
the period while the rider is in effect. See "Optional Riders."
MARKET VALUE ADJUSTMENT
A Market Value Adjustment may decrease, increase or have no effect on your
contract value. We will apply a Market Value Adjustment (i) whenever you
withdraw or transfer money from a Fixed Interest Allocation (unless made within
30 days before the maturity date of the applicable guaranteed interest period,
or under the systematic withdrawal or dollar cost averaging program) and (ii) if
on the annuity start date a guaranteed interest period for any Fixed Interest
Allocation does not end on or within 30 days of the annuity start date.
We determine the Market Value Adjustment by multiplying the amount you withdraw,
transfer or apply to an income plan by the following factor:
N/365
((1+I)/(1+J+.0050)) -1
Where,
o "I" is the Index Rate for a Fixed Interest Allocation on the first
day of the guaranteed interest period;
o "J" is equal to the following:
(1) If calculated for a Fixed Interest Allocation of 1 year or
more, then "J" is the Index Rate for a new Fixed Interest
Allocation with a guaranteed interest period equal to the
time remaining (rounded up to the next full year except in
Pennsylvania) in the guaranteed interest period;
(2) If calculated for a Fixed Interest Allocation of 6 months,
then "J" is the lesser of the Index Rate for a new Fixed
Interest Allocation with (i) a 6 month guaranteed interest
period, or (ii) a 1 year guaranteed interest period, at the
time of calculation; and
o "N" is the remaining number of days in the guaranteed interest
period at the time of calculation.
The Index Rate is the average of the Ask Yields for
U.S. Treasury Strips as quoted by a national quoting service for a period equal
to the applicable guaranteed interest period. The average currently is based on
the period starting from the 22nd day of the calendar month two months prior to
the month of the Index Rate determination and ending the 21st day of the
calendar month immediately before the month of determination. We currently
calculate the Index Rate once each calendar month but have the right to
calculate it more frequently. The Index Rate will always be based on a period of
at least 28 days. If the Ask Yields are no longer available, we will determine
the Index Rate by using a suitable and approved, if required, replacement
method.
A Market Value Adjustment may be positive, negative or result in no change. In
general, if interest rates are rising, you bear the risk that any Market Value
Adjustment will likely be negative and reduce your contract value. On the other
hand, if interest rates are falling, it is more likely that you will receive a
GPP4SF-108896 24
positive Market Value Adjustment that increases your contract value. In the
event of a full surrender, transfer or annuitization from a Fixed Interest
Allocation, we will add or subtract any Market Value Adjustment from the amount
surrendered, transferred or annuitized. In the event of a partial withdrawal,
transfer or annuitization, we will add or subtract any Market Value Adjustment
from the total amount withdrawn, transferred or annuitized in order to provide
the amount requested. If a negative Market Value Adjustment exceeds your
contract value in the Fixed Interest Allocation, we will consider your request
to be a full surrender, transfer or annuitization of the Fixed Interest
Allocation.
Several examples which illustrate how the Market Value Adjustment works are
included in Appendix B.
- --------------------------------------------------------------------------------
SPECIAL FUNDS
- --------------------------------------------------------------------------------
We use the term Special Funds in the discussion of the enhanced death benefit
options and the optional riders. The Special Funds currently include the Liquid
Asset subaccount, Limited Maturity Bond subaccount and the Fixed Interest
Allocations. The Company may, at any time, designate new and/or existing
subaccounts as a Special Fund with 30 days notice with respect to new premiums
added or transfers to such subaccounts. Such subaccounts will include those
that, due to their volatility, are excluded from the death benefit and living
benefit guarantees that may otherwise be provided.
- --------------------------------------------------------------------------------
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
The Contract described in this prospectus is a deferred combination variable and
fixed annuity contract. The Contract provides a means for you to invest in one
or more of the available mutual fund portfolios of the GCG Trust, the PIMCO
Variable Insurance Trust, the Warburg Pincus Trust, the ING Variable Annuity
Trust and the Prudential Series Funds through Separate Account B. It also
provides a means for you to invest in a Fixed Interest Allocation through the
Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-month
period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments under
your Contract. The Contract, like all deferred variable annuity contracts, has
two phases: the accumulation phase and the income phase. The accumulation phase
is the period between the contract date and the annuity start date. The income
phase begins when you start receiving regular annuity payments from your
Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another annuitant
is named in the application. You have the rights and options described in the
Contract. One or more persons may own the Contract. If there are multiple owners
named, the age of the oldest owner will determine the applicable death benefit
if such death benefit is available for multiple owners.
The death benefit becomes payable when you die. In the case of a sole contract
owner who dies before the income phase begins, we will pay the beneficiary the
death benefit when due. The sole contract owner's estate will be the beneficiary
if no beneficiary has been designated or the beneficiary has predeceased the
contract owner. In the case of a joint owner of the Contract dying before the
income phase begins, we will designate the surviving contract owner as the
beneficiary. This will override any previous beneficiary designation.
GPP4SF-108896 25
If the contract owner is a trust and a beneficial owner of the trust has been
designated, the beneficial owner will be treated as the contract owner for
determining the death benefit. If a beneficial owner is changed or added after
the contract date, this will be treated as a change of contract owner for
determining the death benefit. If no beneficial owner of the Trust has been
designated, the availability of enhanced death benefits will be based on the age
of the annuitant at the time you purchase the Contract.
JOINT OWNER. For non-qualified Contracts only, joint owners may be named in
a written request before the Contract is in effect. Joint owners may
independently exercise transfers and other transactions allowed under the
Contract. All other rights of ownership must be exercised by both owners. Joint
owners own equal shares of any benefits accruing or payments made to them.
All rights of a joint owner end at death of that owner if the other joint owner
survives. The entire interest of the deceased joint owner in the Contract will
pass to the surviving joint owner and the death benefit will be payable. Joint
owners may only select the Standard Death Benefit option. Upon adding an
additional owner to a contract which was issued with an Enhanced Death Benefit
option, generally, your death benefit will be changed automatically to a
Standard Death Benefit and your mortality and expense risk charges will be
lowered correspondingly to that which is charged under the Standard Death
Benefit Option. Also note that if any owner's age is 86 or greater, even the
standard death benefit guarantee will also be lost. Note that returning a
Contract to single owner status will not restore any Enhanced Death Benefit.
Unless otherwise specified, the term "age" when used for joint owners shall mean
the age of the oldest owner.
Any addition or deletion of a joint owner is
treated as a change of owner which may affect the amount of the death benefit.
See "Change of Contract Owner or Beneficiary" below. If you have elected an
enhanced death benefit, and you add a joint owner, if the older joint owner is
attained age 85 or under, the enhanced death benefit from the date of change
will end, and the Standard Death Benefit will apply. For all death benefit
options, if the older joint owner's attained age is 86 or over on the date of
the ownership change, the death benefit will be the cash surrender value.
ANNUITANT
The annuitant is the person designated by you to be the measuring life in
determining annuity payments. The annuitant's age determines when the income
phase must begin and the amount of the annuity payments to be paid. You are the
annuitant unless you choose to name another person. The annuitant may not be
changed after the Contract is in effect.
The contract owner will receive the
annuity benefits of the Contract if the annuitant is living on the annuity start
date. If the annuitant dies before the annuity start date and a contingent
annuitant has been named, the contingent annuitant becomes the annuitant (unless
the contract owner is not an individual, in which case the death benefit becomes
payable).
If there is no contingent annuitant when the annuitant dies before the annuity
start date, the contract owner will become the annuitant. The contract owner may
designate a new annuitant within 60 days of the death of the annuitant.
If there
is no contingent annuitant when the annuitant dies before the annuity start date
and the contract owner is not an individual, we will pay the designated
beneficiary the death benefit then due. If a beneficiary has not been
designated, or if there is no designated beneficiary living, the contract owner
will be the beneficiary. If the annuitant was the sole contract owner and there
is no beneficiary designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies and any
contract owner is not an individual, distribution rules under federal tax law
will apply. You should consult your tax adviser for more information if you are
not an individual.
GPP4SF-108896 26
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary is the
person who receives any death benefit proceeds and who becomes the successor
contract owner if the contract owner (or the annuitant if the contract owner is
other than an individual) dies before the annuity start date. We pay death
benefits to the primary beneficiary (unless there are joint owners, in which
case death proceeds are payable to the surviving owner(s)).
If the beneficiary
dies before the annuitant or the contract owner, the death benefit proceeds are
paid to the contingent beneficiary, if any. If there is no surviving
beneficiary, we pay the death benefit proceeds to the contract owner's estate.
One or more persons may be a beneficiary or contingent beneficiary. In the case
of more than one beneficiary, we will assume any death benefit proceeds are to
be paid in equal shares to the surviving beneficiaries.
You have the right to
change beneficiaries during the annuitant's lifetime unless you have designated
an irrevocable beneficiary. When an irrevocable beneficiary has been designated,
you and the irrevocable beneficiary may have to act together to exercise some of
the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime,
you may transfer ownership of a non-qualified Contract. A change in ownership
may affect the amount of the death benefit, the guaranteed minimum death
benefit, and/or the death benefit option applied to the contract. The new
owner's age, as of the date of the change, will be used as the basis for
determining which option to use. The new owner's death will determine when a
death benefit is payable.
If you have elected the Standard Death Benefit option, the minimum guaranteed
death benefit will continue if the new owner is age 85 or under on the date of
the ownership change. For all other death benefit options, if the new owner is
age 79 or under on the date that ownership changes, the minimum guaranteed death
benefit will continue. If the new owner is age 80 to 85, the enhanced death
benefit will end, and the death benefit will become the Standard Death Benefit.
The mortality and expense risk charge will reflect this change in death benefit.
For all death benefit options, if the new owner's attained age is 86 or over on
the date of the ownership change, the death benefit will be the cash surrender
value. Please note that once a death benefit has been changed due to a change in
owner, a subsequent change to a younger owner will not restore any Enhanced
Death Benefits.
You may also change the beneficiary. All requests for changes must be in writing
and submitted to our Customer Service Center in good order. The change will be
effective as of the day you sign the request. The change will not affect any
payment made or action taken by us before recording the change.
PURCHASE AND AVAILABILITY OF THE CONTRACT
We will issue a Contract only if both the annuitant and the contract owner are
not older than age 85.
The initial premium payment must be $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $500 or more ($250 for qualified
Contracts) at any time after the free look period before you turn age 85. Under
certain circumstances, we may waive the minimum premium payment requirement. We
may also change the minimum initial or additional premium requirements for
certain group or sponsored arrangements. An initial or additional premium
payment that would cause the contract value of all annuities that you maintain
with us to exceed $1,000,000 requires our prior approval.
IRAs and other
qualified plans already have the tax-deferral feature found in this Contract.
For an additional cost, the Contract provides other benefits including death
benefits and the ability to receive a lifetime income. See "Fees and Expenses"
in this prospectus.
CREDITING OF PREMIUM PAYMENTS
We will process your initial premium and credit within 2 business days after
receipt, if the application and all information necessary for processing the
Contract are complete. Subsequent premium payments and credits will be processed
within 1 business day if we receive all information necessary. In certain states
we
GPP4SF-108896 27
also accept initial and additional premium payments by wire order. Wire
transmittals must be accompanied by sufficient electronically transmitted data.
We may retain your initial premium payment for up to 5 business days while
attempting to complete an incomplete application. If the application cannot be
completed within this period, we will inform you of the reasons for the delay.
We will also return the premium payment immediately unless you direct us to hold
the premium payment until the application is completed.
We will allocate your
initial payment according to the instructions you specified. If a subaccount is
not available or requested in error, we will make inquiry about a replacement
subaccount. If we are unable to reach you or your representative, we will
consider the application incomplete. For initial premium payments, the payment
will be credited at the accumulation unit value next determined after we receive
your premium payment and the completed application. Once the completed
application is received, we will allocate the payment to the subaccounts and/or
Fixed Interest Allocation specified by you within 2 business days.
We will make inquiry to discover any missing information related to subsequent
payments. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent premium
payments, the payment and credit will be credited at the accumulation unit value
next determined after receipt of your premium payment and instructions.
Once we
allocate your premium payment and credit to the subaccounts selected by you, we
convert the premium payment and credit into accumulation units. We divide the
amount of the premium payment and credit allocated to a particular subaccount by
the value of an accumulation unit for the subaccount to determine the number of
accumulation units of the subaccount to be held in Separate Account B with
respect to your Contract. The net investment results of each subaccount vary
with its investment performance.
If your premium payment was transmitted by wire order from your broker-dealer,
we will follow one of the following two procedures after we receive and accept
the wire order and investment instructions. The procedure we follow depends on
state availability and the procedures of your broker-dealer.
(1) If either your state or broker-dealer do not permit us to issue a
Contract without an application, we reserve the right to rescind
the Contract if we do not receive and accept a properly completed
application or enrollment form within 5 days of the premium
payment. If we do not receive the application or form within 5 days
of the premium payment, we will refund the contract value plus any
charges we deducted, and the Contract will be voided. Some states
require that we return the premium paid, in which case we will
comply.
(2) If your state and broker-dealer allow us to issue a Contract
without an application, we will issue and mail the Contract to you
or your representative, together with an Application
Acknowledgement Statement for your execution. Until our Customer
Service Center receives the executed Application Acknowledgement
Statement, neither you nor the broker-dealer may execute any
financial transactions on your Contract unless they are requested
in writing by you. We may require additional information before
complying with your request (e.g., signature guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Separate Account B or the Fixed Account be allocated with the
added credit to a subaccount specially designated by the Company (currently, the
Liquid Asset subaccount) during the free look period. After the free look
period, we will convert your contract value (your initial premium and credit
plus any earnings less any expenses) into accumulation units of the subaccounts
you previously selected. The accumulation units will be allocated based on the
accumulation unit value next computed for each subaccount. Initial premiums
designated for Fixed Interest Allocations will be allocated with the added
credit to a Fixed Interest Allocation with the guaranteed interest period you
have chosen; however, in the future we may allocate the premiums and credits to
the specially designated subaccount during the free look period.
GPP4SF-108896 28
ADDITIONAL CREDIT TO PREMIUM
A credit will be added to your contract value based on each premium payment. The
credit will be added proportionally to each subaccount and Fixed Interest
Allocation as the premium payment is allocated. The credit is a minimum of 4% of
the premium payment. We may increase the credit at our discretion. If we
increase the credit we may reduce it also at our discretion, but we will not
reduce it below the minimum credit of 4%, and we will give at least 30 days'
notice of any planned reduction.
The credit constitutes earnings (and not premiums paid by you) for federal tax
purposes.
We have submitted an application to the Securities and Exchange Commission for
exemptive relief with regard to the deduction of the premium credit under the
circumstances described below. Pending receipt of an exemptive order, we will
not deduct the credit from payments made to you or your beneficiary, other than
deducting the value of the credit on the day we receive your refund request from
amounts paid to you where you return your Contract within the free look period.
Once an exemptive order has been issued, we will deduct the credit as described
below.
In any of the following circumstances, we deduct a credit from the
amount we pay to you or your beneficiary:
(1) If you return your Contract within the free look period, we will
deduct the credit from the refund amount;
(2) If a death benefit becomes payable, we will deduct any credits
added to your contract within 1 year prior to death; and
(3) If we waive any surrender charge, we will deduct any credit added to
your contract value within 1 year.
If we deduct a credit from any amount we pay
to you, we will deduct the full dollar amount of the credit. You will retain any
gains, and you will also bear any losses, that are attributable to the credit we
deduct.
Once we have waived any surrender charge, we will not add any additional
credit to any additional premium you pay on or after the date of any such
waiver.
While no specific charge is made for the premium credit, the surrender charges
are higher and the surrender charge period longer than under our products not
offering a premium credit. Also, the mortality and expense risk charge is higher
than that charged under other products providing comparable features, but no
premium credit. We may use a portion of the surrender charge and mortality and
expense risk charge to help recover the cost of providing the premium credit. In
addition, there may be circumstances under which the contract owner may be worse
off from having received a premium credit. For example, this could occur if the
contract owner returns the Contract during the applicable free look period. Upon
a free look, we recapture the premium credit that had been credited. If the
state law provides that contract value is returned on a free look, and if the
performance of the applicable subaccounts has been negative during that period,
we will return the contract value less the premium credit. The negative
performance associated with the premium credit will reduce the contract value
more than if the premium credit had not been applied.
ADMINISTRATIVE PROCEDURES
We may accept a request for Contract service in writing, by telephone, or other
approved electronic means, subject to our administrative procedures, which vary
depending on the type of service requested and may include proper completion of
certain forms, providing appropriate identifying information, and/or other
administrative requirements. We will process your request at the contract value
next determined only after you have met all administrative requirements.
CONTRACT VALUE
We determine your contract value on a daily basis beginning on the contract
date. Your contract value is the sum of (a) the contract value in the Fixed
Interest Allocations, and (b) the contract value in each subaccount in which you
are invested.
GPP4SF-108896 29
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in your
Fixed Interest Allocation is the sum of premium payments and credits allocated
to the Fixed Interest Allocation under the Contract, plus contract value
transferred to the Fixed Interest Allocation, plus credited interest, minus any
transfers and withdrawals from the Fixed Interest Allocation (including any
Market Value Adjustment applied to such withdrawal), contract fees (including,
in some cases, fees for optional benefit riders) and premium taxes.
CONTRACT VALUE IN THE SUBACCOUNTS. On the contract date, the contract value
in the subaccount in which you are invested is equal to the initial premium paid
and added credit that was designated to be allocated to the subaccount. On the
contract date, we allocate your contract value to each subaccount and/or a Fixed
Interest Allocation specified by you, unless the Contract is issued in a state
that requires the return of premium payments during the free look period, in
which case, the portion of your initial premium and added credit not allocated
to a Fixed Interest Allocation may be allocated to a subaccount specially
designated by the Company during the free look period for this purpose
(currently, the Liquid Asset subaccount).
On each business day after the contract date, we calculate the amount of
contract value in each subaccount as follows:
(1) We take the contract value in the subaccount at the end of the
preceding business day.
(2) We multiply (1) by the subaccount's Net Investment Factor since the
preceding business day.
(3) We add (1) and (2).
(4) We add to (3) any additional premium payments and credits, and then
add or subtract any transfers to or from that subaccount.
(5) We subtract from (4) any withdrawals and any related charges, and
then subtract any contract fees (including any rider charges) and
premium taxes.
CASH SURRENDER VALUE
The cash surrender value is the amount you receive when you surrender the
Contract. The cash surrender value will fluctuate daily based on the investment
results of the subaccounts in which you are invested and interest credited to
Fixed Interest Allocations and any Market Value Adjustment. We do not guarantee
any minimum cash surrender value. On any date during the accumulation phase, we
calculate the cash surrender value as follows: we start with your contract
value, then we adjust for any Market Value Adjustment, and then we deduct any
surrender charge, any charge for premium taxes, the annual contract
administrative fee (unless waived), any optional benefit rider charges, and any
other charges incurred but not yet deducted.
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE
You may surrender the Contract at any time while the annuitant is living and
before the annuity start date. A surrender will be effective on the date your
written request and the Contract are received at our Customer Service Center. We
will determine and pay the cash surrender value at the price next determined
after receipt of all paperwork required in order for us to process your
surrender. Once paid, all benefits under the Contract will be terminated. For
administrative purposes, we will transfer your money to a specially designated
subaccount (currently the Liquid Asset subaccount) prior to processing the
surrender. This transfer will have no effect on your cash surrender value. You
may receive the cash surrender value in a single sum payment or apply it under
one or more annuity options. We will usually pay the cash surrender value within
7 days.
Consult your tax adviser regarding the tax consequences associated with
surrendering your Contract. A surrender made before you reach age 59 1/2 may
result in a 10% tax penalty. See "Federal Tax Considerations" for more details.
GPP4SF-108896 30
THE SUBACCOUNTS
Each of the 32 subaccounts of Separate Account B offered under this prospectus
invests in an investment portfolio with its own distinct investment objectives
and policies. Each subaccount of Separate Account B invests in a corresponding
portfolio of the GCG Trust, a corresponding portfolio of the PIMCO Variable
Insurance Trust, a corresponding portfolio of the Warburg Pincus Trust, a
corresponding portfolio of the ING Variable Insurance Trust, or a corresponding
portfolio of the Prudential Series Fund.
ADDITION, DELETION OR SUBSTITUTION OF SUBACCOUNTS AND OTHER CHANGES
We may make additional subaccounts available to you under the Contract. These
subaccounts will invest in investment portfolios we find suitable for your
Contract.
We may amend the Contract to conform to applicable laws or
governmental regulations. If we feel that investment in any of the investment
portfolios has become inappropriate to the purposes of the Contract, we may,
with approval of the SEC (and any other regulatory agency, if required)
substitute another portfolio for existing and future investments. If you elected
the dollar cost averaging, systematic withdrawals or automatic rebalancing
programs or if you have other outstanding instructions, and we substitute or
otherwise eliminate a portfolio which is subject to those instructions, we will
execute your instructions using the substituted or proposed replacement
portfolio, unless you request otherwise.
We also reserve the right to: (i)
deregister Separate Account B under the 1940 Act; (ii) operate Separate Account
B as a management company under the 1940 Act if it is operating as a unit
investment trust; (iii) operate Separate Account B as a unit investment trust
under the 1940 Act if it is operating as a managed separate account; (iv)
restrict or eliminate any voting rights as to Separate Account B; and (v)
combine Separate Account B with other accounts.
We will, of course, provide you
with written notice before any of these changes are effected.
THE FIXED ACCOUNT
The Fixed Account is a segregated asset account which contains the assets that
support a contract owner's Fixed Interest Allocations. See "The Fixed Interest
Allocations" for more information.
OPTIONAL RIDERS
Subject to state availability, you may elect one of three optional benefit
riders discussed below. You may not add more than one of these three riders to
your Contract. There is a separate charge for each rider.
Once elected, the
riders generally may not be cancelled. This means once you add the rider you may
not remove it, and charges will be assessed regardless of the performance of
your Contract. Please see "Charges and Fees -- Optional Rider Charges" for
information on rider charges.
The following describes the optional riders for contract owners purchasing
Contracts on or after January 1, 2001. If you purchased your Contract prior to
that date, please see Appendix F for a description of the calculation of the
optional rider benefits applicable under your Contract.
THE OPTIONAL RIDERS MAY NOT BE AVAILABLE FOR ALL INVESTORS. YOU SHOULD ANALYZE
EACH RIDER THOROUGHLY AND UNDERSTAND COMPLETELY BEFORE YOU SELECT ANY. THE
OPTIONAL RIDERS DO NOT GUARANTEE ANY RETURN OF PRINCIPAL OR PREMIUM PAYMENTS AND
DO NOT GUARANTEE PERFORMANCE OF ANY SPECIFIC INVESTMENT PORTFOLIO UNDER THE
CONTRACT. YOU SHOULD CONSULT A QUALIFIED FINANCIAL ADVISER IN EVALUATING THE
RIDERS.
THE OPTIONAL RIDERS MAY NOT BE APPROVED IN ALL STATES. CHECK WITH OUR CUSTOMER
SERVICE CENTER FOR AVAILABILITY IN YOUR STATE. THE TELEPHONE NUMBER IS (800)
366-0066.
RIDER DATE. We use the term rider date in the discussion of the
optional benefit riders below. The rider date is the date an optional benefit
rider becomes effective. The rider date is also the contract date if the rider
was purchased at the time the Contract is issued.
GPP4SF-108896 31
NO CANCELLATION. Once you purchase a rider, the rider may not be cancelled,
unless you cancel the Contract during the Contract's free look period,
surrender, annuitize or otherwise terminate the Contract which automatically
cancels any attached rider. Once the Contract continues beyond the free look
period, you may not at any time cancel the rider, except with respect to a
one-time right to cancel the twenty-year option of the Minimum Guaranteed
Accumulation Benefit rider under specified conditions. The Company may, at its
discretion, cancel and/or replace a rider at your request in order to renew or
reset a rider.
TERMINATION. The optional riders are "living benefits." This means that the
guaranteed benefits offered by the riders are intended to be available to you
while you are living and while your Contract is in the accumulation phase. The
optional riders automatically terminate (and all benefits under the rider will
cease) if you annuitize, surrender or otherwise terminate your Contract or die
(first owner to die if there are multiple contract owners, or at death of
annuitant if contract owner is not a natural person), unless your spouse
beneficiary elects to continue the Contract, during the accumulation phase. The
optional rider will also terminate if there is a change in contract ownership
(other than a spousal beneficiary continuation on your death). Other
circumstances which may cause a particular optional rider to terminate
automatically are discussed below with the applicable rider.
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB) RIDER. The MGAB rider is an
optional benefit which provides you with an MGAB benefit intended to guarantee a
minimum contract value at the end of a specified waiting period. The MGAB is a
one-time adjustment to your contract value in the event your contract value on
the MGAB Benefit Date is less than the MGAB Base. The MGAB rider may offer you
protection in the event your Contract loses value during the MGAB waiting
period. For a discussion of the charges we deduct under the MGAB rider, see
"Optional Rider Charges."
The MGAB rider offers a ten-year option and a
twenty-year option, of which you may purchase only one. The ten-year option has
a waiting period of ten years and, other than for allocations to Special Funds,
guarantees that your contract value at the end of ten years will at least equal
your initial premium payment plus credits, reduced pro rata for withdrawals.
Transfers made within 3 years prior to the MGAB Benefit Date will also reduce
the benefit pro rata. The twenty-year option has a waiting period of twenty
years and, other than allocations to Special Funds, guarantees that your
contract value at the end of twenty years will at least equal two times your
initial premium payment plus credits, reduced pro rata for withdrawals, and
reduced for transfers made within 3 years prior to the MGAB Benefit Date. If you
add the 20 year option rider after the contract date, any payment of premiums
after the rider date, and/or investments in the Special Funds, may prevent the
MGAB Base from doubling over the waiting period.On the MGAB Benefit Date, which
is the next business day after the applicable waiting period, we calculate your
Minimum Guaranteed Accumulation Benefit.
CALCULATING THE MGAB. We calculate your MGAB as follows:
1) WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a
calculation used to determine the MGAB. The MGAB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your annuity income, cash surrender value
and death benefits.
The MGAB Base is tracked separately for Special and Non-Special
Funds, based on the initial allocation of premium (or contract
value), subsequently allocated eligible premiums, withdrawals and
transfers. Contract value is used as the initial value if the rider
is added after the contract date. The aggregate MGAB Base is used
to determine the MGAB on the MGAB Benefit Date. THE AGGREGATE MGAB
BASE EQUALS THE SUM OF (1) THE LESSER OF THE MGAB BASE ALLOCATED TO
SPECIAL FUNDS AND THE CONTRACT VALUE IN THE SPECIAL FUNDS; AND (2)
THE MGAB BASE FOR NON-SPECIAL FUNDS. THUS, INVESTING IN THE SPECIAL
FUNDS MAY LIMIT THE MGAB BENEFIT.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base for Special
and Non-Special Funds is equal to your initial premium
and credit, plus any additional premium and credit
added to your
GPP4SF-108896 32
Contract during the 2-year period after your
rider date, reduced pro rata for any withdrawals and reduced
for any transfers made within the last 3 years prior to the
MGAB Benefit Date; or
(ii) elected the twenty-year option, your MGAB Base for Special and
Non-Special Funds is equal to your initial premium and credit,
plus any additional premium and credit added to your Contract
during the 2-year period after your contract date, accumulated
at the MGAB Rate, reduced pro rata for any withdrawals and
reduced for any transfers made within the last 3 years prior
to the MGAB Benefit Date. The MGAB Rate is the annual
effective rate of 3.5265%. Accumulation of eligible additional
premiums starts on the date the premium was received.
Net transfers from Special Funds to Non-Special Funds will reduce
the MGAB Base and MGAB Charge Base allocated to Special Funds on a
pro-rata basis. If the transfer is made more than 3 years before
the Benefit Date, there will be a corresponding increase in the
MGAB Base for Non-Special Funds equal to the lesser of the
reduction in the MGAB Base for Special Funds and the net contract
value transferred.
Net transfers from Non-Special Funds to Special
Funds will reduce the MGAB Base and MGAB Charge Base allocated to
Non-Special Funds on a pro-rata basis. If the transfer is made more
than 3 years before the Benefit Date, there will be a corresponding
increase in the MGAB Base for Special Funds equal to the reduction
in the MGAB Base for Non-Special Funds.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus
premiums and credits added during the 2-year period after
your rider date. Withdrawals taken while the MGAB rider is
in effect, as well as transfers made within 3 years prior
to the MGAB Benefit Date, will reduce the value of your
MGAB Base pro rata. This means that the MGAB Base
(and the MGAB Charge Base) will be reduced by the
same percent as the percent of contract value that was
withdrawn (or transferred). We will look to your contract value
immediately before the withdrawal or transfer when we determine
this percent.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus,
the MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR AGGREGATE MGAB BASE. The contract value that we subtract
includes both the contract value in the subaccounts in which you
are invested and the contract value in your Fixed Interest
Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts
in which you are invested pro rata based on the proportion of your
contract value in the subaccounts on that date, unless you have
previously given us other allocation instructions. If you do not
have an investment in any subaccount on the MGAB Benefit Date, we
will allocate the MGAB to the Liquid Asset subaccount on your
behalf. After the crediting of the MGAB, the amount of your annuity
income, cash surrender value and death benefits will reflect the
crediting of the MGAB to your contract value to the extent the
contract value is used to determine such value.
PURCHASE. To purchase the MGAB rider, you must be age 80 or younger on the
rider date if you choose the ten-year option and age 65 or younger on the rider
date if you choose the twenty-year option. The waiting period must end at or
before your annuity start date. The MGAB rider may be purchased (i) on the
contract date, and (ii) within 30 days following the contract date. For
contracts issued more than 30 days before the date this rider first became
available in your state, the Company may in its discretion allow
GPP4SF-108896 33
purchase of
this rider during the 30-day period preceding the first contract anniversary
after the date of this prospectus, or the date of state approval, whichever is
later.
THE MGAB BENEFIT DATE. If you purchased the MGAB rider on the contract date
or added the MGAB rider within 30 days following the contract date, the MGAB
Benefit Date is your 10th contract anniversary for the ten-year option or 20th
contract anniversary for the twenty-year option. If you added the MGAB rider
during the 30-day period preceding your first contract anniversary after the
date of this prospectus, your MGAB Benefit Date will be the first contract
anniversary occurring after 10 years (for the ten-year option) or 20 years (for
the twenty-year option) after the rider date. The MGAB rider is not available if
the MGAB Benefit Date would fall beyond the latest annuity start date.
CANCELLATION. If you elected the twenty-year option, you have a one-time
right to cancel the MGAB rider on your first contract anniversary that is at
least 10 years after the rider date. If you purchased the MGAB rider during the
30-day period following the contract date, your one-time right to cancel the
rider occurs on the tenth anniversary of your contract date. To cancel, you need
to send written notice to our Customer Service Center at least 30 days before
such anniversary date. If the MGAB rider is terminated before the MGAB Benefit
Date, you will not be credited with the MGAB and we will assess the pro rata
portion of the MGAB rider charge for the current quarter.
NOTIFICATION. Any crediting of the MGAB will be reported in your first
quarterly statement following the MGAB Benefit Date.
MINIMUM GUARANTEED INCOME
BENEFIT (MGIB) RIDER. The MGIB rider is an optional benefit which guarantees
that a minimum amount of annuity income will be available to you if you
annuitize on the MGIB Benefit Date, regardless of fluctuating market conditions.
The amount of the Minimum Guaranteed Income Benefit will depend on the amount of
premiums you pay during the five contract years after you purchase the rider,
the credit(s) we add, the amount of contract value you allocate or transfer to
the Special Funds, the MGIB Rate, the adjustments for Special Fund transfers,
and any withdrawals you take while the rider is in effect. For a discussion of
the charges we deduct under the MGIB rider, see "Optional Rider Charges."
Ordinarily, the amount of income that will be available to you on the annuity
start date is based on your contract value, the annuity option you selected and
the guaranteed or income factors in effect on the date you annuitize. If you
purchase the MGIB rider, the minimum amount of income that will be available to
you upon annuitization on the MGIB Benefit Date is the greatest of:
(i) your annuity income based on your contract value adjusted for
any Market Value Adjustment on the MGIB Benefit Date applied
to the guaranteed income factors specified in your Contract
for the annuity option you selected;
(ii) your annuity income based on your contract value adjusted for
any Market Value Adjustment on the MGIB Benefit Date applied
to the then current income factors in effect for the annuity
option you selected; and
(iii)the MGIB annuity income based on your MGIB Base on the MGIB
Benefit Date applied to the MGIB income factors specified in
your rider for the MGIB annuity option you selected. Prior to
applying the MGIB income factors, we will adjust the MGIB Base
for any surrender charges, premium tax recovery and Market
Value Adjustments that would otherwise apply at annuitization.
Prior to your latest annuity start date, you may choose to exercise your right
to receive payments under the MGIB rider on the MGIB Benefit Date. Payments
under the rider begin on the MGIB Benefit Date. We require a 10-year waiting
period before you can annuitize under the MGIB rider benefit. The MGIB must be
exercised in the 30-day period prior to the end of the waiting period or any
subsequent contract anniversary. At your request, the Company may in its
discretion extend the latest contract annuity start date without extending the
MGIB Benefit Date.
GPP4SF-108896 34
DETERMINING THE MGIB ANNUITY INCOME. On the MGIB Benefit Date, we
calculate your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BENEFIT BASE. The
MGIB Benefit Base is only a calculation used to determine the
MGIB. The MGIB Benefit Base does not represent a contract value,
nor does it guarantee performance of the subaccounts in which you
are invested. It is also not used in determining the amount of your
cash surrender value and death benefits. Any reset of contract
value under provisions of the Contract or other riders will not
increase the MGIB Benefit Base or MGIB Benefit Base Maximum.
The MGIB Benefit Base is tracked separately for Special and
Non-Special Funds, based on initial allocation of eligible premium
(or contract value) and subsequently allocated eligible premiums,
withdrawals and transfers. Contract value is used as the initial
value if the rider is added after the contract date. The MGIB
Benefit Base equals the sum of (1) the contract value of Special
Funds, and (2) the MGIB Benefit Base for Non-Special Funds. Thus,
investing in the Special Funds may limit the MGIB benefit. The MGIB
Benefit Base is equal to the lesser of (a) and (b) where:
(i) is your initial premium and credit (or contract value on the
rider date if you purchased the MGIB rider after the contract
date), plus any eligible additional premiums and credits added
to your Contract, reduced pro rata by all withdrawals taken
while the MGIB rider is in effect, accumulated at the MGIB
Rate to the earlier of the oldest owner reaching age 80 and
reaching the MGIB Benefit Base Maximum, and at 0% thereafter;
and
(ii) is the MGIB Benefit Base Maximum, which equals 200% of
allocated eligible premiums and credits, adjusted for
withdrawals and transfers.
Eligible additional premium payments and credits are those added
more than 5 years before the earliest MGIB Benefit Date and are
included in the MGIB Benefit Base. Premiums and credits paid after
that are excluded from the MGIB Benefit Base.
Net transfers from Special Funds to Non-Special Funds will reduce
the MGIB Benefit Base and MGIB Benefit Base Maximum allocated to
Special Funds on a pro-rata basis. The resulting increase in the
MGIB Benefit Base for Non-Special Funds will equal the lesser of
the reduction in the MGIB Benefit Base for Special Funds and the
net contract value transferred. The increase in the MGIB Benefit
Base Maximum for Non-Special Funds equals the reduction in the MGIB
Benefit Base Maximum for Special Funds.
Net transfers from Non-Special Funds to Special Funds will reduce
the MGIB Benefit Base and MGIB Benefit Base Maximum allocated to
Non-Special Funds on a pro-rata basis. The resulting increase in
the MGIB Benefit Base and the MGIB Benefit Base Maximum for Special
Funds equals the reduction in the MGIB Benefit Base and MGIB
Benefit Base Maximum for Non-Special Funds. Transfers to one or
more Special Funds could reduce the MGIB Benefit.
The MGIB Rate is currently 7%. The Company may at its discretion
discontinue offering this rate. The MGIB Rate is an annual
effective rate.
2. Then we determine the MGIB annuity income by multiplying your MGIB
Base Base (adjusted for any Market Value Adjustment, surrender
charge and premium taxes) by the income factor, and then divide by
$1,000.
GPP4SF-108896 35
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Benefit Base using the
Table of Income Factors specified in the MGIB rider for the Income Option you
selected. The guaranteed factors contained in the MGIB rider generally provide
lower payout per $1,000 of value applied than the guaranteed factors found in
your Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
PURCHASE. To purchase the MGIB rider, you must be age 79 or younger on
the rider date and the ten-year waiting period must end at or prior to the
latest annuity start date. The MGIB rider must be purchased (i) on the contract
date, or (ii) within thirty days after the contract date. For contracts issued
more than 30 days before the date this rider first became available in your
state, the Company may in its discretion allow purchase of this rider during the
30-day period preceding the first contract anniversary after the date of this
prospectus, or the date of state approval, whichever is later. There is a ten
year waiting period before you can annuitize under the MGIB rider. This could
reduce the MGIB benefit.
THE MGIB BENEFIT DATE. If you purchased the MGIB rider on the contract date
or added the MGIB rider within 30 days following the contract date, the MGIB
Benefit Date is the contract anniversary on or after the tenth contract
anniversary when you decide to exercise your right to annuitize under the MGIB
rider. If you added the MGIB rider at any other time, your MGIB Benefit Date is
the contract anniversary at least 10 years after the rider date when you decide
to exercise your right to annuitize under the MGIB rider.
NO CHANGE OF ANNUITANT. Once the MGIB rider is purchased, the annuitant may
not be changed except for the following exception. If an annuitant who is not a
contract owner dies prior to annuitization, a new annuitant may be named in
accordance with the provisions of your Contract. The MGIB Base is unaffected and
continues to accumulate.
NOTIFICATION. On or about 30 days prior to the MGIB Benefit Date, we will
provide you with notification which will include an estimate of the amount of
MGIB annuity benefit available if you choose to exercise. The actual amount of
the MGIB annuity benefit will be determined as of the MGIB Benefit Date.
THE MGIB RIDER DOES NOT RESTRICT OR LIMIT YOUR RIGHT TO ANNUITIZE THE CONTRACT
AT ANY TIME PERMITTED UNDER THE CONTRACT. THE MGIB RIDER DOES NOT RESTRICT YOUR
RIGHT TO ANNUITIZE THE CONTRACT USING CONTRACT VALUES THAT MAY BE HIGHER THAN
THE MGIB ANNUITY BENEFIT.
THE BENEFITS ASSOCIATED WITH THE MGIB RIDER ARE AVAILABLE ONLY IF YOU ANNUITIZE
YOUR CONTRACT UNDER THE RIDER AND IN ACCORDANCE WITH THE PROVISIONS SET FORTH
ABOVE. ANNUITIZING USING THE MGIB MAY RESULT IN THE MORE FAVORABLE STREAM OF
INCOME PAYMENTS UNDER YOUR CONTRACT. BECAUSE THE MGIB RIDER IS BASED ON
CONSERVATIVE ACTUARIAL FACTORS, THE LEVEL OF LIFETIME INCOME THAT IT GUARANTEES
MAY BE LESS THAN THE LEVEL THAT MIGHT BE PROVIDED BY THE APPLICATION OF YOUR
CONTRACT VALUE TO THE CONTRACT'S APPLICABLE ANNUITY FACTORS. YOU SHOULD CONSIDER
ALL OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB rider is an
optional benefit which guarantees that if your contract value is reduced to zero
you will receive periodic payments equal to all premium payments and credits
paid during the first two contract years (Eligible Payment Amount) adjusted for
any prior withdrawals. To maintain this guarantee, withdrawals in any contract
year may not exceed 7% of your adjusted Eligible Payment Amount. If your
contract value is reduced to zero, your periodic
GPP4SF-108896 36
payments will be 7% of your
Eligible Payment Amount every year. Payments continue until your MGWB Withdrawal
Account is reduced to zero. For a discussion of the charges we deduct under the
MGWB rider, see "Optional Rider Charges." Each payment you receive under the
MGWB rider will be taxed as a withdrawal and may be subject to a penalty tax.
See "Withdrawals" and "Federal Tax Considerations" for more information. Your
original Eligible Payment Amount depends on when you purchase the MGWB rider and
is:
(i) if you purchased the MGWB rider on the contract date, your
premium payments and credits received during the first two
contract years; or
(ii) if you purchased the MGWB rider after the contract date, your
contract value on the rider date, including any premiums and
credits received that day, and any subsequent premium payments
and credits received during the two-year period commencing on
the rider date.
THE MGWB WITHDRAWAL ACCOUNT. The MGWB Withdrawal Account is only a
calculation which represents the remaining amount available for periodic
payments under the MGWB rider. It does not represent a contract value, nor does
it guarantee performance of the subaccounts in which you are invested. It will
not affect your annuitization, surrender and death benefits.
The MGWB Withdrawal Account is equal to the Eligible Payment Amount, tracked
separately for Special and Non-Special Funds, adjusted for any withdrawals and
transfers between Special and Non-Special Funds. THE MGWB WITHDRAWAL ACCOUNT
EQUALS THE SUM OF (A) THE MGWB WITHDRAWAL ACCOUNT ALLOCATED TO NON-SPECIAL
FUNDS, AND (B) THE LESSER OF (1) THE MGWB WITHDRAWAL ACCOUNT ALLOCATED TO
SPECIAL FUNDS AND (2) THE CONTRACT VALUE IN THE SPECIAL FUNDS. THUS, INVESTING
IN THE SPECIAL FUNDS MAY LIMIT THE MGWB WITHDRAWAL ACCOUNT.
Withdrawals of up to 7% per year of the Eligible Payment Amount will reduce the
value of your MGWB Withdrawal Account by the dollar amount of the withdrawal for
Non-Special Funds and pro-rata for Special Funds, based on the source of the
withdrawal. Any withdrawals greater than the 7% per year of the Eligible Payment
Amount will cause a reduction in the MGWB Withdrawal Account of the Special and
Non-Special Funds, by the proportion that the withdrawal bears to the contract
value in Special and Non-Special Funds, respectively, at the time of the
withdrawal. If a single withdrawal involves both Special and Non-Special Funds
and causes the 7% to be exceeded, the withdrawal will be treated as taken first
from Non-Special Funds. Any withdrawals greater than 7% per year of the Eligible
Payment Amount will also cause a
reduction in the Eligible Payment Amount by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB Withdrawal Account is also reduced by the amount of any
periodic payments paid under the MGWB rider once your contract value is zero. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.Net transfers
from Special Funds to Non-Special Funds will reduce the MGWB Withdrawal Account
allocated to Special Funds on a pro-rata basis. The resulting increase in the
MGWB Withdrawal Account allocated to Non-Special Funds will equal the lesser of
the reduction in the MGWB Withdrawal Account for Special Funds and the net
contract value transferred.
Net transfers from Non-Special Funds to Special Funds will reduce the MGWB
Withdrawal Account allocated to Non-Special Funds on a pro-rata basis. The
resulting increase in the MGWB Withdrawal Account allocated to Special Funds
equals the reduction in the MGWB Withdrawal Account for Non-Special Funds.
GUARANTEED WITHDRAWAL STATUS. You may continue to make withdrawals in any amount
permitted under your Contract so long as your contract value is greater than
zero. See "Withdrawals." However, making any withdrawals in any year greater
than 7% per year of the Eligible Payment Amount will reduce the Eligible Payment
Amount for future withdrawals and payments under the MGWB rider by the
proportion that the withdrawal bears to the contract value at the time of the
withdrawal. The MGWB rider will remain in force and you may continue to make
withdrawals each year so long as:
GPP4SF-108896 37
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii) your latest allowable annuity start date has not been
reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue
the contract), changed the ownership of the Contract or
surrendered the Contract.
The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been
reached;
(iii) you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's latest
annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by
the amount of each payment. Once your Contract is given Automatic Periodic
Benefit Status, we will not accept any additional premium payments in your
Contract and the Contract will not provide any benefits except those provided by
the MGWB rider. Any other rider terminates. Your Contract will remain in
Automatic Periodic Benefit Status until the earliest of (i) payment of all MGWB
periodic payments (ii) payment of the Commuted Value (defined below) or (iii)
the owner's death has occurred.
On the contract's latest annuity start date, in
lieu of making the remaining MGWB periodic payments, we will pay you the
Commuted Value of your MGWB periodic payments remaining. We may, at our option,
extend your annuity start date in order to continue the MGWB periodic payments.
The Commuted Value is the present value of any then remaining MGWB periodic
payments at the current interest rate plus 0.50%. The current interest rate will
be determined by the average of the Ask Yields for U.S. Treasury Strips as
quoted by a national quoting service for period(s) applicable to the remaining
payments. Once the last MGWB periodic payment is made or we pay you the Commuted
Value, your Contract and the MGWB rider terminate.
DEATH BENEFIT DURING AUTOMATIC PERIODIC BENEFIT STATUS. If you have never
withdrawn more than 7% per year of the Eligible Payment Amount and you elected
the 7% Solution Enhanced Death Benefit in your Contract (or you elected the Max
7 Enhanced Death Benefit resulting in the 7% Solution Enhanced Death Benefit as
the actual death benefit), the death benefit otherwise payable under the terms
of your Contract will remain in force during any Automatic Periodic Benefit
Status. In determining the amount of the death benefit during the Automatic
Periodic Benefit Status we deem your contract value to be zero and treat the
MGWB periodic payments as withdrawals. In all other cases, the death benefit
payable during Automatic Periodic Benefit Status is your MGWB Withdrawal Account
which equals the sum of the remaining MGWB periodic payments. If you elected the
Max 7 Enhanced Death Benefit, then the 7% Solution and the Annual Ratchet
components shall each be calculated as if each were the elected death benefit
option.
GPP4SF-108896 38
PURCHASE. To purchase the MGWB rider, you must be age 80 or younger on the
rider date. The MGWB rider must be purchased (i) on the contract date, or (ii)
within 30 days after the contract date. For contracts issued more than 30 days
before the date this rider first became available in your state, the Company may
in its discretion allow purchase of this rider during the 30-day period
preceding the first contract anniversary after the date of this prospectus, or
the date of state approval, whichever is later.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the same
portfolios of the Trusts. These contracts have different charges that could
effect their performance, and may offer different benefits more suitable to your
needs. To obtain more information about these other contracts, contact our
Customer Service Center or your registered representative.
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "Death Benefit Choices,"
"Charges and Fees," "The Annuity Options" and "Other Contract Provisions" in
this prospectus for information on other important provisions in your Contract.
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WITHDRAWALS
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Any time during the accumulation phase and before the death of the contract
owner, you may withdraw all or part of your money. Keep in mind that if you
request a withdrawal for more than 90% of the cash surrender value, we will
treat it as a request to surrender the Contract. If any single withdrawal or the
sum of withdrawals exceeds the Free Withdrawal Amount, you will incur a
surrender charge. The Free Withdrawal Amount in any Contract year is 10% of your
contract value on the date of the withdrawal less any withdrawals during that
contract year.
You need to submit to us a written request specifying the Fixed Interest
Allocations or subaccounts from which amounts are to be withdrawn, otherwise the
withdrawal will be made on a pro rata basis from all of the subaccounts in which
you are invested. If there is not enough contract value in the subaccounts, we
will deduct the balance of the withdrawal from your Fixed Interest Allocations
starting with the guaranteed interest periods nearest their maturity dates until
we have honored your request. We will apply a Market Value Adjustment to any
withdrawal from your Fixed Interest Allocation taken more than 30 days before
its maturity date. We will determine the contract value as of the close of
business on the day we receive your withdrawal request at our Customer Service
Center. The contract value may be more or less than the premium payments made.
If the aggregate percentage cap on allocations to the Restricted Funds has been
exceeded, any subsequent withdrawals must be taken so that the percentage of
contract value in the Restricted Funds following the withdrawal would not be
greater than the percentage of contract value in the Restricted Funds prior to
the withdrawal. If a requested withdrawal would cause the percentage cap to be
exceeded, the amount of the withdrawal in excess of the cap would be taken
pro-rata from all variable subaccounts.
For administrative purposes, we will transfer your money to a specially
designated subaccount (currently, the Liquid Asset subaccount) prior to
processing the withdrawal. This transfer will not affect the withdrawal amount
you receive.
Please be aware that the benefit we pay under certain optional
benefit riders will be reduced by any withdrawals you take while the rider is in
effect. See "Optional Riders."
GPP4SF-108896 39
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each withdrawal
must be a minimum of $100. We will apply a Market Value Adjustment to any
regular withdrawal from a Fixed Interest Allocation that is taken more than 30
days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. If you have contract value allocated to
one or more Restricted Funds, and you elect to receive systematic withdrawals
from the subaccounts in which you are invested, the systematic withdrawals must
be taken pro-rata from all subaccounts in which contract value is invested. If
you do not have contract value allocated to a Restricted Fund and choose
systematic withdrawals on a non-pro-rata basis, we will monitor the withdrawals
annually. If you subsequently allocate contract value to one or more Restricted
Funds, we will require you to take your systematic withdrawals on a pro-rata
basis from all subaccounts in which contract value is invested.
You decide when
you would like systematic payments to start as long as it is at least 28 days
after your contract date. You also select the date on which the systematic
withdrawals will be made, but this date cannot be later than the 28th day of the
month. If you have elected to receive systematic withdrawals but have not chosen
a date, we will make the withdrawals on the same calendar day of each month as
your contract date. If your contract date is after the 28th day of the month,
your systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 0.833%
Quarterly 2.50%
Annually 10.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce the amount withdrawn so
that it equals such percentage. Thus, your fixed dollar systematic withdrawals
will never exceed the maximum percentage. If you want fixed dollar systematic
withdrawals to exceed the maximum percentage and are willing to incur associated
surrender charges, consider the Fixed Dollar Systematic Withdrawal Feature which
you may add to your regular fixed dollar systematic withdrawal program.
If your systematic withdrawal is based on a percentage of your contract value
and the amount to be withdrawn based on that percentage would be less than $100,
we will automatically increase the amount to $100 as long as it does not exceed
the maximum percentage. If the systematic withdrawal would exceed the maximum
percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature
GPP4SF-108896 40
discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature
are available only in connection with Section 72(q) and 72(t) distributions. A
Fixed Interest Allocation may not participate in both the systematic withdrawal
option and the dollar cost averaging program at the same time.
You may change
the amount or percentage of your systematic withdrawal once each contract year
or cancel this option at any time by sending satisfactory notice to our Customer
Service Center at least 7 days before the next scheduled withdrawal date. If you
submit a subsequent premium payment after you have applied for systematic
withdrawals, we will not adjust future withdrawals under the systematic
withdrawal program unless you specifically request that we do so. The systematic
withdrawal option may commence in a contract year where a regular withdrawal has
been taken but you may not change the amount or percentage of your withdrawals
in any contract year during which you have previously taken a regular
withdrawal. You may not elect the systematic withdrawal option if you are taking
IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar
Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal
program. This feature allows you to receive a systematic withdrawal in a fixed
dollar amount regardless of any surrender charges or Market Value Adjustments.
Systematic withdrawals from Fixed Interest Allocations under the Fixed Dollar
Systematic Withdrawal Feature are available only in connection with Section
72(q) and 72(t) distributions. You choose the amount of the fixed systematic
withdrawals, which may total up to a maximum of 10% of your contract value as
determined on the day we receive your election of this feature. The maximum
limit will not be recalculated when you make additional premium payments, unless
you instruct us to do so. We will assess a surrender charge on the withdrawal
date if the withdrawal exceeds the maximum limit as calculated on the withdrawal
date. We will assess a Market Value Adjustment on the withdrawal date if the
withdrawal from a Fixed Interest Allocation exceeds your interest earnings on
the withdrawal date. We will apply the surrender charge and any Market Value
Adjustment directly to your contract value (rather than to the withdrawal) so
that the amount of each systematic withdrawal remains fixed.
Flat dollar
systematic withdrawals which are intended to satisfy the requirements of Section
72(q) or 72(t) of the Tax Code may exceed the maximum. Such withdrawals are
subject to surrender charges and Market Value Adjustments when they exceed the
applicable maximum percentage.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2 during the
current calendar year, you may elect to have distributions made to you to
satisfy requirements imposed by federal tax law. IRA withdrawals provide payout
of amounts required to be distributed by the Internal Revenue Service rules
governing mandatory distributions under qualified plans. We will send you a
notice before your distributions commence. You may elect to take IRA withdrawals
at that time, or at a later date. You may not elect IRA withdrawals and
participate in systematic withdrawals at the same time. If you do not elect to
take IRA withdrawals, and distributions are required by federal tax law,
distributions adequate to satisfy the requirements imposed by federal tax law
may be made. Thus, if you are participating in systematic withdrawals,
distributions under that option must be adequate to satisfy the mandatory
distribution rules imposed by federal tax law.
You may choose to receive IRA
withdrawals on a monthly, quarterly or annual basis. Under this option, you may
elect payments to start as early as 28 days after the contract date. You select
the day of the month when the withdrawals will be made, but it cannot be later
than the 28th day of the month. If no date is selected, we will make the
withdrawals on the same calendar day of the month as the contract date.
You may request that we calculate for you the amount that is required to be
withdrawn from your Contract each year based on the information you give us and
various choices you make. For information regarding the calculation and choices
you have to make, see the SAI. The minimum dollar amount you can withdraw is
$100. When we determine the required IRA withdrawal amount for a taxable year
based on the frequency you select, if that amount is less than $100, we will pay
$100. At any time where the IRA withdrawal amount is greater than the contract
value, we will cancel the Contract and send you the amount of the cash surrender
value.
GPP4SF-108896 41
You may change the payment frequency of your IRA withdrawals once each contract
year or cancel this option at any time by sending satisfactory notice to our
Customer Service Center at least 7 days before the next scheduled withdrawal
date.
An IRA withdrawal in excess of the amount allowed under systematic
withdrawals will be subject to a Market Value Adjustment.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
WITHDRAWALS. You are responsible for determining that withdrawals comply with
applicable law. A withdrawal made before the taxpayer reaches age 59 1/2 may
result in a 10% penalty tax. See "Federal Tax Considerations" for more details.
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TRANSFERS AMONG YOUR INVESTMENTS
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You may transfer your contract value among the subaccounts in which you are
invested and your Fixed Interest Allocations at the end of the free look period
until the annuity start date. We currently do not charge you for transfers made
during a contract year, but reserve the right to charge $25 for each transfer
after the twelfth transfer in a contract year. We also reserve the right to
limit the number of transfers you may make and may otherwise modify or terminate
transfer privileges if required by our business judgment or in accordance with
applicable law. We will apply a Market Value Adjustment to transfers from a
Fixed Interest Allocation taken more than 30 days before its maturity date,
unless the transfer is made under the dollar cost averaging program. Keep in
mind that transfers between Special Funds and other investment portfolios may
negatively impact your death benefit or rider benefits.
If you allocate contract value to an investment option that has been designated
as a Restricted Fund, your ability to transfer contract value to the Restricted
Fund may be limited. A transfer to the Restricted Funds will not be permitted to
the extent that it would increase the contract value in the Restricted Fund to
more than the applicable limits following the transfer. We do not limit
transfers from Restricted Funds. If the result of multiple reallocations is to
lower the percentage of total contract value in the Restricted Fund, the
reallocation will be permitted even if the percentage of contract value in the
Restricted Fund is greater than the limit.
Please be aware that the benefit we pay under an optional benefit rider may be
affected by certain transfers you make while the rider is in effect. Transfers,
including those involving Special Funds, may also affect your optional rider
base. See "The Annuity Contract -- Optional Riders."
Transfers will be based on values at the end of the business day in which the
transfer request is received at our Customer Service Center.
The minimum amount that you may transfer is $100 or, if less, your entire
contract value held in a subaccount or a Fixed Interest Allocation.
To make a transfer, you must notify our Customer Service Center and
all other administrative requirements must be met. Any transfer request received
after 4:00 p.m. eastern time or the close of the New York Stock Exchange will be
effected on the next business day. Separate Account B and the Company will not
be liable for following instructions communicated by telephone or other approved
electronic means that we reasonably believe to be genuine. We require personal
identifying information to process a request for transfer made over the
telephone or over the internet.
TRANSFERS BY THIRD PARTIES
As a convenience to you, we currently allow you to give third parties the right
to effect transfers on your behalf. However, when the third party makes
transfers for many contract owners, the result can be simultaneous transfers
involving large amounts of contract values. Such transfers can disrupt the
orderly management of the investment portfolios available to the Contract, can
result in higher costs to contract owners, and may not be compatible with the
long term goals of contract owners. Therefore, we may at any
GPP4SF-108896 42
time exercise our
business judgement and limit transfers made by a third party. These limits may
be based on, among other criteria, the amount of the aggregate trade or the
available investment options for which third parties may make trades on behalf
of multiple contract owners.
We may establish additional procedures or change existing procedures at any time
in the exercise of our business judgement.
DOLLAR COST AVERAGING
You may elect to participate in our dollar cost averaging program if you have at
least $1,200 of contract value in the (i) Limited Maturity Bond subaccount or
the Liquid Asset subaccount, or (ii) a Fixed Interest Allocation with either a
6-month or a 1-year guaranteed interest period. These subaccounts or Fixed
Interest Allocations serve as the source accounts from which we will, on a
monthly basis, automatically transfer a set dollar amount of money to other
subaccounts selected by you. We also may offer DCA Fixed Interest Allocations,
which are 6-month and 1-year Fixed Interest Allocations available exclusively
for use with the dollar cost averaging program. The DCA Fixed Interest
Allocations require a minimum premium payment of $1,200 directed into a DCA
Fixed Interest Allocation.
The dollar cost averaging program is designed to lessen the impact of market
fluctuation on your investment. Since we transfer the same dollar amount to
other subaccounts each month, more units of a subaccount are purchased if the
value of its unit is low and fewer units are purchased if the value of its unit
is high. Therefore, a lower than average value per unit may be achieved over the
long term. However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities regardless of
fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
Unless you have a DCA Fixed Interest Allocation, you elect the dollar amount you
want transferred under this program. Each monthly transfer must be at least
$100. If your source account is the Limited Maturity Bond subaccount, the Liquid
Asset subaccount or a 1-year Fixed Interest Allocation, the maximum amount that
can be transferred each month is your contract value in such source account
divided by 12. If your source account is a 6-month Fixed Interest Allocation,
the maximum amount that can be transferred each month is your contract value in
such source account divided by 6. You may change the transfer amount once each
contract year. If you have a DCA Fixed Interest Allocation, there is no minimum
or maximum transfer amount; we will transfer all your money allocated to that
source account into the subaccount(s) in equal payments over the selected
6-month or 1-year period. The last payment will include earnings accrued over
the course of the selected period. If you make an additional premium payment
into a Fixed Interest Allocation subject to dollar cost averaging, the amount of
your transfers under the dollar cost averaging program remains the same, unless
you instruct us to increase the transfer amount.
Transfers from a Fixed Interest Allocation or a DCA Fixed Interest Allocation
under the dollar cost averaging program are not subject to a Market Value
Adjustment. However, if you terminate the dollar cost averaging program for a
DCA Fixed Interest Allocation and there is money remaining in the DCA Fixed
Interest Allocation, we will transfer the remaining money to the Liquid Asset
subaccount. Such transfer will trigger a Market Value Adjustment if the transfer
is made more than 30 days before the maturity date of the DCA Fixed Interest
Allocation.
If you do not specify the subaccounts to which the dollar amount of the source
account is to be transferred, we will transfer the money to the subaccounts in
which you are invested on a proportional basis. The transfer date is the same
day each month as your contract date. If, on any transfer date, your contract
value in a source account is equal or less than the amount you have elected to
have transferred, the entire amount
GPP4SF-108896 43
will be transferred and the program will
end. You may terminate the dollar cost averaging program at any time by sending
satisfactory notice to our Customer Service Center at least 7 days before the
next transfer date. A Fixed Interest Allocation or DCA Fixed Interest Allocation
may not participate in the dollar cost averaging program and in systematic
withdrawals at the same time.
You are permitted to transfer contract value to a
Restricted Fund, subject to the limitations described above in this section and
in "The Investment Portfolios". Compliance with the individual and aggregate
Restricted Fund limits will be reviewed when the dollar cost averaging program
is established. Transfers under the dollar cost averaging program must be within
those limits. We will not review again your dollar cost averaging election for
compliance with the individual and aggregate limits for investment in the
Restricted Funds except in the case of the transactions described below.
o Amount added to source account: If you add amounts to the
source account which would increase the amount to be
transferred under the dollar cost averaging program, we will
review the amounts to be transferred to ensure that the
individual and aggregate limits are not being exceeded. If
such limits would be exceeded, we will require that the dollar
cost averaging transfer amounts be changed to ensure that the
transfers are within the limits based on the then current
allocation of contract value to the Restricted Fund(s) and the
then current value of the amount designated to be transferred
to that Restricted Fund(s).
o Additional premium paid: Up to the individual Restricted Fund
percentage limit may be allocated to a Restricted Fund . If
more than the individual limit has been requested to be
allocated to a Restricted Fund, we will look at the aggregate
limit, subtract the current allocation to Restricted Funds,
and subtract the current value of amounts to be transferred
under the dollar cost averaging program to Restricted Funds.
The excess, if any, is the maximum that may be allocated
pro-rata to the Restricted Funds.
o Reallocation request is made while the dollar cost averaging
program is active: If the reallocation would increase the
amount allocated to Restricted Funds, the maximum that may be
so allocated is the individual Restricted Fund percentage
limit, less the current allocation to Restricted Funds and
less the current value of any remaining amounts to be
transferred under the dollar cost averaging program to the
Restricted Funds.
We may in the future offer additional subaccounts or withdraw any subaccount or
Fixed Interest Allocation to or from the dollar cost averaging program, stop
offering DCA Fixed Interest Allocations or otherwise modify, suspend or
terminate this program. Of course, such change will not affect any dollar cost
averaging programs in operation at the time.
AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the subaccounts of
Separate Account B, you may elect to have your investments in the subaccounts
automatically rebalanced. You are permitted to reallocate between Restricted and
non-Restricted Funds, subject to the limitations described above in this section
and in "The Investment Portfolios". If the reallocation would increase the
amount allocated to the Restricted Funds, the maximum that may be so allocated
is the individual Restricted Fund percentage limit, less the current allocation
to all Restricted Funds.
We will transfer funds under your Contract on a
quarterly, semi-annual, or annual calendar basis among the subaccounts to
maintain the investment blend of your selected subaccounts. The minimum size of
any allocation must be in full percentage points. Rebalancing does not affect
any amounts that you have allocated to the Fixed Account. The program may be
used in conjunction with the systematic withdrawal option only if withdrawals
are taken pro rata. Automatic rebalancing is not available if you participate in
dollar cost averaging. Automatic rebalancing will not take place during the free
look period.
To participate in automatic rebalancing, send satisfactory notice to our
Customer Service Center. We will begin the program on the last business day of
the period in which we receive the notice. You may cancel the program at any
time. The program will automatically terminate if you choose to reallocate your
contract
GPP4SF-108896 44
value among the subaccounts or if you make an additional premium
payment or partial withdrawal on other than a pro rata basis. Additional premium
payments and partial withdrawals effected on a pro rata basis will not cause the
automatic rebalancing program to terminate.
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DEATH BENEFIT CHOICES
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either the
annuitant (when a contract owner is not an individual), the contract owner or
the first of joint owners dies. Assuming you are the contract owner, your
beneficiary will receive a death benefit unless the beneficiary is your
surviving spouse and elects to continue the Contract. The death benefit value is
calculated at the close of the business day on which we receive written notice
and due proof of death, as well as any required paperwork, at our Customer
Service Center. If your beneficiary elects to delay receipt of the death benefit
until a date after the time of death, the amount of the benefit payable in the
future may be affected. The proceeds may be received in a single sum or applied
to any of the annuity options. If we do not receive a request to apply the death
benefit proceeds to an annuity option, we will make a single sum distribution.
We will generally pay death benefit proceeds within 7 days after our Customer
Service Center has received sufficient information to make the payment. For
information on required distributions under federal income tax laws, you should
see "Required Distributions upon Contract Owner's Death."
The following
describes the death benefit options for contract owners purchasing Contracts on
or after January 1, 2001. If you purchased your Contract prior to that date,
please see Appendix E for a description of the calculation of the death benefits
applicable under your Contract.
You may choose one of the following Death
Benefits: (a) the Standard Death Benefit, (b) the 7% Solution Enhanced Death
Benefit, (c) the Annual Ratchet Enhanced Death Benefit or (d) the Max 7 Enhanced
Death Benefit. The 7% Solution Enhanced Death Benefit, the Annual Ratchet
Enhanced Death Benefit and the Max 7 Enhanced Death Benefit are available only
if the contract owner or the annuitant (if the contract owner is not an
individual) is not more than 79 years old at the time of purchase. The 7%
Solution, Annual Ratchet and Max 7 Enhanced Death Benefits may not be available
where a Contract is held by joint owners.
Once you choose a death benefit, it
cannot be changed. We may in the future stop or suspend offering any of the
Enhanced Death Benefit options to new Contracts. A change in ownership of the
Contract may affect the amount of the death benefit and the Enhanced Death
Benefit. The MGWB rider may also affect the death benefit. See "Minimum
Guaranteed Withdrawal Benefit (MGWB) Rider -- Death Benefit during Automatic
Periodic Benefit Status." The Enhanced Death Benefits are available only at the
time you purchase your Contract. The enhanced death benefits are not available
where a Contract is owned by joint owners.
The death benefit is payable when the
first of the following persons dies: the contract owner, joint owner, or
annuitant (if a contract owner is not an individual). Assuming you are the
contract owner, if you die during the accumulation phase, your beneficiary will
receive a death benefit unless the beneficiary is your surviving spouse and
elects to continue the Contract. The death benefit paid depends on the death
benefit you have chosen. The death benefit value is calculated at the close of
the business day on which we receive written notice and due proof of death, as
well as required claim forms, at our Customer Service Center. If your
beneficiary elects to delay receipt of the death benefit until a date after the
time of your death, the amount of the benefit payable in the future may be
affected. If you die after the annuity start date and you are the annuitant,
your beneficiary will receive the death benefit you chose under the annuity
option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
We use the Base Death Benefit to
help determine the minimum death benefit payable under each of the Enhanced
Death Benefit options described below. You do not elect the Base Death Benefit.
The Base Death Benefit is equal to the greater of:
GPP4SF-108896 45
1) the contract value minus any credits added within 1 year prior to
death; and
2) the cash surrender value.
The STANDARD DEATH BENEFIT equals the SUM of 1) and 2), less 3) where:
1) the contract value allocated to Special Funds;
2) the Standard Minimum Guaranteed Death Benefit for amounts allocated
to non-Special Funds; and 3) any credits added within 1 year prior to
death.
The Standard Minimum Guaranteed Death Benefit equals:
1) the initial premium payment plus any credit, allocated to Special and
Non-Special Funds, respectively ;
2) increased by premium payments, plus any credits and adjusted for
transfers, allocated to Special and Non-Special Funds, respectively,
after issue; and
3) reduced by a pro-rata adjustment for any withdrawal or transfer
taken from the Special and Non-Special Funds, respectively.
In the event of transfers from Special to Non-Special funds, the increase in the
Minimum Guaranteed Death Benefit of the Non-Special Fund will equal the lesser
of the reduction in the Minimum Guaranteed Death Benefit in the Special Fund and
the contract value transferred. In the event of transfers from Non-Special to
Special Funds, the increase in the Minimum Guaranteed Death Benefit of the
Special Fund will equal the reduction in the Minimum Guaranteed Death Benefit in
the Non-Special Fund.
ENHANCED DEATH BENEFIT OPTIONS. Under the Enhanced Death Benefit options, if you
die before the annuity start date, your beneficiary will receive the greater of
the Base Death Benefit and the Enhanced Death Benefit option elected. For
purposes of calculating the Enhanced Death Benefits, certain investment
portfolios, and the Fixed Account are designated as "Special Funds". In addition
to the Fixed Account, the investment portfolios designated currently as Special
Funds are the Liquid Asset Portfolio and the Limited Maturity Bond Portfolio.
We may, with 30 days notice to you, designate any investment portfolio as a
Special Fund on existing contracts with respect to new premiums added to such
investment portfolio and also with respect to new transfers to such investment
portfolio. Selecting a Special Fund may limit or reduce the enhanced death
benefit.
For the period during which a portion of the contract value is allocated to a
Special Fund, we may at our discretion reduce the mortality and expense risk
charge attributable to that portion of the contract value. The reduced mortality
and expense risk charge will be applicable only during that period.
The 7% SOLUTION ENHANCED DEATH BENEFIT, equals the GREATER of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the 7%
Solution Minimum Guaranteed Death Benefit for Non-Special Funds,
less any credits added within 1 year prior to death.
GPP4SF-108896 46
The 7% Solution Minimum Guaranteed Death Benefit for Special and Non-Special
Funds equals the lesser of:
1) premiums, adjusted for withdrawals and transfers, accumulated at
7% until the earlier of attainment of age 80 or reaching the cap
(equal to 3 times all premium payment and credits, as reduced by
adjustments for withdrawals)and thereafter at 0%, and
2) the cap.
Withdrawals of up to 7% per year of cumulative premiums and premium credits are
referred to as special withdrawals. Special withdrawals reduce the 7% Solution
Minimum Guaranteed Death Benefit by the amount of contract value withdrawn. For
any other withdrawals (withdrawals in excess of the amount available as a
special withdrawal), a pro-rata adjustment to the 7% Solution Minimum Guaranteed
Death Benefit is made. The amount of the pro-rata adjustment for withdrawals
from Non-Special Funds will equal (a) times (b) divided by (c): where (a) is the
7% Solution Minimum Guaranteed Death Benefit for Non-Special Funds prior to the
withdrawal; (b) is the contract value of the withdrawal; and (c) is the contract
value allocated to Non-Special Funds before the withdrawal. The amount of the
pro-rata adjustment for withdrawals from Special Funds will equal (a) times (b)
divided by (c): where (a) is the 7% Solution Minimum Guaranteed Death Benefit
for Special Funds prior to the withdrawal; (b) is the contract value of the
withdrawal; and (c) is the contract value allocated to Special Funds before the
withdrawal. Please see Appendix D for examples of the pro-rata withdrawal
adjustment for withdrawals other than special withdrawals.
Transfers from Special to Non-Special Funds will reduce the 7% Solution Minimum
Guaranteed Death Benefit and the cap for Special Funds on a pro-rata basis. The
resulting increase in the 7% Solution Minimum Guaranteed Death Benefit in the
Non-Special Funds will equal the lesser of the reduction in the 7% Solution
Minimum Guaranteed Death Benefit in the Special Funds and the contract value
transferred. The increase in the cap for Non-Special Funds will equal the
reduction in the cap for Special Funds.
Transfers from Non-Special to Special Funds will reduce the 7% Solution Minimum
Guaranteed Death Benefit and the cap in the Non-Special Funds on a pro-rata
basis. The resulting increase in the 7% Solution Minimum Guaranteed Death
Benefit and the cap for the Special Funds will equal the reduction in the 7%
Solution Minimum Guaranteed Death Benefit and the cap for the Non-Special Funds.
The ANNUAL RATCHET ENHANCED DEATH BENEFIT equals the greater of:
1) the Standard Death Benefit; and
2) the sum of the contract value allocated to Special Funds and the
Annual Ratchet Minimum Guaranteed Death Benefit allocated to
Non-Special Funds, less any credits added within 1 year prior to
death.
The Annual Ratchet Minimum Guaranteed Death Benefit equals:
1) the initial premium, plus credit, allocated at issue to Special
and Non-Special Funds, respectively;
2) increased dollar for dollar by any premium, plus credits,
allocated after issue to Special and Non-Special funds,
respectively;
3) for Non-Special Funds, adjusted on each anniversary that occurs
on or prior to
attainment of age 90 to the greater of the Annual Ratchet Minimum
Guaranteed Death Benefit for Non-Special Funds from the prior
anniversary (adjusted for new premiums, partial withdrawals
allocated to Non-Special Funds, and transfers between Special and
Non-Special Funds) and the current contract value allocated to
Non-Special Funds;
GPP4SF-108896 47
4) for Special Funds, adjusted on each anniversary that occurs on
or prior to attainment
of age 90 to the greater of the Annual Ratchet Minimum Guaranteed
Death Benefit for Special Funds from the prior anniversary
(adjusted for new premiums, partial withdrawals allocated to
Special Funds, and transfers between Special and Non-Special Funds)
and the current contract value allocated to Special Funds.
Withdrawals reduce the Annual Ratchet Minimum Guaranteed Death Benefit on a
pro-rata basis, based on the amount withdrawn from the Special and Non-Special
Funds, respectively. The amount of the pro-rata adjustment for withdrawals from
Non-Special Funds will equal (a) times (b) divided by (c): where (a) is the
Annual Ratchet Minimum Guaranteed Death Benefit for Non-Special Funds prior to
the withdrawal; (b) is the contract value of the withdrawal; and (c) is the
contract value allocated to Non-Special Funds before withdrawal. The amount of
the pro-rata adjustment for Special Funds will equal (a) times (b) divided by
(c): where (a) is the Annual Ratchet Minimum Guaranteed Death Benefit for
Special Funds prior to the withdrawal; (b) is the contract value of the
withdrawal; and (c) is the contract value allocated to Special Funds before the
withdrawal.
Transfers from Special to Non-Special Funds will reduce the Annual Ratchet
Minimum Guaranteed Death Benefit for Special Funds on a pro-rata basis. The
resulting increase in the Annual Ratchet Minimum Guaranteed Death Benefit in the
Non-Special Funds will equal the lesser of the reduction in the Annual Ratchet
Minimum Guaranteed Death Benefit in the Special Funds and the contract value
transferred.
Transfers from Non-Special to Special Funds will reduce the Annual Ratchet
Minimum Guaranteed Death Benefit for Non-Special Funds on a pro-rata basis. The
resulting increase in the Annual Ratchet Minimum Guaranteed Death Benefit for
the Special Funds will equal the reduction in the Annual Ratchet Minimum
Guaranteed Death Benefit for the Non-Special Funds.
The MAX 7 ENHANCED DEATH BENEFIT equals the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit option, the 7% Solution Enhanced Death Benefit and the
Annual Ratchet Enhanced Death Benefit are calculated in the same manner as if
each were the elected benefit.
Note: In all cases described above, the amount of the death benefit could be
reduced by premium taxes owed and withdrawals not previously deducted.
The enhanced death benefits may not be available in all states.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date, the
Company will pay the beneficiary any certain benefit remaining under the annuity
in effect at the time.
CONTINUATION AFTER DEATH -- SPOUSE
If at the contract owner's death, the surviving spouse of the deceased contract
owner is the beneficiary and such surviving spouse elects to continue the
contract as his or her own the following will apply:
If the guaranteed death
benefit as of the date we receive due proof of death, minus the contract value
also on that date, is greater than zero, we will add such difference to the
contract value. Such addition will be allocated to the variable subaccounts in
proportion to the contract value in the subaccounts, unless we are directed
otherwise. If there is no contract value in any subaccount, the addition will be
allocated to the Liquid Asset subaccount, or its successor.
The death benefits under each of the available options will continue, based on
the surviving spouse's age on the date that ownership changes.
At subsequent surrender, any surrender charge applicable to premiums paid prior
to the date we receive due proof of death of the contract owner will be waived.
Any premiums paid later will be subject to any applicable surrender charge.
GPP4SF-108896 48
Any addition to contract value, as described above, is available only to the
spouse of the owner as of the date of death of the owner if such spouse under
the provisions of the contract elects to continue the contract as his or her
own.
CONTINUATION AFTER DEATH -- NON SPOUSE
If the beneficiary or surviving joint owner is not the spouse of the owner, the
contract may continue in force subject to the required distribution rules of the
Internal Revenue Code (the "Code"). See next section.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
If any contract owner of a non-qualified Contract dies before the annuity start
date, the death benefit payable to the beneficiary will be distributed as
follows: (a) the death benefit must be completely distributed within 5 years of
the contract owner's date of death; or (b) the beneficiary may elect, within the
1-year period after the contract owner's date of death, to receive the death
benefit in the form of an annuity from us, provided that (i) such annuity is
distributed in substantially equal installments over the life of such
beneficiary or over a period not extending beyond the life expectancy of such
beneficiary; and (ii) such distributions begin not later than 1 year after the
contract owner's date of death.
Notwithstanding (a) and (b) above, if the sole contract owner's beneficiary is
the deceased owner's surviving spouse, then such spouse may elect to continue
the Contract under the same terms as before the contract owner's death. Upon
receipt of such election from the spouse at our Customer Service Center: (1) all
rights of the spouse as contract owner's beneficiary under the Contract in
effect prior to such election will cease; (2) the spouse will become the owner
of the Contract and will also be treated as the contingent annuitant, if none
has been named and only if the deceased owner was the annuitant; and (3) all
rights and privileges granted by the Contract or allowed by Golden American will
belong to the spouse as contract owner of the Contract. This election will be
deemed to have been made by the spouse if such spouse makes a premium payment to
the Contract or fails to make a timely election as described in this paragraph.
If the owner's beneficiary is a nonspouse, the distribution provisions described
in subparagraphs (a) and (b) above, will apply even if the annuitant and/or
contingent annuitant are alive at the time of the contract owner's death.
If we do not receive an election from a non-spouse owner's beneficiary within
the 1-year period after the contract owner's date of death, then we will pay
the death benefit to the owner's beneficiary in a cash payment within five
years from date of death. We will determine the death benefit as of the date we
receive proof of death. We will make payment of the proceeds on or before the
end of the 5-year period starting on the owner's date of death. Such cash
payment will be in full settlement of all our liability under the Contract.
If a contract owner dies after the annuity start date, we will continue to
distribute any benefit payable at least as rapidly as under the annuity option
then in effect. All of the contract owner's rights granted under the Contract or
allowed by us will pass to the contract owner's beneficiary.
If the Contract has joint owners we will consider the date of death of the first
joint owner as the death of the contract owner and the surviving joint owner
will become the contract owner of the Contract. If any contract owner is not an
individual, the death of an annuitant shall be treated as the death of a
contract owner.
GPP4SF-108896 49
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CHARGES AND FEES
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We deduct the charges described below to cover our cost and expenses, services
provided and risks assumed under the Contracts. We incur certain costs and
expenses for distributing and administrating the Contracts, for paying the
benefits payable under the Contracts and for bearing various risks associated
with the Contracts. The amount of a charge will not always correspond to the
actual costs associated. For example, the surrender charge collected may not
fully cover all of the distribution expenses incurred by us with the service or
benefits provided. In the event there are any profits from fees and charges
deducted under the Contract, we may use such profits to finance the distribution
of contracts.
CHARGE DEDUCTION SUBACCOUNT
You may elect to have all charges against your contract value deducted directly
from a single subaccount designated by the Company. Currently we use the Liquid
Asset subaccount for this purpose. If you do not elect this option, or if the
amount of the charges is greater than the amount in the designated subaccount,
the charges will be deducted as discussed below. You may cancel this option at
any time by sending satisfactory notice to our Customer Service Center.
CHARGES DEDUCTED FROM THE CONTRACT VALUE We deduct the following charges from
your contract value:
SURRENDER CHARGE. We will deduct a contingent deferred sales charge (a
"surrender charge") if you surrender your Contract or if you take a withdrawal
in excess of the Free Withdrawal Amount during the 9-year period from the date
we receive and accept a premium payment. The surrender charge is based on a
percentage of each premium payment withdrawn. This charge is intended to cover
sales expenses that we have incurred. We may in the future reduce or waive the
surrender charge in certain situations and will never charge more than the
maximum surrender charges. The percentage of premium payments deducted at the
time of surrender or excess withdrawal depends on the number of complete years
that have elapsed since that premium payment was made. We determine the
surrender charge as a percentage of each premium payment withdrawn as follows:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+
SINCE PREMIUM PAYMENT | | | | | | | | |
| | | | | | | | |
SURRENDER CHARGE 8% | 8% | 8% | 8% | 7% | 6% | 5% | 3% | 1% | 0%
WAIVER OF SURRENDER CHARGE FOR EXTENDED MEDICAL CARE. We will waive the
surrender charge in most states in the following events: (i) you begin receiving
qualified extended medical care on or after the first contract anniversary for
at least 45 days during a 60 day period and your request for the surrender or
withdrawal, together with all required documentation is received at our Customer
Service Center during the term of your care or within 90 days after the last day
of your care; or (ii) you are first diagnosed by a qualifying medical
professional, on or after the first contract anniversary, as having a qualifying
terminal illness. We have the right to require an examination by a physician of
our choice. If we require such an examination, we will pay for it. You are
required to send us satisfactory written proof of illness. See your Contract for
more information. The waiver of surrender charge may not be available in all
states. If we waive the surrender charge, we will deduct any credit added to
your contract value within 1 year of the withdrawal, and we will not add any
additional credit to any additional premium you pay on or after the date of any
such waiver.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount in any contract year is
10% of your contract value on the date of withdrawal less any withdrawals during
that contract year.
GPP4SF-108896 50
SURRENDER CHARGE FOR EXCESS WITHDRAWALS. We will deduct a surrender charge
for excess withdrawals. We consider a withdrawal to be an "excess withdrawal"
when the amount you withdraw in any contract year exceeds the Free Withdrawal
Amount. Where you are receiving systematic withdrawals, any combination of
regular withdrawals taken and any systematic withdrawals expected to be received
in a contract year will be included in determining the amount of the excess
withdrawal. Such a withdrawal will be considered a partial surrender of the
Contract and we will impose a surrender charge and any associated premium tax.
We will deduct such charges from the contract value in proportion to the
contract value in each subaccount or Fixed Interest Allocation from which the
excess withdrawal was taken. In instances where the excess withdrawal equals the
entire contract value in such subaccounts or Fixed Interest Allocations, we will
deduct charges proportionately from all other subaccounts and Fixed Interest
Allocations in which you are invested. ANY WITHDRAWAL FROM A FIXED INTEREST
ALLOCATION MORE THAN 30 DAYS BEFORE ITS MATURITY DATE WILL TRIGGER A MARKET
VALUE ADJUSTMENT.
For the purpose of calculating the surrender charge for an excess withdrawal: a)
we treat premiums as being withdrawn on a first-in, first-out basis; and b)
amounts withdrawn which are not considered an excess withdrawal are not
considered a withdrawal of any premium payments. We have included an example of
how this works in Appendix C. Although we treat premium payments as being
withdrawn before earnings for purpose of calculating the surrender charge for
excess withdrawals, the federal tax law treats earnings as withdrawn first.
PREMIUM TAXES. We may make a charge for state and local premium taxes
depending on your state of residence. The tax can range from 0% to 3.5% of the
premium payment. We have the right to change this amount to conform with changes
in the law or if you change your state of residence.
We deduct the premium tax from your contract value (or from the MGIB Base, if
exercised) on the annuity start date. However, some jurisdictions impose a
premium tax at the time that initial and additional premiums are paid,
regardless of when the annuity payments begin. In those states we may defer
collection of the premium taxes from your contract value and deduct it when you
surrender the Contract, when you take an excess withdrawal or on the annuity
start date.
ADMINISTRATIVE CHARGE. We deduct an annual administrative charge on each
Contract anniversary, or if you surrender your Contract prior to a Contract
anniversary, at the time we determine the cash surrender value payable to you.
The amount deducted is $40 per Contract. This charge is waived if your contract
value is $100,000 or more at the end of a contract year or the total of your
premium payments is $100,000 or more or under other conditions established by
Golden American. We deduct the charge proportionately from all subaccounts in
which you are invested. If there is no contract value in those subaccounts, we
will deduct the charge from your Fixed Interest Allocations starting with the
guaranteed interest periods nearest their maturity dates until the charge has
been paid.
TRANSFER CHARGE. We currently do not deduct any charges for transfers made
during a contract year. We have the right, however, to assess up to $25 for each
transfer after the twelfth transfer in a contract year. If such a charge is
assessed, we would deduct the charge from the subaccounts and the Fixed Interest
Allocations from which each such transfer is made in proportion to the amount
being transferred from each such subaccount and Fixed Interest Allocation unless
you have chosen to have all charges deducted from a single subaccount. The
charge will not apply to any transfers due to the election of dollar cost
averaging, automatic rebalancing and transfers we make to and from any
subaccount specially designated by the Company for such purpose.
CHARGES DEDUCTED FROM THE SUBACCOUNTS
MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is
deducted each business day. The amount of the mortality and expense risk charge
depends on the death benefit you have elected. The charge is deducted on each
business day based on the assets you have in each subaccount. The charge for
each death benefit option, on an annual basis, is equal to 1.30% for the
Standard Death Benefit, 1.55% for the Annual Ratchet Enhanced Death Benefit,
1.65% for the 7% Solution Enhanced Death Benefit or 1.75% for the Max 7 Enhanced
Death Benefit, of the assets you have in each subaccount. The charge is
GPP4SF-108896 51
deducted each business day at the rate of .003585% (Standard), .004280%
(Annual Ratchet),.004558% (7% Solution), or .004837% (Max 7), respectively,
for each day since the previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the assets you
have in each subaccount. The charge is deducted on each business day at the rate
of .000411% for each day since the previous business day. This charge is
deducted daily from your assets in each subaccount.
OPTIONAL RIDER CHARGES. Subject to state availability, you may purchase one of
three optional benefit riders that you may elect at issue. So long as the rider
is in effect, we will deduct a separate quarterly charge for each optional
benefit rider through a pro rata reduction of the contract value of the
subaccounts in which you are invested. If there is insufficient contract value
in the subaccount, we will deduct the charges from your Fixed Interest
Allocations nearest their maturity date. We deduct each rider charge on each
quarterly contract anniversary in arrears, meaning the first charge will be
deducted on the first quarterly anniversary following the rider date. For a
description of the riders and the defined terms used in connection with the
riders, see "The Annuity Contract -- Optional Riders."
MINIMUM GUARANTEED ACCUMULATION BENEFIT (MGAB). The quarterly charge for
the MGAB rider is as follows:
Waiting Period Quarterly Charge
-------------- ----------------
10 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
20 Year........... 0.125% of the MGAB Charge Base (0.50% annually)
The MGAB Charge Base is the total of (i) the MGAB Base on the rider date, and
(ii) premiums and credits during the 2-year period commencing on the rider date,
reduced pro rata for withdrawals and reduced for transfers made within the last
3 years prior to the MGAB Benefit Date. We will deduct charges only during your
ten-year or twenty-year waiting period, as applicable. If you surrender or
annuitize your Contract, we will deduct a pro rata portion of the charge for the
current quarter based on the current quarterly charge rate and MGAB Charge Base
immediately prior to the surrender or annuitization. The MGAB Charge Base is
adjusted for transfers between Special and Non-Special Funds.
MINIMUM GUARANTEED INCOME BENEFIT (MGIB). The quarterly charge for the
MGIB rider is as follows:
MGIB Rate Quarterly Charge
--------- ----------------
7%................ 0.125% of the MGIB Charge Base (0.50% annually)
The MGIB Charge Base is the total of premiums paid and credits added more than 5
years before the earliest MGIB Benefit Date, reduced pro rata for all
withdrawals taken while the MGIB rider is in effect, and accumulated at the MGIB
Rate (7%) . If you surrender or annuitize your Contract, we will deduct a pro
rata portion of the charge for the current quarter based on the current
quarterly charge rate and your MGIB Charge Base immediately prior to the
surrender or annuitization. The MGIB Charge Base is adjusted for transfers
between Special and Non-Special Funds.
MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB). The quarterly charge for the
MGWB rider is 0.125% (0.50% annually) of the original MGWB Eligible Payment
Amount. The original MGWB Eligible Payment Amount is equal to all premiums paid
and credits added during the first two contract years following the rider date.
When we calculate the MGWB rider charge, we do not reduce the Eligible Payment
Amount by the amount of any withdrawals taken while the MGWB rider is in effect.
We will deduct charges only during the period before your Contract's Automatic
Periodic Benefit Status. If you surrender or annuitize your Contract, we will
deduct a pro rata portion of the charge for the current quarter based on the
GPP4SF-108896 52
current quarterly charge rate and your original MGWB Eligible Payment Amount,
and applicable credits, immediately prior to the surrender or annuitization.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts. Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. In addition, three portfolios
deduct 12b-1 fees. For 1999, total portfolio fees and charges ranged from 0.56%
to 1.75%. See "Fees and Expenses" in this prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators or distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start date, we
will begin making payments to the contract owner under an income plan. We will
make these payments under the annuity option you chose. You may change an
annuity option by making a written request to us at least 30 days before the
annuity start date. The amount of the payments will be determined by applying
your contract value, adjusted for any applicable Market Value Adjustment, on the
annuity start date in accordance with the annuity option you chose. The MGIB
annuity benefit may be available if you have purchased the MGIB rider, provided
the waiting period and other specified conditions have been met.
You may also elect an annuity option on surrender of the Contract for its cash
surrender value or you may choose one or more annuity options for the payment of
death benefit proceeds while it is in effect and before the annuity start date.
If, at the time of the contract owner's death or the annuitant's death (if the
contract owner is not an individual), no option has been chosen for paying death
benefit proceeds, the beneficiary may choose an annuity option within 60 days.
In all events, payments of death benefit proceeds must comply with the
distribution requirements of applicable federal tax law.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the contract value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each annuity option we will issue a separate written agreement putting the
annuity option into effect. Before we pay any annuity benefits, we require the
return of your Contract. If your Contract has been lost, we will require that
you complete and return the applicable lost Contract form. Various factors will
affect the level of annuity benefits, such as the annuity option chosen, the
applicable payment rate used and the investment performance of the portfolios
and interest credited to the Fixed Interest Allocations.
Our current annuity options provide only for fixed payments. Fixed annuity
payments are regular payments, the amount of which is fixed and guaranteed by
us. Some fixed annuity options provide fixed payments either for a specified
period of time or for the life of the annuitant. The amount of life income
payments will depend on the form and duration of payments you chose, the age of
the annuitant or beneficiary (and gender, where appropriate under applicable
law), the total contract value applied to purchase a Fixed Interest Allocation,
and the applicable payment rate.
GPP4SF-108896 53
Our approval is needed for any option where:
(1) The person named to receive payment is other than the contract owner
or beneficiary;
(2) The person named is not a natural person, such as a corporation; or
(3) Any income payment would be less than the minimum annuity income
payment allowed.
SELECTING THE ANNUITY START DATE
You select the annuity start date, which is the date on which the annuity
payments commence. The annuity start date must be at least 5 years from the
contract date but before the month immediately following the annuitant's 90th
birthday, or 10 years from the contract date, if later. If, on the annuity start
date, a surrender charge remains, the elected annuity option must include a
period certain of at least 5 years.
If you do not select an annuity start date, it will automatically begin in the
month following the annuitant's 90th birthday, or 10 years from the contract
date, if later.
If the annuity start date occurs when the annuitant is at an
advanced age, such as over age 85, it is possible that the Contract will not be
considered an annuity for federal tax purposes. For more information, see
"Federal Tax Considerations" and the SAI. For a Contract purchased in connection
with a qualified plan, other than a Roth IRA, distributions must commence not
later than April 1st of the calendar year following the calendar year in which
you reach age 70 1/2 or, in some cases, retire. Distributions may be made
through annuitization or withdrawals. You should consult a tax adviser for tax
advice before investing.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, we will make the payments monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3
are fixed. Payments under Option 4 may be fixed or variable, although only fixed
are currently available. For a fixed annuity option, the contract value in the
subaccounts is transferred to the Company's general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make monthly
payments in equal installments for a fixed number of years based on the contract
value on the annuity start date. We guarantee that each monthly payment will be
at least the amount stated in your Contract. If you prefer, you may request that
payments be made in annual, semi-annual or quarterly installments. We will
provide you with illustrations if you ask for them. If the cash surrender value
or contract value is applied under this option, a 10% penalty tax may apply to
the taxable portion of each income payment until the contract owner reaches age
59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income for at least a period certain such as 10 or 20 years. Other
periods certain may be available to you on request. You may choose a refund
period instead. Under this arrangement, income is guaranteed until payments
equal the amount applied. If the person named lives beyond the guaranteed
period, we will continue payments until his or her death. We guarantee that each
payment will be at least the amount specified in the Contract corresponding to
the person's age on his or her last birthday before the annuity start date.
Amounts for ages not shown in the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there are 2
persons named to determine annuity payments. At least one of the persons named
must be either the contract owner or beneficiary of the Contract. We guarantee
monthly payments will be made as long as at least one of the named persons is
living. There is no minimum number of payments. Monthly payment amounts are
available if you ask for them.
GPP4SF-108896 54
OPTION 4. ANNUITY PLAN. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the 1940 Act, it will comply with the requirements of
such Act.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided in the annuity agreement between you and Golden American. The
amounts we will pay are determined as follows:
(1) For Option 1, or any remaining guaranteed payments under Option 2,
we will continue payments. Under Options 1 and 2, the discounted
values of the remaining guaranteed payments may be paid in a single
sum. This means we deduct the amount of the interest each remaining
guaranteed payment would have earned had it not been paid out
early. The discount interest rate is never less than 3% for Option
1 and Option 2 per year. We will, however, base the discount
interest rate on the interest rate used to calculate the payments
for Options 1 and 2 if such payments were not based on the tables
in your Contract.
(2) For Option 3, no amounts are payable after both named persons have
died.
(3) For Option 4, the annuity option agreement will state the amount
we will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of each
calendar quarter. The report will show the contract value, cash surrender value,
and the death benefit as of the end of the calendar quarter. The report will
also show the allocation of your contract value and reflects the amounts
deducted from or added to the contract value since the last report, including
rider charges if you have elected one of the optional riders offered in this
prospectus. You have 30 days to notify our Customer Service Center of any errors
or discrepancies contained in the report and in any confirmation notice. We will
also send you copies of any shareholder reports of the investment portfolios in
which Separate Account B invests, as well as any other reports, notices or
documents we are required by law to furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
is closed; (2) when trading on the New York Stock Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in Separate Account B may not reasonably occur or so that the Company may
not reasonably determine the value of Separate Account B's net assets; or (4)
during any other period when the SEC so permits for the protection of security
holders. We have the right to delay payment of amounts from a Fixed Interest
Allocation for up to 6 months.
IN CASE OF ERRORS IN YOUR APPLICATION
If an age or gender given in the application or enrollment form is misstated,
the amounts payable or benefits provided by the Contract shall be those that the
premium payment would have bought at the correct age or gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
you should understand that your rights and any beneficiary's rights may be
subject to the terms of the assignment. An assignment may have federal tax
consequences. You should consult a tax adviser for tax advice. You must give us
satisfactory written notice at our Customer Service Center in order to make or
release an assignment. We are not responsible for the validity of any
assignment.
GPP4SF-108896 55
CONTRACT CHANGES -- APPLICABLE TAX LAW
We have the right to make changes in the Contract to continue to qualify the
Contract as an annuity under applicable federal tax law. You will be given
advance notice of such changes.
FREE LOOK
You may cancel your Contract within your 10-day free look period. We deem the
free look period to expire 15 days after we mail the Contract to you. Some
states may require a longer free look period. To cancel, you need to send your
Contract to our Customer Service Center or to the agent from whom you purchased
it. We will refund the contract value. For purposes of the refund during the
free look period, (i) we adjust your contract value for any market value
adjustment (if you have invested in the fixed account), (ii) then we exclude any
credit initially applied, and (iii) then we include a refund of any charges
deducted from your contract value. Because of the market risks associated with
investing in the portfolios and the potential positive or negative effect of the
market value adjustment, the contract value returned may be greater or less than
the premium payment you paid. Some states require us to return to you the amount
of the paid premium (rather than the contract value) in which case you will not
be subject to investment risk during the free look period. In these states, your
premiums designated for investment in the subaccounts may be allocated during
the free look period to a subaccount specially designated by the Company for
this purpose (currently, the Liquid Asset subaccount). We may, in our
discretion, require that premiums designated for investment in the subaccounts
from all other states as well as premiums designated for a Fixed Interest
Allocation be allocated to the specially designated subaccount during the free
look period. Your Contract is void as of the day we receive your Contract and
cancellation request. We determine your contract value at the close of business
on the day we receive your written request. If you keep your Contract after the
free look period and the investment is allocated to a subaccount specially
designated by the Company, we will put your money in the subaccount(s) chosen by
you, based on the accumulation unit value next computed for each subaccount,
and/or in the Fixed Interest Allocation chosen by you.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any surrender,
administration, and mortality and expense risk charges. We may also change the
minimum initial and additional premium requirements, or offer an alternative or
reduced death benefit.
SELLING THE CONTRACT
Directed Services, Inc. is the principal underwriter and distributor of the
Contract as well as for other contracts issued through Separate Account B and
other separate accounts of Golden American. We pay Directed Services for acting
as principal underwriter under a distribution agreement which in turn pays the
writing agent. The principal address of Directed Services is 1475 Dunwoody
Drive, West Chester, Pennsylvania 19380.
Directed Services enters into sales agreements with broker-dealers affiliated
with Fleet Financial Group, Inc. to sell the Contracts through registered
representatives who are licensed to sell securities and variable insurance
products. These broker-dealers are registered with the SEC and are members of
the National Association of Securities Dealers, Inc. Directed Services receives
a maximum of 5.5% commission, and passes through 100% of the commission to the
Fleet affiliated broker-dealer whose registered representative sold the
contract.
GPP4SF-108896 56
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UNDERWRITER COMPENSATION
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NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER COMMISSION TO COMPENSATION
Directed Services, Inc. BE PAID Reimbursement of any
Maximum of 5.5% covered expenses
of any initial incurred
or additional by registered
premium payments representatives
except when in connection
combined with the
with some annual distribution
trail commissions. of the Contracts.
------------------------------------------------------- -----------------------
Certain sales agreements may provide for a combination of a certain percentage
of commission at the time of sale and an annual trail commission (which when
combined could exceed 7% of total premium payments).
We do not pay any
additional commissions on the sale or exercise of any of the optional benefit
riders offered in this prospectus.
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OTHER INFORMATION
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VOTING RIGHTS
We will vote the shares of a Trust owned by Separate Account B according to your
instructions. However, if the 1940 Act or any related regulations should change,
or if interpretations of it or related regulations should change, and we decide
that we are permitted to vote the shares of a Trust in our own right, we may
decide to do so.
We determine the number of shares that you have in a subaccount
by dividing the Contract's contract value in that subaccount by the net asset
value of one share of the portfolio in which a subaccount invests. We count
fractional votes. We will determine the number of shares you can instruct us to
vote 180 days or less before a Trust shareholder meeting. We will ask you for
voting instructions by mail at least 10 days before the meeting. If we do not
receive your instructions in time, we will vote the shares in the same
proportion as the instructions received from all contracts in that subaccount.
We will also vote shares we hold in Separate Account B which are not
attributable to contract owners in the same proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware. We are
also subject to the insurance laws and regulations of all jurisdictions where we
do business. The Contract offered by this prospectus has been approved where
required by those jurisdictions. We are required to submit annual statements of
our operations, including financial statements, to the Insurance Departments of
the various jurisdictions in which we do business to determine solvency and
compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be 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. We believe that currently there are no
pending or threatened lawsuits that are reasonably likely to have a materially
adverse impact on the Company or Separate Account B.
GPP4SF-108896 57
LEGAL MATTERS
The legal validity of the Contracts was passed on by Myles R. Tashman, Esquire,
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.
EXPERTS
The audited financial statements of Golden American and Separate Account B
appearing in this prospectus or in the SAI and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing in this prospectus or in the SAI and in the
Registration Statement and are included or incorporated by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
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FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The following summary provides a general description of the federal income tax
considerations associated with this Contract and does not purport to be complete
or to cover all tax situations. This discussion is not intended as tax advice.
You should consult your counsel or other competent tax advisers for more
complete information. This discussion is based upon our understanding of the
present federal income tax laws. We do not make any representations as to the
likelihood of continuation of the present federal income tax laws or as to how
they may be interpreted by the IRS.
TYPES OF CONTRACTS: NON-QUALIFIED OR QUALIFIED
The Contract may be purchased on a non-tax-qualified basis or purchased on a
tax-qualified basis. Qualified Contracts are designed for use by individuals
whose premium payments are comprised solely of proceeds from and/or
contributions under retirement plans that are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 403(b), 408, or
408A of the Code. The ultimate effect of federal income taxes on the amounts
held under a Contract, or annuity payments, depends on the type of retirement
plan, on the tax and employment status of the individual concerned, and on our
tax status. In addition, certain requirements must be satisfied in purchasing a
qualified Contract with proceeds from a tax-qualified plan and receiving
distributions from a qualified Contract in order to continue receiving favorable
tax treatment. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Contract administration
procedures. Contract owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contract comply with applicable law. Therefore, you should seek
competent legal and tax advice regarding the suitability of a Contract for your
particular situation. The following discussion assumes that qualified Contracts
are purchased with proceeds from and/or contributions under retirement plans
that qualify for the intended special federal income tax treatment.
TAX STATUS OF THE CONTRACTS
DIVERSIFICATION REQUIREMENTS. The Code requires that the investments of a
variable account be "adequately diversified" in order for non-qualified
Contracts to be treated as annuity contracts for federal income tax purposes. It
is intended that Separate Account B, through the subaccounts, will satisfy these
diversification requirements.
INVESTOR CONTROL. In certain circumstances, owners of variable annuity
contracts have been considered for federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the separate account assets. There is little guidance in this area, and some
features of the Contracts, such as the flexibility of a contract owner to
allocate premium payments and transfer contract values, have not been explicitly
addressed in published rulings. While we believe that the Contracts do not give
contract owners investment control over
GPP4SF-108896 58
Separate Account B assets, we reserve
the right to modify the Contracts as necessary to prevent a contract owner from
being treated as the owner of the Separate Account B assets supporting the
Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any non-qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The non-qualified Contracts contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are clarified by
regulation or otherwise. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will generally
not be taxed on increases in the value of a Contract until a distribution occurs
or until annuity payments begin. (For these purposes, the agreement to assign or
pledge any portion of the contract value, and, in the case of a qualified
Contract, any portion of an interest in the qualified plan, generally will be
treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a natural
person generally must include in income any increase in the excess of the
contract value over the "investment in the contract" (generally, the premiums or
other consideration you paid for the contract less any nontaxable withdrawals)
during the taxable year. There are some exceptions to this rule and a
prospective contract owner that is not a natural person may wish to discuss
these with a tax adviser. The following discussion generally applies to
Contracts owned by natural persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs
(including amounts paid to you under the MGWB rider), the amount received will
be treated as ordinary income subject to tax up to an amount equal to the excess
(if any) of the contract value (unreduced by the amount of any surrender charge)
immediately before the distribution over the contract owner's investment in the
Contract at that time. Credits constitute earnings (not premiums) for federal
tax purposes and are not included in the owner's investment in the Contract. The
tax treatment of market value adjustments is uncertain. You should consult a tax
adviser if you are considering taking a withdrawal from your Contract in
circumstances where a market value adjustment would apply. In the case of a
surrender under a non-qualified Contract, the amount received generally will be
taxable only to the extent it exceeds the contract owner's investment in the
Contract.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a
non-qualified Contract, there may be imposed a federal tax penalty equal to 10%
of the amount treated as income. In general, however, there is no penalty on
distributions:
o made on or after the taxpayer reaches age 59 1/2;
o made on or after the death of a contract owner;
o attributable to the taxpayer's becoming disabled; or
o made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
GPP4SF-108896 59
Other exceptions may be applicable under certain circumstances and special rules
may be applicable in connection with the exceptions enumerated above. A tax
adviser should be consulted with regard to exceptions from the penalty tax.
ANNUITY PAYMENTS. Although tax consequences may vary depending on the
payment option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the Contract
ratably on a tax-free basis over the expected stream of annuity payments, as
determined when annuity payments start. Once your investment in the Contract has
been fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of your death or the death of the annuitant. Generally, such
amounts are includible in the income of recipient as follows: (i) if distributed
in a lump sum, they are taxed in the same manner as a surrender of the Contract,
or (ii) if distributed under a payment option, they are taxed in the same way as
annuity payments.
TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT. A
transfer or assignment of ownership of a Contract, the designation of an
annuitant, the selection of certain dates for commencement of the annuity phase,
or the exchange of a Contract may result in certain tax consequences to you that
are not discussed herein. A contract owner contemplating any such transfer,
assignment or exchange, should consult a tax adviser as to the tax consequences.
WITHHOLDING. Annuity distributions are generally subject to withholding for
the recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that are
issued by us (or our affiliates) to the same contract owner during any calendar
year are treated as one non-qualified deferred annuity contract for purposes of
determining the amount includible in such contract owner's income when a taxable
distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified plans. The
tax rules applicable to participants in these qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from: contributions in excess
of specified limits; distributions before age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Contracts with the various types of qualified retirement plans. Contract owners,
annuitants, and beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract, but we shall not be bound by the terms and conditions of such
plans to the extent such terms contradict the Contract, unless the Company
consents.
DISTRIBUTIONS. Annuity payments are generally taxed in the same manner as
under a non-qualified Contract. When a withdrawal from a qualified Contract
occurs, a pro rata portion of the amount received is taxable, generally based on
the ratio of the contract owner's investment in the Contract (generally, the
premiums or other consideration paid for the Contract) to the participant's
total accrued benefit balance under the retirement plan. For qualified
Contracts, the investment in the Contract can be zero. For Roth IRAs,
distributions are generally not taxed, except as described below.
For qualified
plans under Section 401(a) and 403(b), the Code requires that distributions
generally must commence no later than the later of April 1 of the calendar year
following the calendar year in which the contract owner (or plan participant)
(i) reaches age 70 1/2 or (ii) retires, and must be made in a specified form or
manner. If the plan participant is a "5 percent owner" (as defined in the Code),
distributions generally
GPP4SF-108896 60
must begin no later than April 1 of the calendar year
following the calendar year in which the contract owner (or plan participant)
reaches age 70 1/2. For IRAs described in Section 408, distributions generally
must commence no later than the later of April 1 of the calendar year following
the calendar year in which the contract owner (or plan participant) reaches age
70 1/2. Roth IRAs under Section 408A do not require distributions at any time
before the contract owner's death.
WITHHOLDING. Distributions from certain qualified plans generally are
subject to withholding for the contract owner's federal income tax liability.
The withholding rates vary according to the type of distribution and the
contract owner's tax status. The contract owner may be provided the opportunity
to elect not to have tax withheld from distributions. "Eligible rollover
distributions" from section 401(a) plans and section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions that are required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the contract owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
Brief descriptions of the various types of qualified retirement plans in
connection with a Contract follow. We will endorse the Contract as necessary to
conform it to the requirements of such plan.
CORPORATE AND SELF-EMPLOYED PENSION
AND PROFIT SHARING PLANS. Section 401(a) of the Code permits corporate employers
to establish various types of retirement plans for employees, and permits
self-employed individuals to establish these plans for themselves and their
employees. These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant, or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits before transfer of the Contract. Employers intending
to use the Contract with such plans should seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that can be contributed,
the deductible amount of the contribution, the persons who may be eligible, and
the time when distributions commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" or transferred on a
tax-deferred basis into an IRA. There are significant restrictions on rollover
or transfer contributions from Savings Incentive Match Plans for Employees
(SIMPLE), under which certain employers may provide contributions to IRAs on
behalf of their employees, subject to special restrictions. Employers may
establish Simplified Employee Pension (SEP) Plans to provide IRA contributions
on behalf of their employees. Sales of the Contract for use with IRAs may be
subject to special requirements of the IRS.
ROTH IRA
Section 408A of the Code permits certain eligible individuals to contribute to a
Roth IRA. Contributions to a Roth IRA, which are subject to limits on the amount
of the contributions and the persons who may be eligible to contribute, are not
deductible, and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may
be subject to tax, and other special rules may apply. Distributions from a Roth
IRA generally are not taxed, except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during the five taxable years starting with the year in which the first
contribution is made to any Roth IRA. A 10% penalty may apply to amounts
attributable to a conversion from an IRA to a Roth IRA if the amounts are
distributed during the five taxable years beginning with the year in which the
conversion was made.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their gross income the premium
payments made, within certain limits, on a Contract that will provide an annuity
for the employee's retirement. These premium payments may be subject to FICA
(Social
GPP4SF-108896 61
Security) tax. Distributions of (1) salary reduction contributions made
in years beginning after December 31, 1988; (2) earnings on those contributions;
and (3) earnings on amounts held as of the last year beginning before January 1,
1989, are not allowed prior to age 59 1/2, separation from service, death or
disability. Salary reduction contributions may also be distributed upon
hardship, but would generally be subject to penalties.
LOANS
Loans may be available if you are under age 70 1/2 and purchased your contract
in connection with a non-ERISA plan qualified under Section 403(b) of the Code
("TSA"). If your contract was issued in connection with a TSA and the terms of
your plan permit, you may take a loan from us, using your Cash Surrender Value
as collateral for the loan. Loans are subject to the terms of the Contract, the
plan and the Code. You are responsible for monitoring the amount and number of
loans outstanding at any one time under your TSA, whether under our contracts or
those of other carriers. We may modify the terms of a loan to comply with
changes in applicable law. WE URGE YOU TO CONSULT WITH A QUALIFIED TAX ADVISOR
PRIOR TO EFFECTING A LOAN TRANSACTION UNDER YOUR CONTRACT.
LOAN PROCEDURES. You must complete a loan application in order to effect a
loan. You may submit a loan application at any time after the free look period
and before the annuity start date. There is a loan fee (currently $25) per loan,
payable at the time of the loan. If the loan amount plus the loan fee exceeds
the maximum loan amount, the fee will be deducted from the loan proceeds.
In order to secure your loan, on the effective date of your loan, we will
transfer an amount equal to the principal amount of your loan into an account
called the "TSA Special Fixed Account". You must indicate your choice of
variable and fixed accounts from which amounts will be transferred to the TSA
Special Fixed Account. If no choice is indicated, amounts will be transferred on
a pro rata basis from your variable accounts. If amounts allocated to the
variable accounts are not sufficient, amounts will be transferred from the fixed
accounts on a nearest to maturity basis.
Amounts transferred from the TSA Special Fixed Account upon loan repayments
will be transferred to the variable accounts in proportion to the contract value
so allocated. If no contract value is allocated to the variable accounts, such
transfers will be made to the Liquid Asset subaccount.
No withdrawals are permitted unless there has been a Distributable Event.
Distributable Events are the following:
1) attainment of age 59 1/2;
2) separation from service ;
3) death; or
4) disability.
You must notify us when a separation from service has occurred.. No withdrawals
are permitted from the TSA Special Fixed Account, other than an automatic
withdrawal to pay off a defaulted loan. See Loan Default, below.
MINIMUM AND MAXIMUM LOAN AMOUNTS. You may borrow a minimum of $1,000,
unless we are required by law to allow a lesser minimum amount. We currently
allow no more than 2 loans per Contract at any time. The maximum loan amount for
a new loan is the lesser of (1) and (2), minus any outstanding loan balance,
where
1) is 50% of the Cash Surrender Value, and
2) is $50,000 minus the excess of the highest outstanding loan
balance during the past 12 months over the loan balance on the
date of the new loan.
GPP4SF-108896 62
LOAN INTEREST. The outstanding loan balance in the TSA Special Fixed
Account is credited with interest until the loan is repaid in full. The current
annual effective interest rate is 3.5%. The guaranteed minimum interest rate is
3%. Rates are guaranteed for one year. Each loan will have a separate TSA
Special Fixed Account, and each may have a different interest crediting rate.
You will be charged interest on the outstanding loan balance at an annual
effect interest rate of 6%. Interest will be charged in arrears. Interest
charges accrue on your outstanding loan balance daily beginning on the effective
date of your loan.
LOAN REPAYMENT. Loans must be repaid within 5 years. However, if the loan
is used to purchase your principal residence, it must be repaid within 15 years.
You must identify your payments as premium payments or they will be treated as
loan repayments. You may choose whether to make your loan repayments quarterly
or monthly. Currently, loans must be repaid by electronic funds transfer ("EFT")
or pre-authorized check. ("PAC"), unless we have approved another form of
payment.
If your loan repayment is late, and the loan would otherwise be in default,
we will make a withdrawal in an amount sufficient to keep the loan from going
into default. The withdrawals will be made on a pro rata basis from all of the
variable accounts to which contract value is then allocated. If there is not
enough contract value in the variable accounts, the withdrawal will be made from
the fixed accounts on a nearest to maturity basis. This will only be done if:
1) there has been a Distributable Event;
2) the amount available for withdrawal is equal to or exceeds the
necessary amount plus any applicable withdrawal charges; and
3) you have authorized us to do so in the loan agreement.
If any of these conditions is not met, the loan will be considered to be in
default, and default procedures will be performed.
LOAN DEFAULT. When your loan is in default, you may pay off the loan, or
the loan will be repaid through an automatic withdrawal from your contract
value, as described below.
1. Loan Repaid
For loans in default status, we will accept repayment only in the
amount necessary to pay off the loan balance in full.
2. Loan Not Repaid
The defaulted loan balance continues to accrue interest until there
has been a Distributable Event, at which time the defaulted loan
balance plus accrued interest will be repaid by automatic
withdrawal. The defaulted loan balance will be considered a Deemed
Distribution. If a Distributable Event has occurred prior to
default, the defaulted loan balance plus accrued interest is repaid
by automatic withdrawal upon default. The automatic withdrawal will
apply first to the TSA Special Fixed Account, then pro rata to the
variable accounts and then to the fixed accounts on a nearest to
maturity basis. Surrender charges and any market value adjustments
will be applied as applicable to such withdrawals. In either case
the Deemed Distribution or withdrawal will be considered a
currently taxable event, and may be subject to federal income tax
withholding and the federal early withdrawal penalty tax.
OVERLOANS. An overloan occurs when the total outstanding loan balance(s)
exceeds the Cash Surrender Value. If this occurs, we will send you a letter
requesting payment of an amount which will take the loan out of overloan status.
If after 30 days, the overloan status has not been corrected, the loan will be
considered in default. If a Distributable Event occurred, the Contract will
terminate without value. If a Distributable Event has not occurred, the Contract
will continue in force, interest continues to accrue and the loan continues.
Upon the occurrence of a Distributable Event while the loan is still in overloan
status, the Contract will terminate without value.
GPP4SF-108896 63
EFFECT OF LOAN ON OTHER CONTRACT FEATURES. The following contract features
will be impacted by any outstanding loan balance:
1) Withdrawals and Charges: The rules concerning maximum withdrawal
amounts, free partial withdrawals, systematic withdrawals and
waiver of administrative charges will be determined by reducing the
otherwise applicable amounts by the amount of any outstanding loan
balance.
2) Death Benefits, Annuitization and Surrenders: The outstanding loan
balance is deducted from any amounts otherwise payable and in
determining the amount available for annuitization.
3) Riders:
a) Minimum Guaranteed Income Benefit ("MGIB") Rider. Upon
exercising the MGIB rider, the MGIB Base is reduced by the
ratio of the outstanding loan balance to the contract value.
b) Minimum Guaranteed Withdrawal Benefit ("MGWB") Rider. The
portion of the contract value used to pay off the outstanding
loan balance will reduce the MGWB Withdrawal Account. We do
not recommend the MGWB rider if loans are contemplated.
c) Minimum Guaranteed Accumulation Benefit ("MGAB") Rider.
Generally, loan repayment periods should not extend into the 3
year period preceding the end of the Waiting Period, because
transfers made within such 3 year period reduce the MGAB Base
and the MGAB Charge Base pro rata based on the percentage of
contract value transferred. Transfers between the TSA Special
Fixed Account and the variable accounts will not be excluded
from this treatment.
ENHANCED DEATH BENEFIT
The Contract includes an Enhanced Death Benefit that in some cases may exceed
the greater of the premium payments or the contract value. The IRS has not ruled
whether an Enhanced Death Benefit could be characterized as an incidental
benefit, the amount of which is limited in any Code section 401(a) pension or
profit-sharing plan or Code section 403(b) tax-sheltered annuity. Employers
using the Contract may want to consult their tax adviser regarding such
limitation. Further, the Internal Revenue Service has not addressed in a ruling
of general applicability whether a death benefit provision such as the Enhanced
Death Benefit provision in the Contract comports with IRA or Roth IRA
qualification requirements. A tax advisor should be consulted.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences under
the Contracts are not exhaustive, and special rules are provided with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law, and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each contract owner
or recipient of the distribution. A competent tax adviser should be consulted
for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contracts could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective before the date of the change). You should consult a tax adviser
with respect to legislative developments and their effect on the Contract.
GPP4SF-108896 64
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following selected financial data prepared in accordance with generally
accepted accounting principles ("GAAP") for Golden American should be read in
conjunction with the financial statements and notes thereto included in this
prospectus.
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware
corporation, acquired all of the outstanding capital stock of Equitable of Iowa
Companies ("Equitable of Iowa"), according to a merger agreement among Equitable
of Iowa, PFHI and ING Groep N.V. (the "ING acquisition"). On August 13, 1996,
Equitable of Iowa acquired all of the outstanding capital stock of BT Variable,
Inc., then the parent of Golden American (the "Equitable acquisition"). For
financial statement purposes, the ING acquisition was accounted for as a
purchase effective October 25, 1997 and the Equitable acquisition was accounted
for as a purchase effective August 14, 1996. As a result, the financial data
presented below for 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.
SELECTED GAAP BASIS FINANCIAL DATA
(IN THOUSANDS)
POST-MERGER
-------------- ------------ ------------- --------------
For the Period For the Period
January 1, For the Year For the Year October 25,
2000 through Ended Ended 1997 through
September 30, December 31, December 31, December 31,
2000 1999 1998 1997
-------------- ------------ ------------- --------------
Annuity and Interest
Sensitive Life
Product Charges................. $ 106,892 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss) before
Federal Income Tax ............. $ 27,886 $ 19,737 $ 10,353 $ (279)
Net Income (Loss)................... $ 18,084 $ 11,214 $ 5,074 $ (425)
Total Assets........................ $ 11,835,937 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities................... $ 11,256,283 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's Equity.......... $ 579,654 $ 477,849 $ 353,894 $ 227,313
POST-ACQUISITION | PRE-ACQUISITION
-------------- -------------- | ------------------------------
For the Period For the Period | For the Period
January 1,1997 August 14, | January 1, For the Year
through 1996 through | 1996 through Ended
October 24, December 31, | August 13, December, 31,
1997 1996 | 1996 1995
-------------- -------------- | --------------- -------------
|
Annuity and Interest |
Sensitive Life Product Charges................. $ 18,288 $ 8,768 | $ 12,259 $ 18,388
Net Income (Loss) before |
Federal Income Tax............................. $ (608) $ 570 | $ 1,736 $ 3,364
Net Income (Loss).................................. $ 729 $ 350 | $ 3,199 $ 3,364
Total Assets....................................... N/A $ 1,677,899 | N/A $1,203,057
Total Liabilities.................................. N/A $ 1,537,415 | N/A $1,104,932
Total Stockholder's Equity......................... N/A $ 140,484 | N/A $ 98,125
GPP4SF-108896 65
BUSINESS ENVIRONMENT
The current business and regulatory environment presents many challenges to the
insurance industry. The variable annuity competitive environment remains intense
and is dominated by a number of large highly rated insurance companies.
Increasing competition from traditional insurance carriers as well as banks and
mutual fund companies offers consumers many choices. However, overall demand for
variable insurance products remains strong for several reasons including: strong
stock market performance over the last four years; relatively low interest
rates; an aging U.S. population that is increasingly concerned about retirement,
estate planning, and maintaining their standard of living in retirement; and
potential reductions in government and employer-provided benefits at retirement,
as well as lower public confidence in the adequacy of those benefits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze Golden American Life
Insurance Company's ("Golden American") consolidated results of operations. In
addition, some analysis and information regarding financial condition and
liquidity and capital resources is also provided. This analysis should be read
jointly with the consolidated financial statements, the related notes, and the
Cautionary Statement Regarding Forward-Looking Statements, which appear
elsewhere in this report. Golden American reports financial results on a
consolidated basis. The consolidated financial statements include the accounts
of Golden American and its wholly owned subsidiary, First Golden American Life
Insurance Company of New York ("First Golden," and collectively with Golden
American, the "Companies").
RESULTS OF OPERATION
MERGER. On October 23, 1997, Equitable of Iowa Companies' ("Equitable")
shareholders approved an Agreement and Plan of Merger ("Merger Agreement") dated
July 7, 1997 among Equitable, PFHI Holdings, Inc. ("PFHI"), and ING Groep N.V.
("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., Equitable Investment Services, Inc. (subsequently dissolved),
Directed Services, Inc. ("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 "Parent"), a Delaware corporation.
For financial statement purposes, the
change in control of the Companies through the ING merger was accounted for as a
purchase effective October 25, 1997. This merger resulted in a new basis of
accounting reflecting estimated fair values of assets and liabilities at the
merger date. As a result, the Companies' financial statements for periods after
October 24, 1997 are presented on the Post-Merger new basis of accounting.
The purchase price was allocated to EIC and its subsidiaries with $227.6 million
allocated to the Companies. Goodwill of $1.4 billion was established for the
excess of the merger cost over the fair value of the assets and liabilities of
EIC with $151.1 million attributed to the Companies. Goodwill resulting from the
merger is being amortized over 40 years on a straight-line basis. The carrying
value will be reviewed periodically for any indication of impairment in value.
CHANGE IN CONTROL -- ACQUISITION. On August 13, 1996, Equitable acquired all of
the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its
wholly owned subsidiaries, Golden American and DSI. 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
GPP4SF-108896 66
Equitable, while the remainder of its net assets were contributed to Golden
American. On December 30, 1997, EIC Variable, Inc. was dissolved.
For financial statement purposes, the change in control of Golden
American through the acquisition of BT Variable was accounted for as a purchase
effective August 14, 1996. This acquisition resulted in a new basis of
accounting reflecting estimated fair values of assets and liabilities at the
acquisition date. As a result, the Companies' financial statements included for
the period January 1, 1997 through October 24, 1997 are presented on the
Post-Acquisition basis of accounting.
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 $139.9
million. Goodwill of $41.1 million was established for the excess of the
acquisition cost over the fair value of the assets and liabilities and
attributed to Golden American. At June 30, 1997, goodwill was increased by $1.8
million, due to the adjustment of the value of a receivable existing at the
acquisition date. Before the ING merger, goodwill resulting from the acquisition
was being amortized over 25 years on a straight-line basis.
THE FIRST NINE MONTHS OF 2000 COMPARED TO THE SAME PERIOD OF 1999
PREMIUMS
PERCENTAGE DOLLAR
NINE MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
---------- ---------- ----------- ----------
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $ 682.7 (61.7)% $ (1,100.8) $ 1,783.5
Fixed account.................................... 503.2 (6.7) (36.2) 539.4
---------- ------- ----------- ----------
Total variable annuity premiums...................... 1,185.9 (49.0) (1,137.0) 2,322.9
Variable life premiums............................... 1.5 (78.3) (5.5) 7.0
---------- ------- ----------- ----------
Total premiums....................................... $ 1,187.4 (49.0)% $ (1,142.5) $ 2,329.9
========== ======= =========== ==========
For the Companies' variable contracts, premiums collected are not reported as
revenues, but as deposits to insurance liabilities. Revenues for these products
are recognized over time in the form of investment spread and product charges.
Variable annuity separate account premiums decreased 61.7% during the first nine
months of 2000 compared to the same period of 1999. This decrease is completely
due to premium reductions included in the variable annuity separate account
premiums of $1,772.1 million and $72.1, million for the first nine months of
2000 and 1999, respectively, related to modified coinsurance agreements.
Variable life premiums decreased 78.3% in the first nine months of 2000 from the
same period of 1999. In August 1999, Golden American discontinued offering
variable life products.
Premiums, net of reinsurance, for variable products from
a significant broker/dealer having at least ten percent of total sales for the
nine months ended September 30, 2000 totaled $139.3 million, or 12% of total
premiums ($664.2 million, or 29% from two significant broker/dealers for the
nine months ended September 30, 1999).
GPP4SF-108896 67
REVENUES
PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30 2000 CHANGE CHANGE 1999
--------- ---------- ----------- ----------
(Dollars in millions)
Annuity and interest sensitive
life product charges............................. $ 106.9 93.7% $ 51.7 $ 55.2
Management fee revenue............................... 15.6 130.1 8.8 6.8
Net investment income................................ 47.9 12.2 5.2 42.7
Realized losses on investments....................... (4.5) (104.5) (2.3) (2.2)
Net income from modified coinsurance
agreements....................................... 220.2 3,184.4 213.8 6.4
Other income......................................... 1.3 30.0 0.3 1.0
-------- ------- -------- --------
$ 387.4 252.6% $ 277.5 $ 109.9
======== ======= ======== ========
Total revenues increased 252.6% in the first nine months of 2000 from the same
period in 1999. Annuity and interest sensitive life product charges increased
93.7% in the first nine months of 2000 due to additional fees earned from the
increasing block of business under management in the variable separate accounts.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"). The fee paid to Golden American for these services,
which is calculated as a percentage of average assets in the variable separate
accounts, was $15.6 million and $6.8 million for the first nine months of 2000
and 1999, respectively. This increase is due to the increasing assets in the
variable separate account and renegotiation of the fee paid by DSI to Golden
American.
Net investment income increased 12.2% in the first nine months of 2000
due to growth in average invested assets for the first nine months of 2000 as
compared to the same period in 1999. The Companies had $4.5 million of realized
losses in the first nine months of 2000 on the sale of fixed maturities and the
writedown of an impaired investment, compared to losses of $2.2 million in the
same period of 1999 resulting from the writedown of two fixed maturities in the
second quarter of 1999 and from the sale of investments in the first nine months
of 1999.
Net income from modified coinsurance agreements increased by $213.8 million to
$220.2 million for the first nine months of 2000 as compared to the first nine
months of 1999. This was primarily due to a modified coinsurance agreement which
was entered into during the second quarter of 2000, with an affiliate, Equitable
Life Insurance Company of Iowa ("Equitable Life"), covering a part of business
issued in 2000. This reinsurance agreement contributed $102.9 million to other
income in the third quarter of 2000 and $214.7 in the first nine months of 2000,
which was offset by a corresponding release of deferred policy acquisition costs
and reimbursement of non-deferrable costs related to policies reinsured under
this agreement.
EXPENSES
Total insurance benefits and expenses increased $247.6 million, or 255.6%, to
$344.5 million in the first nine months of 2000. Interest credited to account
balances increased $21.9 million, or 17.4%, to $147.3 million in the first nine
months of 2000. The premium credit on the Premium Plus product increased $19.9
million to $105.6 million in the first nine months of 2000. The bonus interest
on the fixed account decreased $0.4 million to $7.2 million during the first
nine months of 2000. The remaining increase in interest credited relates to
lower account balances associated with the Companies' fixed account options
within the variable products relative to the balances at September 30, 1999.
Commissions increased $25.5 million, or 19%, to $160.1 million in the first nine
months of 2000. Insurance taxes, state licenses, and fees increased $0.7
million, or 20%, to $4.0 million in the first nine months of 2000. Changes in
commissions and insurance taxes, state licenses, and fees are generally related
to changes in the level and composition of variable product sales. Insurance
taxes, state licenses, and fees are impacted by several other factors, which
include an increase in FICA taxes primarily due to incentive bonuses. Most costs
incurred as the result of new sales are deferred, thus having very little impact
on current earnings.
GPP4SF-108896 68
General expenses increased $13.6 million, or 28.7%, to $61.2 million in the
first nine months of 2000. Management expects general expenses to continue to
increase in 2000 as a result of the emphasis on expanding the salaried
wholesaler distribution network, the growth in sales, and the increased amounts
in force. The Companies use a network of wholesalers to distribute products, and
the salaries and sales bonuses of these wholesalers are included in general
expenses. The portion of these salaries and related expenses that varies
directly with production levels is deferred thus having little impact on current
earnings. The increase in general expenses was partially offset by
reimbursements received from the following affiliates: DSI, Equitable Life, ING
Mutual Funds Management Co., LLC, Security Life of Denver Insurance Company,
Southland Life Insurance Company, and United Life & Annuity Insurance Company,
for certain advisory, computer, and other resources and services provided by the
Companies.
During the first nine months of 2000 and 1999, value of purchased insurance in
force ("VPIF") was adjusted to increase amortization by $0.7 million in each
period, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits. Amortization of deferred policy acquisition
costs ("DPAC") increased $29.8 million, or 151.4%, in the first nine months of
2000. This increase resulted from the deferral of expenses associated with the
large sales volume experienced since September 30, 1999. Deferred policy
acquisition costs decreased $157.1 million or 64.2% in the first nine months of
2000. During the second quarter of 2000, a modified coinsurance agreement was
entered into which resulted in a $213.0 million release of previously deferred
policy acquisition costs for the first nine months of 2000. Based on current
conditions and assumptions as to the impact of future events on acquired
policies in force, the expected net amortization relating to VPIF as of
September 30, 2000 is $0.9 million for the remainder of 2000, $3.5 million in
2001, $3.3 million in 2002, $2.8 million in 2003, $2.2 million in 2004, and $1.7
million in 2005. Actual amortization may vary based upon changes in assumptions
and experience.
Interest expense increased 169.7%, or $9.4 million, to $15.0 million in the
first nine months of 2000. Interest expense on a $25 million surplus note issued
December 1996 and expiring December 2026 was $1.5 million for the first nine
months of 2000, unchanged from the same period of 1999. Interest expense on a
$60 million surplus note issued in December 1998 and expiring December 2028 was
$3.3 million for the first nine months of 2000, unchanged from the same period
of 1999. Interest expense on a $75 million surplus note, issued September 1999
and expiring September 2029 was $4.4 million for the first nine months of 2000.
Interest expense on a $50 million surplus note, issued December 1999 and
expiring December 2029 was $3.1 million for the first nine months of 2000.
Interest expense on a $35 million surplus note issued December 1999 and expiring
December 2029 was $2.3 million for the first nine months of 2000. Golden
American also paid $0.4 million in 2000 and $0.7 million in 1999 to ING America
Insurance Holdings, Inc. ("ING AIH") for interest on a reciprocal loan
agreement. Interest expense on a revolving note payable with SunTrust Bank,
Atlanta was $36,000 and $109,000 for the first nine months of 2000 and 1999,
respectively.
INCOME
Net income was $18.1 million for the first nine months of 2000, an increase of
$14.5 million, or 409.3% from the same period of 1999.
Comprehensive income for
the first nine months of 2000 was $21.8 million, an increase of $21.8 million
from comprehensive loss of $18,000 in the same period of 1999.
GPP4SF-108896 69
1999 COMPARED TO 1998
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---------- ---------- ----------- ----------
(Dollars in millions)
Variable annuity premiums:
Separate account................................. $2,511.7 71.9% $1,050.5 $1,461.2
Fixed account.................................... 770.7 30.9 182.0 588.7
-------- ---- -------- --------
Total variable annuity premiums...................... 3,282.4 60.1 1,232.5 2,049.9
Variable life premiums............................... 8.6 (37.8) (5.2) 13.8
-------- ---- -------- --------
Total premiums....................................... $3,291.0 59.5% $1,227.3 $2,063.7
======== ==== ======== ========
For the Companies' variable contracts, premiums collected are not reported as
revenues, but as deposits to insurance liabilities. Revenues for these products
are recognized over time in the form of investment spread and product charges.
Variable annuity separate account premiums increased 71.9% in 1999. The fixed
account portion of the Companies' variable annuity premiums increased 30.9% in
1999. These increases resulted from increased sales of the Premium Plus variable
annuity product.
Variable life premiums decreased 37.8% in 1999. In August 1999, Golden American
discontinued offering variable life products.
Premiums, net of reinsurance, for
variable products from two significant broker/dealers each having at least ten
percent of total sales for the year ended December 31, 1999 totaled $918.4
million, or 28% of premiums compared to $528.9 million, or 26%, from two
significant broker/dealers for the year ended December 31, 1998.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---------- ---------- ----------- ----------
(Dollars in millions)
Annuity and interest sensitive life product
charges.......................................... $ 82.9 112.0% $43.8 $39.1
Management fee revenue............................... 10.1 112.5 5.3 4.8
Net investment income................................ 59.2 39.3 16.7 42.5
Realized gains (losses) on investments............... (2.9) 96.1 (1.4) (1.5)
Other income......................................... 10.8 94.4 5.2 5.6
------- ---- ----- -----
$ 160.1 77.0% $69.6 $90.5
======= ==== ===== =====
Total revenues increased 77.0%, or $69.6 million, to $160.1 million in 1999.
Annuity and interest sensitive life product charges increased 112.0%, or $43.8
million, to $82.9 million in 1999, primarily due to additional fees earned from
the increasing block of business in the separate accounts.
Golden American provides certain managerial and supervisory services to DSI. The
fee paid to Golden American for these services, which is calculated as a
percentage of average assets in the variable separate accounts, was $10.1
million for 1999 and $4.8 million for 1998.
Net investment income increased 39.3%, or $16.7 million, to $59.2 million in
1999 from $42.5 million in 1998, due to growth in invested assets from December
31, 1998, increasing interest rates, and a relative increase in below investment
grade investments.
GPP4SF-108896 70
During 1999, the Company had net realized losses on investments of $2.9 million,
which includes a $1.6 million write down of two impaired fixed maturities,
compared to net realized losses on investments of $1.5 million in 1998 which
included a $1.0 million write down of two impaired fixed maturities.
Other income increased $5.2 million to $10.8 million in 1999, due primarily to
income received under a modified coinsurance agreement with an unaffiliated
reinsurer.
EXPENSES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 1999 CHANGE CHANGE 1998
---------- ---------- ----------- ----------
(Dollars in millions)
Insurance benefits and expenses: Annuity and interest sensitive life benefits:
Interest credited to account balances.......... $ 175.9 85.4% $ 81.0 $ 94.9
Benefit claims incurred in excess of
account balances............................. 6.3 200.2 4.2 2.1
Underwriting, acquisition, and insurance
expenses:
Commissions.................................... 188.4 55.5 67.2 121.2
General expenses............................... 60.2 60.2 22.6 37.6
Insurance taxes, state licenses, and fees...... 4.0 (4.0) (0.1) 4.1
Policy acquisition costs deferred.............. (346.4) 75.1 (148.6) (197.8)
Amortization:
Deferred policy acquisition costs............ 33.1 543.3 28.0 5.1
Value of purchased insurance in force........ 6.2 32.0 1.5 4.7
Goodwill..................................... 3.8 -- -- 3.8
------- ---- ------- --------
$ 131.5 73.7% $ 55.8 $ 75.7
======= ==== ======= ========
Total insurance benefits and expenses increased 73.7%, or $55.8 million, in 1999
from $75.7 million in 1998. Interest credited to account balances increased
85.4%, or $81.0 million, in 1999 from $94.9 million in 1998. The premium credit
on the Premium Plus variable annuity product increased $69.3 million to $123.8
million at December 31, 1999. The bonus interest on the fixed account increased
$3.0 million to $10.9 million at December 31, 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products.
Commissions increased 55.5%, or $67.2 million, in 1999 from $121.2 million in
1998. Insurance taxes, state licenses, and fees decreased 4.0%, or $0.1 million,
in 1999 from $4.1 million in 1998. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Insurance taxes, state licenses, and fees
are impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses and expenses for the triennial insurance department
examination of Golden American, which were offset by a decrease in 1999 of
guaranty fund assessments paid. Most costs incurred as the result of sales have
been deferred, thus having very little impact on current earnings.
General expenses increased 60.2%, or $22.6 million, in 1999 from $37.6 million
in 1998. Management expects general expenses to continue to increase in 2000 as
a result of the emphasis on expanding the salaried wholesaler distribution
network and the growth in sales. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. The increase in general expenses was partially
offset by reimbursements received from DSI, Equitable Life, ING Mutual Funds
Management Co., LLC, an affiliate, Security Life of Denver Insurance Company, an
affiliate, Southland Life Insurance Company, an affiliate, and United Life &
Annuity Insurance Company, an affiliate, for certain advisory, computer, and
other resources and services provided by Golden American.
GPP4SF-108896 71
The Companies' previous balances of deferred policy acquisition costs ("DPAC"),
value of purchased insurance in force ("VPIF"), and unearned revenue reserve
were eliminated and a new asset of $44.3 million representing VPIF was
established for all policies in force at the merger date. During 1999, VPIF was
adjusted to increase amortization by $0.7 million to reflect changes in the
assumptions related to the timing of estimated gross profits. During 1998, VPIF
decreased $2.7 million to adjust the value of other receivables and increased
$0.2 million as a result of an adjustment to the merger costs. During 1998, VPIF
was adjusted to reduce amortization by $0.2 million to reflect changes in the
assumptions related to the timing of future gross profits. Amortization of DPAC
increased $28.0 million, or 543.3%, in 1999. This increase resulted from growth
in policy acquisition costs deferred from $197.8 million at December 31, 1998 to
$346.4 million at December 31, 1999, which was generated by expenses associated
with the large sales volume experienced since December 31, 1998. 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, 1999 is $4.0 million in 2000, $3.6 million in 2001, $3.3 million
in 2002, $2.8 million in 2003, and $2.3 million in 2004. Actual amortization may
vary based upon changes in assumptions and experience.
Interest expense increased 102.6%, or $4.5 million, in 1999 from $4.4 million in
1998. Interest expense on a $25 million surplus note issued December 1996 and
expiring December 2026 was $2.1 million for the year ended December 31, 1999,
unchanged from the same period of 1998. Interest expense on a $60 million
surplus note issued in December 1998 and expiring December 2028 was $4.3 million
for the year ended December 31, 1999. Interest expense on a $75 million surplus
note, issued September 30, 1999 and expiring September 29, 2029 was $1.5 million
for the year ended December 31, 1999. Golden American also paid $0.8 million in
1999 and $1.8 million in 1998 to ING America Insurance Holdings, Inc. ("ING
AIH") for interest on a reciprocal loan agreement. Interest expense on a
revolving note payable with SunTrust Bank, Atlanta was $0.2 million and $0.3
million for the years ended December 31, 1999 and 1998, respectively. In
addition, Golden American incurred interest expense of $0.2 million in 1998 on a
line of credit with Equitable.
INCOME
Net income for 1999 was $11.2 million, an increase of $6.1 million from $5.1
million for 1998.
Comprehensive income for 1999 was $3.0 million, a decrease of $0.9 million from
comprehensive income of $3.9 million for 1998.
1998 COMPARED TO 1997
The following analysis combines Post-Merger and Post-Acquisition activity for
1997.
PREMIUMS
POST-MERGER COMBINED POST-MERGER POST-ACQUISITION
----------------- ----------------- ---------------- -----------------
For the Period For the Period
October 25, January 1,
For the Year For the Year 1997 1997
ended ended through through
December 31, December 31, December 31, October 24,
1998 1997 1997 1997
----------------- ----------------- ---------------- -----------------
(Dollars in millions)
Variable annuity premiums:
Separate account........................ $ 1,513.3 $ 291.2 $ 111.0 $ 180.2
Fixed account........................... 588.7 318.0 60.9 257.1
---------- --------- --------- ---------
2,102.0 609.2 171.9 437.3
Variable life premiums...................... 13.8 15.6 1.2 14.4
---------- --------- --------- ---------
Total premiums.............................. $ 2,115.8 $ 624.8 $ 173.1 $ 451.7
========== ========= ========= =========
For the Companies' variable contracts, premiums collected are not reported as
revenues, but are reported as deposits to insurance liabilities. Revenues for
these products are recognized over time in the form of investment income and
product charges.
GPP4SF-108896 72
Variable annuity separate account premiums increased 419.7% in 1998 primarily
due to increased sales of the Premium Plus product introduced in October of 1997
and the increased sales levels of the Companies' other products. The fixed
account portion of the Companies' variable annuity premiums increased 85.1% in
1998. Variable life premiums decreased 11.4% in 1998. Total premiums increased
238.7% in 1998.
During 1998, the Companies' sales were further diversified among broker/dealers.
Premiums, net of reinsurance, for variable products from two significant
broker/dealers having at least ten percent of total sales for the year ended
December 31, 1998 totaled $528.9 million, or 26% of premiums ($328.2 million, or
53% from two significant broker/dealers for the year ended December 31, 1997).
REVENUES
POST-MERGER COMBINED POST-MERGER POST-ACQUISITION
----------------- ----------------- ---------------- -----------------
For the Period For the Period
October 25, January 1,
For the Year For the Year 1997 1997
ended ended through through
December 31, December 31, December 31, October 24,
1998 1997 1997 1997
----------------- ----------------- ---------------- -----------------
(Dollars in millions)
Annuity and interest sensitive life
product charges......................... $ 39.1 $ 22.1 $ 3.8 $ 18.3
Management fee revenue...................... 4.8 2.8 0.5 2.3
Net investment income....................... 42.5 26.8 5.1 21.7
Realized gains (losses)
on investments.......................... (1.5) 0.1 -- 0.1
Other income................................ 5.6 0.7 0.3 0.4
---------- --------- --------- ---------
$ 90.5 $ 52.5 $ 9.7 $ 42.8
========== ========= ========= =========
Total revenues increased 72.3%, or $38.0 million, to $90.5 million in 1998.
Annuity and interest sensitive life product charges increased 76.8%, or $17.0
million, to $39.1 million in 1998 due to additional fees earned from the
increasing block of business under management in the separate accounts and an
increase in surrender charge revenues. This increase was partially offset by the
elimination of the unearned revenue reserve related to in force acquired
business at the merger date, which resulted in lower annuity and interest
sensitive life product charges compared to Post-Acquisition levels.
Golden American provides certain managerial and supervisory services to DSI. The
fee paid to Golden American for these services, which is calculated as a
percentage of average assets in the variable separate accounts, was $4.8 million
for 1998 and $2.8 million for 1997.
Net investment income increased 58.6%, or $15.7 million, to $42.5 million in
1998 from $26.8 million in 1997 due to growth in invested assets. During 1998,
the Company had net realized losses on investments of $1.5 million, which
included a $1.0 million write down of two impaired bonds, compared to gains of
$0.1 million in 1997. Other income increased $4.9 million to $5.6 million in
1998 due primarily to income received under a modified coinsurance agreement
with an unaffiliated reinsurer as a result of increased sales.
GPP4SF-108896 73
EXPENSES
POST-MERGER COMBINED POST-MERGER POST-ACQUISITION
----------------- ----------------- ---------------- -----------------
For the Period For the Period
October 25, January 1,
For the Year For the Year 1997 1997
ended ended through through
December 31, December 31, December 31, October 24,
1998 1997 1997 1997
----------------- ----------------- ---------------- -----------------
(Dollars in millions)
Insurance benefits and expenses:
Annuity and interest sensitive
life benefits:
Interest credited to account
balances.............................. $ 94.9 $ 26.7 $ 7.4 $ 19.3
Benefit claims incurred in excess
of account balances................... 2.1 0.1 -- 0.1
Underwriting, acquisition, and insurance expenses:
Commissions............................. 121.2 36.3 9.4 26.9
General expenses........................ 37.6 17.3 3.4 13.9
Insurance taxes......................... 4.1 2.3 0.5 1.8
Policy acquisition costs deferred....... (197.8) (42.7) (13.7) (29.0)
Amortization:
Deferred policy acquisition costs..... 5.1 2.6 0.9 1.7
Value of purchased insurance
in force............................. 4.7 6.1 0.9 5.2
Goodwill.............................. 3.8 2.0 0.6 1.4
--------- --------- --------- ---------
$ 75.7 $ 50.7 $ 9.4 $ 41.3
========= ========= ========= =========
Total insurance benefits and expenses increased 49.2%, or $25.0 million, in 1998
from $50.7 million in 1997. Interest credited to account balances increased
255.4%, or $68.2 million, in 1998 from $26.7 in 1997. The extra credit bonus on
the Premium Plus product introduced in October of 1997 generated a $51.6 million
increase in interest credited during 1998 compared to 1997. The remaining
increase in interest credited related to higher account balances associated with
the Companies' fixed account option within its variable products.
Commissions increased 234.2%, or $84.9 million, in 1998 from $36.3 million in
1997. Insurance taxes increased 77.0%, or $1.8 million, in 1998 from $2.3
million in 1997. Changes in commissions and insurance taxes are generally
related to changes in the level of variable product sales. Insurance taxes are
impacted by several other factors, which include an increase in FICA taxes
primarily due to bonuses. Most costs incurred as the result of new sales
including the extra credit bonus were deferred, thus having very little impact
on current earnings.
General expenses increased 117.7%, or $20.3 million, in 1998 from $17.3 million
in 1997. Management expects general expenses to continue to increase in 1999 as
a result of the emphasis on expanding the salaried wholesaler distribution
network. The Companies use a network of wholesalers to distribute products and
the salaries of these wholesalers are included in general expenses. The portion
of these salaries and related expenses that varies with production levels is
deferred thus having little impact on current earnings. The increase in general
expenses was partially offset by reimbursements received from Equitable Life, an
affiliate, for certain advisory, computer and other resources and services
provided by Golden American.
At the merger date, the Companies' deferred policy acquisition costs ("DPAC"),
previous balance of value of purchased insurance in force ("VPIF") and unearned
revenue reserve were eliminated and a new asset of $44.3 million representing
VPIF was established for all policies in force at the merger date. During 1998,
VPIF was adjusted to reduce amortization by $0.2 million to reflect changes in
the assumptions related to the timing of future gross profits. VPIF decreased
$2.6 million in the second quarter of 1998 to adjust the value of other
GPP4SF-108896 74
receivables recorded at the time of merger and increased $0.2 million in the
first quarter of 1998 as the result of an adjustment to the merger costs. The
amortization of VPIF and DPAC increased $1.1 million, or 13.0%, in 1998. During
the second quarter of 1997, VPIF was adjusted by $2.3 million to reflect
narrower spreads than the gross profit model assumed.
Amortization of goodwill for the year ended December 31, 1998 totaled
$3.8 million compared to $2.0 million for the year ended December 31, 1997.
Interest expense on the $25 million surplus note issued
December 1996 and expiring December 2026 was $2.1 million for
the year ended December 31, 1998, unchanged from the same
period of 1997. In addition, Golden American incurred interest expense
of $0.2 million in 1998 compared to $0.5 million in 1997 on the line of
credit with Equitable which was repaid with a capital contribution. Golden
American also paid $1.8 million in 1998 to ING America Insurance Holdings, Inc.
("ING AIH") for interest on the reciprocal loan agreement. Interest expense on
the revolving note payable with SunTrust Bank, Atlanta was $0.3 million for the
year ended December 31, 1998.
INCOME
Net income for 1998 was $5.1 million, an increase of $4.8 million from $0.3
million in 1997.
Comprehensive income for 1998 was $3.9 million, an increase of
$1.8 million from $2.1 million in 1997.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AAA by
Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's Rating
Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying
value and amortized cost basis of the Companies' total investments decreased
slightly during the first nine months of 2000. All of the Companies'
investments, other than mortgage loans on real estate, are carried at fair value
in the Companies' financial statements. The decrease in the carrying value of
the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of investments offset by net sales. The decrease
in the cost basis of the Companies' investment portfolio resulted from net
transfers to the separate accounts. The Companies manage the growth of insurance
operations in order to maintain adequate capital ratios. To support the fixed
account options of the Companies' variable insurance products, cash flow is
invested primarily in fixed maturities and mortgage loans on real estate.
At September 30, 2000, the Companies had no investments in default. At September
30, 2000, the Companies' investments had a yield of 6.7%. The Companies estimate
the total investment portfolio, excluding policy loans, had a fair value
approximately equal to 98.3% of amortized cost value at September 30, 2000.
FIXED MATURITIES: At September 30, 2000, the Companies had fixed maturities with
an amortized cost of $798.9 million and an estimated fair value of $784.8
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $14.1 million was comprised of
gross appreciation of $1.7 million and gross depreciation of $15.8 million. Net
unrealized holding losses on these securities, net of adjustments for VPIF,
DPAC, and deferred income taxes of $4.9 million, were included in stockholder's
equity at September 30, 2000.
The individual securities in the Companies' fixed
maturities portfolio (at amortized cost) include investment grade securities,
which include securities issued by the U.S. government, its agencies, and
corporations that are rated at least A- by Standard & Poor's Rating Services
("Standard & Poor's") ($527.7 million or 66.0%), that are rated BBB+ to BBB- by
Standard & Poor's ($130.1 million or 16.3%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($53.0 million or 6.5%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($88.1 million or 11.6%). The Companies' fixed maturity
investment portfolio had a combined yield at amortized cost of 6.7% at September
30, 2000.
GPP4SF-108896 75
Fixed maturities rated BBB+ to BBB- may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of the issuer to make principal and
interest payments than is the case with higher rated fixed maturities.
At September 30, 2000, the amortized cost value of the Companies' total
investments in below investment grade securities, excluding mortgage-backed
securities, was $71.5 million, or 7.0%, of the Companies' investment portfolio.
The Companies intend to purchase additional below investment grade securities,
but do not expect the percentage invested in such securities to exceed 10% of
the investment portfolio. At September 30, 2000, the yield at amortized cost on
the Companies' below investment grade portfolio was 8.1% compared to 6.5% for
the Companies' investment grade corporate bond portfolio. The Companies estimate
the fair value of the below investment grade portfolio was $67.5 million, or
94.4% of amortized cost value, at September 30, 2000.
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
significantly greater with respect to below investment grade securities than
with other corporate debt securities. Below investment grade securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, issuers of below investment grade securities usually have higher levels of
debt and are more sensitive to adverse economic conditions, such as a recession
or increasing interest rates, than are investment grade issuers. The Companies
attempt to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by company and by industry.
The Companies analyze the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Companies' ability
to realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e. if it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
received, which may necessitate future write-downs of securities in the
Companies' portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Companies' net income in
future periods.
During the first nine months of 2000, fixed maturities
designated as available for sale with a combined amortized cost of $163.3
million were sold, called, or repaid by their issuers. In total, net pre-tax
losses from sales, calls, and repayments of fixed maturity investments amounted
to $4.5 million in the first nine months of 2000.
During the second quarter of
2000, Golden American determined that the carrying value of an impaired bond
exceeded its estimated net realizable value. As a result, at June 30, 2000,
Golden American recognized a total pre-tax loss of approximately $142,000 to
reduce the carrying value of the bond to its net realizable value of $329,000.
EQUITY SECURITIES: Equity securities represent 0.9% of the Companies' investment
portfolio. At September 30, 2000, the Companies owned equity securities with a
cost of $9.7 million and an estimated fair value of $8.8 million. Net unrealized
depreciation of equity securities was comprised entirely of gross depreciation
of $0.9 million. Equity securities are comprised of investments in shares of
mutual funds underlying the Companies' registered separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate
represent 10.1% of the Companies' investment portfolio.
Mortgages outstanding were $104.5 million at September 30,
2000 with an estimated fair value of $102.4 million. The Companies'
mortgage loan portfolio is comprised of 59 loans with an average size of
$1.8 million and average seasoning of 0.6 years if weighted by the number of
loans. The Companies' mortgage loans on real estate are typically secured by
occupied buildings in major metropolitan locations and not speculative
developments and are diversified by type of property and geographic location. At
September 30, 2000, the yield on the Companies' mortgage loan portfolio was
7.3%.
GPP4SF-108896 76
At September 30, 2000, no mortgage loan on real estate was delinquent by
90 days or more. The Companies' loan investment strategy is consistent with
other life insurance subsidiaries of ING in the United States. The insurance
subsidiaries of EIC have experienced a historically low default rate in their
mortgage loan portfolios.
OTHER ASSETS. DPAC represents certain deferred costs
of acquiring new insurance business, principally first year commissions and
interest bonuses, premium credits, and other expenses related to production
after October 24, 1997 ("ING merger date"). The Companies' previous balances of
DPAC and VPIF were eliminated as of the ING merger date, and an asset
representing VPIF was established for all policies in force at the ING merger
date. VPIF is amortized into income in proportion to the expected gross profits
of in force acquired business in a manner similar to DPAC amortization. Any
expenses which vary directly with the sales of the Companies' products are
deferred and amortized. During the second quarter of 2000, a modified
coinsurance agreement was entered into which resulted in a $213.0 million
release of previously deferred policy acquisition costs. At September 30, 2000,
the Companies had DPAC and VPIF balances of $564.0 million and $28.9 million,
respectively.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established as a result of
the merger with ING. Accumulated amortization of goodwill through September 30,
2000 was $11.0 million.
Due from affiliates increased $9.2 million or 1438.4% to $9.8 million during the
first nine months of 2000. This is mainly due to an increased receivable for
management fee revenues. The increase is due to higher management fees in the
current year as well as the timing of the receivable settlement.
Other assets increased $1.2 million from December 31, 1999, due to an increase
in the receivable for securities sold and an increase in prepaid expenses.
At September 30, 2000, the Companies had $10.0 billion of separate account
assets compared to $7.6 billion at December 31, 1999. The increase in
separate account assets resulted from market appreciation, transfers from
the fixed account options, and sales of the Companies' variable annuity
products, net of redemptions.
At September 30, 2000, the Companies had total assets of $11.8 billion, a 26.0%
increase from December 31, 1999.
LIABILITIES. Future policy benefits for annuity
and interest sensitive life products decreased 9.1%, to $939.0 million due to
net transfers to the variable accounts. Market appreciation, net transfers from
the fixed account to the variable account options, and premiums, net of
redemptions, accounted for the $2.4 billion, or 32.1%, increase in separate
account liabilities to $10.0 billion at September 30, 2000.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029. On December 8, 1999,
Golden American issued a $35 million, 8.0% surplus note to First Columbine Life
Insurance Company, an affiliate, which matures on December 7, 2029. On September
30, 1999, Golden American issued a $75 million, 7.75% surplus note to ING AIH,
which matures on September 29, 2029. On December 30, 1999, ING AIH assigned the
surplus note to Equitable Life. On December 30, 1998, Golden American issued a
$60 million, 7.2% surplus note to Equitable Life, which matures on December 29,
2028. On December 17, 1996, Golden American issued a $25 million, 8.2% surplus
note to Equitable of Iowa Companies, which matures on December 17, 2026. As a
result of the ING merger, the surplus note is now payable to EIC.
Due to affiliates increased $12.5 million or 98.1% to $25.1 million during the
first nine months of 2000. This is mainly due to the overpayment of the cash
settlement for the modified co-insurance agreement with a related party.
Other
liabilities decreased $5.9 million or 11.1% to $47.3 million during the first
nine months of 2000 due to the timing of account transfers, as well as the
timing of the settlement of investment transactions.
In conjunction with the
volume of variable annuity sales, the Companies' total liabilities increased
$2.3 billion, or 26.3%, during the first nine months of 2000 and totaled $11.3
billion at September 30, 2000.
GPP4SF-108896 77
The effects of inflation and changing prices on
the Companies' financial position are not material since insurance assets and
liabilities are both primarily monetary and remain in balance. An effect of
inflation, which has been low in recent years, is a decline in stockholder's
equity when monetary assets exceed monetary liabilities.
STOCKHOLDER'S EQUITY. Additional paid-in capital increased $80.0 million,
or 17.1%, from December 31, 1999 to $548.6 million at September 30, 2000,
due to a capital contribution from the Parent.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Companies to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Companies' principal sources of cash are variable annuity premiums and
product charges, investment income, maturing investments, proceeds from debt
issuance, and capital contributions made by the Parent. Primary uses of these
funds are payments of commissions and operating expenses, interest and premium
credits, investment purchases, repayment of debt, as well as withdrawals and
surrenders.
Net cash provided by operating activities was $142.9 million in the first nine
months of 2000 compared to net cash used of $60.0 million in the same period of
1999. The Companies have predominantly had negative cash flows from operating
activities since Golden American started issuing variable insurance products in
1989. These negative operating cash flows result primarily from the funding of
commissions and other deferrable expenses related to the continued growth in the
variable annuity products. However, during the first nine months of 2000, Golden
American received $214.7 million in conjunction with the modified coinsurance
agreement with an affiliate, resulting in positive cash flow from operating
activities.
Net cash provided by investing activities was $15.0 million during the first
nine months of 2000 as compared to net cash used of $111.3 million in the same
period of 1999. This change from prior year is primarily due to net sales of
fixed maturities and equity securities, the net repayment of policy loans and a
reduction in purchases of property and equipment. These sources of cash were
partially offset by an increase in net purchases of short-term investments and
mortgages during the first nine months of 2000 as compared to the same period in
1999. Net sales of fixed maturities reached $53.1 million during the first nine
months of 2000 compared to net purchases of $79.7 million in the same period of
1999. Net purchases of short term investments reached $37.6 million in the first
nine months of 2000 versus $25.4 million during the same period in 1999. Net
purchases of mortgage loans on real estate were $4.7 million during the first
nine months of 2000 versus net sales of $3.2 million during the first nine
months of 1999.
Net cash used in financing activities was $162.4 million during
the first nine months of 2000 compared to net cash provided by financing
activities of $177.5 million during the same period in 1999. The net
reallocations to the Companies' separate accounts, which increased to $620.6
million from $439.2 million during the prior year, contributed to the increased
use of cash in financing activities. The issue of surplus notes of $75.0 million
in September, 1999 also added to the decrease of cash flow from financing
activities, as did a decrease in capital contributions of $20.0 million to $80.0
million in the first nine months of 2000.
The Companies' liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH and the Companies have established an $85.0 million
revolving note facility with SunTrust Bank, Atlanta which expired on July 31,
2000. As of July 31, 2000, the SunTrust Bank, Atlanta revolving note facility
was extended to July 30, 2001. Management believes these sources of liquidity
are adequate to meet the Companies' short-term cash obligations.
Based on
current trends, the Companies expect to continue to use net cash in operating
activities, given the continued growth of the variable annuity sales. It is
anticipated that a continuation of capital contributions from the Parent, the
issuance of additional surplus notes, and/or modified coinsurance agreements
will cover these net cash outflows. ING AIH is committed to the sustained growth
of Golden American. During 2000, ING AIH will maintain Golden American's
statutory capital and surplus at the end of each quarter at a level
GPP4SF-108896 78
such that:
1) the ratio of Total Adjusted Capital divided by Company Action Level Risk
Based Capital exceeds 300%; 2) the ratio of Total Adjusted Capital (excluding
surplus notes) divided by Company Action Level Risk Based Capital exceeds 200%;
and 3) Golden American's statutory capital and surplus exceeds the "Amounts
Accrued for Expense Allowances Recognized in Reserves" as disclosed on page 3,
Line 13A of Golden American's statutory statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. Golden American occupies 105,000 square
feet of leased space; an affiliate occupies 20,000 square feet. Golden
American's New York subsidiary is housed in leased space in New York, New York.
The Companies intend to spend approximately $0.5 million on capital needs during
the remainder of 2000.
The ability of Golden American 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 2000, 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, Golden
American, unless a notice of its intent to declare a dividend and the amount of
the dividend has been filed with the New York Insurance Department at least
thirty days in advance of the proposed declaration. If the Superintendent of the
New York Insurance Department 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.
The management of First Golden does not anticipate paying dividends to Golden
American during 2000.
The NAIC's risk-based capital requirements require
insurance companies to calculate and report information under a risk-based
capital formula. These requirements are intended to allow insurance regulators
to monitor the capitalization of insurance companies based upon the type and
mixture of risks inherent in a company's operations. The formula includes
components for asset risk, liability risk, interest rate exposure, and other
factors. The Companies have complied with the NAIC's risk-based capital
reporting requirements. Amounts reported indicate the Companies have total
adjusted capital well above all required capital levels.
REINSURANCE. At September 30, 2000, Golden American had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under its variable contracts. Golden
American remains liable to the extent its reinsurers do not meet their
obligations under the reinsurance agreements.
On June 30, 2000, effective
January 1, 2000, Golden American entered into a modified coinsurance agreement
with Equitable Life, an affiliate, covering a considerable portion of Golden
American's variable annuities issued in 2000, excluding those with an interest
rate guarantee.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing additional alternative
reinsurance arrangements for new business issued after December 31, 1999. There
can be no assurance that such alternative arrangements will be available. The
reinsurance covering business in force at December 31, 1999 will continue to
apply in the future.
IMPACT OF YEAR 2000. In prior years, the Companies discussed the nature and
progress of plans to become Year 2000 ready. In late 1999, the Companies
completed remediation and testing of systems. As a result of those planning and
implementation efforts, the Companies experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believe those systems successfully responded to the Year 2000 date change.
The Companies are not aware of any material problems resulting from Year 2000
issues, either with products, internal systems, or the products and services of
third parties. The Companies will continue to monitor mission critical computer
applications and those of suppliers and vendors throughout the Year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
GPP4SF-108896 79
MARKET RISK AND RISK MANAGEMENT
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development, and crediting
rates determination. As part of the risk management process, different economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include contractholder behavior
and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable insurance products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed by
contractholders, not by the Companies (subject to, among other things, certain
minimum guarantees). The Companies' products also provide certain minimum death
benefits that depend on the performance of the variable separate accounts.
Currently, the majority of death benefit risks are reinsured, which protects the
Companies from adverse mortality experience and prolonged capital market
decline.
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material amount
of market risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the
Companies to respond to changes in market interest rates, changes in prepayment
risk, changes in relative values of asset sectors and individual securities and
loans, changes in credit quality outlook, and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risks, as well as other risks. The Companies'
asset/liability management discipline includes strategies to minimize exposure
to loss as interest rates and economic and market conditions change.
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
June 30, 2000 levels, variable separate account funds, which represent 90% of
the in force, pass the risk in underlying fund performance to the contractholder
(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from June 30, 2000 levels, the remaining 10% of the
in force are fixed account funds and almost all of these have market value
adjustments which provide significant protection against changes in interest
rates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other oral or written
statement by the Companies or any of their officers, directors, or employees is
qualified by the fact that actual results of the Companies may differ materially
from such statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which
may affect the ability of the Companies to sell their products, the
market value and liquidity of the Companies' investments, fee
revenue, and the lapse rate of the Companies' policies,
notwithstanding product design features intended to enhance
persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations, which
may affect the tax status of the Companies'
products.
3. Changes in the regulation of financial services, including bank
sales and underwriting of insurance products, which may affect the
competitive environment for the Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation,
insurance industry insolvencies, availability of competitive
reinsurance on new business, investment performance of the
underlying portfolios of the variable
GPP4SF-108896 80
products, variable product design, and sales volume by significant
sellers of the Companies' variable products.
OTHER INFORMATION
SEGMENT INFORMATION. During the period since the acquisition by Bankers Trust,
September 30, 1992 to date of this Prospectus, Golden American's operations
consisted of one business segment, the sale of variable insurance products.
Golden American and its affiliate DSI are party to in excess of 480 sales
agreements with broker-dealers, five of whom, DSI, Locust Street Securities,
Inc., Vestax Securities Corporation, IFG Network Securities, Inc. and
Multi-Financial Securities Corporation, are affiliates of Golden American.
During the first nine months of 2000, one broker-dealer produced 10% or more of
Golden American's product sales (two broker-dealers as of December 31, 1999).
REINSURANCE. On June 30, 2000, effective January 1, 2000, Golden American
entered into a modified coinsurance agreement with Equitable Life, an affiliate,
covering a considerable portion of Golden American's variable annuities issued
in 2000, excluding those with an interest rate guarantee. The accompanying
financial statements are presented net of the effects of the agreement.
RESERVES. In accordance with the life insurance laws and regulations under which
Golden American operates, it is obligated to carry on its books, as liabilities,
actuarially determined reserves to meet its obligations on outstanding
Contracts. Reserves, based on valuation mortality tables in general use in the
United States, where applicable, are computed to equal amounts which, together
with interest on such reserves computed annually at certain assumed rates, make
adequate provision according to presently accepted actuarial standards of
practice, for the anticipated cash flows required by the contractual obligations
and related expenses of Golden American.
COMPETITION. Golden American is engaged in a business that is highly competitive
because of the large number of stock and mutual life insurance companies and
other entities marketing insurance products comparable to those of Golden
American. There are approximately 2,350 stock, mutual and other types of
insurers in the life insurance business in the United States, a substantial
number of which are significantly larger than Golden American.
The Companies have a service agreement with Equitable Life, in which Equitable
Life provides administrative and financial services. Under this agreement, the
Companies incurred expenses of $339,000 in the third quarter of 2000 and
$1,006,000 for the first nine months of 2000 ($50,000 and $855,000,
respectively, for the same periods of 1999).
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 third quarter and nine months ended September 30,
2000, the fee was $6.5 million and $15.6 million respectively ($2.7 million and
$6.8 million respectively, for the same periods of 1999).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
third quarter and first nine months of 2000, the Companies incurred fees of
$596,000 and $870,000, respectively, under this agreement ($523,000 and $1.6
million, respectively for the same periods of 1999).
Golden American provides certain advisory, computer and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1.5 million for the third quarter
of 2000 and $4.8 million for the first nine months of 2000 ($237,000 and
$898,000, respectively, for the same periods of 1999).
The Companies provide resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$54,000 for the third quarter of 2000, and $162,000 for the first nine months of
2000 ($276,000 and $759,000 respectively, for the same periods of 1999).
GPP4SF-108896 81
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $117,000 for the third quarter of
2000 and $387,000 for the first nine months of 2000 ($159,000 and $376,000,
respectively, for the same periods of 1999).
Golden American provides resources
and services to United Life & Annuity Insurance Company, an affiliate. Revenues
for these services, which reduce general expenses incurred by Golden American,
totaled $145,000 for the third quarter of 2000 and $463,000 for the first nine
months of 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $65,000 for the third
quarter of 2000 and $173,000 for the first nine months of 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $26,000 for the third quarter of
2000 and $78,000 for the first nine months of 2000.
Golden American has a guaranty agreement with Equitable Life, an affiliate. In
consideration of an annual fee, payable September 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 a direct
or indirect guaranty by Equitable Life of the payment of any debt or other
obligation, indebtedness, or liability 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. On
September 30, 2000, Golden American incurred a fee of $7,000, under this
agreement. No annual fee was paid in 1999.
DISTRIBUTION AGREEMENT. DSI, an affiliate, acts as the principal underwriter (as
defined in the Securities Act of 1933 and the Investment Company Act of 1940, as
amended) of the variable insurance products issued by the 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. The Companies paid commissions to DSI totaling $47.1
million and $156.3 million in the third quarter and the first nine months of
2000, respectively ($50.1 million and $130.4 million, respectively, for the same
periods of 1999).
EMPLOYEES. Golden American, as a result of its Service Agreement with Bankers
Trust (Delaware) and EIC Variable, had very few direct employees. Instead,
various management services were provided by Bankers Trust (Delaware), EIC
Variable and Bankers Trust New York Corporation, as described above under
"Service Agreement." The cost of these services were allocated to Golden
American. Since August 14, 1996, Golden American has hired individuals to
perform various management services and has looked to Equitable of Iowa and its
affiliates for certain other management services. Certain officers of Golden
American are also officers of DSI, and their salaries are allocated among both
companies.
Certain officers of Golden American are also officers of other
Equitable of Iowa subsidiaries. See "Directors and Executive Officers."
PROPERTIES. Golden American's principal office is located at 1475 Dunwoody
Drive, West Chester, Pennsylvania 19380, where all of Golden American's records
are maintained. This office space is leased.
STATE REGULATION. Golden American
is subject to the laws of the State of Delaware governing insurance companies
and to the regulations of the Delaware Insurance Department (the "Insurance
Department"). A detailed financial statement in the prescribed form (the "Annual
Statement") is filed with the Insurance Department each year covering Golden
American's operations for the preceding year and its financial condition as of
the end of that year. Regulation by the Insurance Department includes periodic
examination to determine contract liabilities and reserves so that the Insurance
Department may certify that these items are correct. Golden American's books and
accounts are subject to review by the Insurance Department at all
GPP4SF-108896 82
times. A full
examination of Golden American's operations is conducted periodically by the
Insurance Department and under the auspices of the NAIC.
In addition, Golden
American is subject to regulation under the insurance laws of all jurisdictions
in which it operates. The laws of the various jurisdictions establish
supervisory agencies with broad administrative powers with respect to various
matters, including licensing to transact business, overseeing trade practices,
licensing agents, approving contract forms, establishing reserve requirements,
fixing maximum interest rates on life insurance contract loans and minimum rates
for accumulation of surrender values, prescribing the form and content of
required financial statements and regulating the type and amounts of investments
permitted. Golden American is required to file the Annual Statement with
supervisory agencies in each of the jurisdictions in which it does business, and
its operations and accounts are subject to examination by these agencies at
regular intervals.
The NAIC has adopted several regulatory initiatives designed
to improve the surveillance and financial analysis regarding the solvency of
insurance companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon Golden American. For additional information about the
Risk-Based Capital adequacy monitoring system and Golden American, see
"Management's Discussion and Analysis Results of Operations."
In addition, many
states regulate affiliated groups of insurers, such as Golden American, and its
affiliates, under insurance holding company legislation. Under such laws,
inter-company transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending on the size
of the transfers and payments in relation to the financial positions of the
companies involved.
Under insurance guaranty fund laws in most states, insurers
doing business therein can be assessed (up to prescribed limits) for contract
owner losses incurred by other insurance companies which have become insolvent.
Most of these laws provide that an assessment may be excused or deferred if it
would threaten an insurer's own financial strength. For information regarding
Golden American's estimated liability for future guaranty fund assessments, see
Note 11 of Notes to Financial Statements.
Although the federal government
generally does not directly regulate the business of insurance, federal
initiatives often have an impact on the business in a variety of ways. Certain
insurance products of Golden American are subject to various federal securities
laws and regulations. In addition, current and proposed federal measures which
may significantly affect the insurance business include regulation of insurance
company solvency, employee benefit regulation, removal of barriers preventing
banks from engaging in the insurance business, tax law changes affecting the
taxation of insurance companies and the tax treatment of insurance products and
its impact on the relative desirability of various personal investment vehicles.
GPP4SF-108896 83
DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
- -------------------------- ----------------------------------------------------
Barnett Chernow (50) President and Director
Myles R. Tashman (58) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (52) Director
Mark A. Tullis (45) Director
Phillip R. Lowery (47) Director
James R. McInnis (52) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (43) Executive Vice President and Chief Actuary
E. Robert Koster (42) Senior Vice President and Chief Financial Officer
David L. Jacobson (51) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (47) Senior Vice President, Project Implementation
Steven G. Mandel (41) Senior Vice President and Chief Information Officer
Gary F. Haynes (55) Senior Vice President, Operations
Each director is elected to serve for one year or until the next annual meeting
of shareholders or until his or her successor is elected. Some directors are
directors of insurance company subsidiaries of Golden American's parent,
Equitable of Iowa. Golden American's directors and senior executive officers and
their principal positions for the past five years are listed below:
Mr. Barnett Chernow became President of Golden American and First Golden in
April, 1998. From 1996 to 1998, Mr. Chernow served as Executive V.P. of First
Golden. From 1993 to 1998, Mr. Chernow also served as Executive Vice President
of Golden American. He was elected to serve as a director of First Golden in
June, 1996 and Golden American in April, 1998.
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 was
elected to serve as a Director of Golden American in January 1998. He also
serves as a Director, Executive Vice President, General Counsel and Secretary of
First Golden.
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.
Mr. Mark A. Tullis became a Director of Golden
American and First Golden in December 1999. He has served as Executive Vice
President, Strategy and Operations for ING Americas Region since September 1999.
From June, 1994 to August, 1999, he was with Primerica, serving as Executive
Vice President at the time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April 1999 and
First Golden in December 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Mr. James R. McInnis joined
Golden American and First Golden in December, 1997 as Executive Vice President.
From 1982 through November, 1997, he held several positions with the Endeavor
Group and was President upon his departure.
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. He was elected Senior Vice President and Chief Actuary of First Golden in
June, 1996 and elected Executive Vice President in June, 1998.
Mr. E. Robert Koster was elected Senior Vice President and Chief
Financial Officer of Golden American and First Golden in September 1998.
From August, 1984 to September, 1998 he has held various
positions with ING companies in The Netherlands.
GPP4SF-108896 84
Mr. David L. Jacobson joined Golden American in November 1993 as Vice
President and Assistant Secretary and became Senior Vice President in December,
1993. He was elected Senior Vice President and Assistant Secretary for First
Golden in June, 1996.
Mr. William L. 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.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
Mr. Steven G. Mandel joined Golden American in October 1988 and became
Senior Vice President and Chief Information Officer in June, 1998.
Mr. Gary Haynes rejoined Golden American in April, 1999 as Senior Vice
President, Operations. From August, 1995 to February, 1998, he was with F&G Life
Insurance Company serving as Senior Vice President, Operations at the time of
his departure. He served as Senior Vice President Operations with Golden
American from July, 1994 to August, 1995.
COMPENSATION TABLE AND OTHER INFORMATION
The following sets forth information with respect to the Chief Executive Officer
of Golden American as well as the annual salary and bonus for the next four
highly compensated executive officers for the fiscal year ended December 31,
1999. Certain executive officers of Golden American are also officers of DSI and
First Golden. The salaries of such individuals are allocated among Golden
American, DSI and First Golden pursuant to an arrangement among these companies.
GPP4SF-108896 85
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to the annual salary and
bonus for Golden American's Chief Executive Officer, the four other most highly
compensated executive officers and the two most highly compensated former
executive officers for the fiscal year ended December 31, 1999.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS 1 OPTIONS 2 OPTIONS COMPENSATION 3
Barnett Chernow.......... 1999 $ 300,009 $ 698,380 6,950 $20,464 4
President 1998 $ 284,171 $ 105,375 8,000
1997 $ 234,167 $ 31,859 $ 277,576 4,000
James R. McInnis......... 1999 $ 250,007 $ 955,646 5,550 $15,663 4
Executive Vice 1998 $ 250,004 $ 626,245 2,000
President
Myles R. Tashman......... 1999 $ 199,172 $ 293,831 1,800 $14,598 4
Executive Vice 1998 $ 189,337 $ 54,425 3,500
President, General 1997 $ 181,417 $ 25,000 $ 165,512 5,000
Counsel and Secretary
Stephen J. Preston....... 1999 $ 198,964 $ 235,002 2,050 $12,564 4
Executive Vice 1998 $ 173,870 $ 32,152 3,500
President and Chief 1997 $ 160,758 $ 16,470
Actuary
Steven G. Mandel......... 1999 $ 153,754 $ 261,330 1,400 $11,551 4
Senior Vice 1998 $ 139,169 $ 25,833
President 1997 $ 129,167 $ 25,000
R. Brock Armstrong....... 1999 $ 500,014 $ 500,000 10,175 $23,921 4
Former Chief
Executive Officer
Keith Glover............. 1999 $ 87,475 $ 761,892 $558,541 4, 5
Former Executive 1998 $ 250,000 $ 145,120 3,900
Vice President
--------------------
1 The amount shown relates to bonuses paid in 1999, 1998, and 1997.
2 Restricted stock awards granted to executive officers vested on
October 24, 1997 with the change in control of Equitable of Iowa.
3 Other compensation for 1999 includes reimbursements to named employee
for participation in company sponsored programs such as tuition
reimbursement, PC purchase assistance program, and other miscellaneous
payments or reimbursements. For 1999, Mr. Chernow received $2,464; Mr.
McInnis received $636; Mr. Tashman received $2,598; Mr. Preston received
$564; Mr. Mandel received $2,251; Mr. Armstrong received $1,421; and Mr.
Glover received $3,089.
4 Other compensation for 1999 includes a business allowance for each named
executive which is required to be applied to specific business expenses
of the named executive.
5 In connection with the termination of his employment, Mr. Glover
received payments and benefits totaling $555,452.
GPP4SF-108896 86
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
% OF TOTAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE APPRECIATION
OPTIONS IN FISCAL OR BASE EXPIRATION FOR OPTION TERM 3
NAME GRANTED 1 YEAR PRICE 2 DATE 5% 10%
Barnett Chernow........... 2,000 3.18 $54.210 01/04/2004 $ 29,954 $ 66,191
4,950 7.86 $54.210 04/01/2009 $ 168,757 $ 427,664
James R. McInnis.......... 2,550 4.05 $54.210 04/01/2009 $ 86,936 $ 220,312
3,000 4.77 $55.070 10/01/2009 $ 103,900 $ 263,302
Myles R. Tashman.......... 1,800 2.86 $54.210 04/01/2009 $ 61,366 $ 155,514
Stephen J. Preston........ 2,050 3.26 $54.210 04/01/2009 $ 69,889 $ 177,113
Steven G. Mandel.......... 1,400 2.22 $54.210 04/01/2009 $ 47,729 $ 120,955
R. Brock Armstrong........ 10,175 16.16 $54.210 04/01/2009 $ 346,890 $ 879,087
------------------
1 Stock appreciation rights granted in 1999 to the officers of Golden
American have a three-year vesting period and an expiration date as
shown.
2 The base price was equal to the fair market value of ING's stock on
the date of grant.
3 Total dollar gains based on indicated rates of appreciation of share
price over the total term of the rights.
GPP4SF-108896 87
- --------------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000
GPP4SF-108896 88
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
September 30, 2000 December 31, 1999
------------------ -----------------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $798,855; 1999 - $858,052)......................... $ 784,780 $ 835,321
Equity securities, at fair value (cost: 2000 - $9,671;
1999 - $14,952)..................................................... 8,832 17,330
Mortgage loans on real estate....................................... 104,537 100,087
Policy loans........................................................ 13,126 14,157
Short-term investments.............................................. 117,757 80,191
-------------- ------------
Total investments...................................................... 1,029,032 1,047,086
Cash and cash equivalents.............................................. 9,979 14,380
Reinsurance recoverable................................................ 19,362 14,834
Reinsurance recoverable from affiliate................................. -- --
Due from affiliates.................................................... 9,768 637
Accrued investment income.............................................. 11,511 11,198
Deferred policy acquisition costs...................................... 564,004 528,957
Value of purchased insurance in force ................................. 28,881 31,727
Current income taxes recoverable....................................... -- 35
Deferred income tax asset.............................................. 13,546 21,943
Property and equipment, less allowances for depreciation of
$4,857 in 2000 and $3,229 in 1999................................... 14,153 13,888
Goodwill, less accumulated amortization of $11,020 in 2000
and $8,186 in 1999.................................................. 140,107 142,941
Other assets........................................................... 3,733 2,514
Separate account assets................................................ 9,991,861 7,562,717
-------------- ------------
Total assets........................................................... $ 11,835,937 $ 9,392,857
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products...................... $ 939,865 $ 1,033,701
Unearned revenue reserve.......................................... 6,914 6,300
Other policy claims and benefits.................................... 35 8
-------------- ------------
946,814 1,040,009
Reciprocal loan from affiliate......................................... -- --
Surplus notes.......................................................... 245,000 245,000
Revolving note payable................................................. -- 1,400
Due to affiliates...................................................... 25,062 12,651
Current income taxes payable........................................... 289 --
Other liabilities...................................................... 47,257 53,231
Separate account liabilities........................................... 9,991,861 7,562,717
-------------- ------------
11,256,283 8,915,008
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.......................................... 548,640 468,640
Accumulated other comprehensive loss................................ (5,433) (9,154)
Retained earnings .................................................. 33,947 15,863
-------------- ------------
Total stockholder's equity............................................. 579,654 477,849
-------------- ------------
Total liabilities and stockholder's equity............................. $ 11,835,937 $ 9,392,857
============== ============
GPP4SF-108896 89
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
For the Nine For the Nine
Months Ended Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Revenues:
Annuity and interest sensitive life product charges................. $ 106,892 $ 55,195
Management fee revenue.............................................. 15,579 6,755
Net investment income............................................... 47,896 42,671
Realized losses on investments...................................... (4,546) (2,215)
Net income from modified coinsurance agreements..................... 220,249 6,443
Other income........................................................ 1,287 1,005
----------- ----------
387,357 109,854
Insurance benefits and expenses: Annuity and interest sensitive life benefits:
Interest credited to account balances............................... 147,277 125,404
Benefit claims incurred in excess of account balances............... 4,083 3,452
Underwriting, acquisition, and insurance expenses:
Commissions......................................................... 160,105 134,585
General expenses.................................................... 61,194 47,551
Insurance taxes, state licenses, and fees........................... 4,047 3,382
Policy acquisition costs deferred................................. (87,753) (244,840)
Amortization:
Deferred policy acquisition costs............................... 49,527 19,699
Value of purchased insurance in force............................. 3,181 4,803
Goodwill.......................................................... 2,834 2,834
----------- ----------
344,495 96,870
Interest expense....................................................... 14,976 5,552
----------- ----------
359,471 102,422
----------- ----------
Income before income taxes............................................. 27,886 7,432
Income taxes........................................................... 9,802 3,881
----------- ----------
Net income............................................................. $ 18,084 $ 3,551
=========== ==========
See accompanying notes.
GPP4SF-108896 90
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
For the Nine For the Nine
Months Ended Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................... $ 142,933 $ (60,026)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale............................... 158,731 170,548
Equity securities................................................... 5,196 --
Mortgage loans on real estate....................................... 5,118 4,241
Policy loans - net.................................................. 837 --
------------- ------------
169,882 174,789
Acquisition of investments:
Fixed maturities - available for sale............................... (105,606) (250,277)
Mortgage loans on real estate....................................... (9,786) (1,034)
Policy loans - net.................................................. -- (1,682)
Short term investments - net........................................ (37,567) (25,367)
------------- ------------
(152,959) (278,360)
Net purchase of property and equipment................................. (1,898) (7,700)
Issuance of reciprocal loan agreement receivables...................... (16,900) --
Receipt of repayment of reciprocal loan agreement receivables.......... 16,900 --
Net cash provided by (used in) investing activities.................... 15,025 (111,271)
------------- ------------
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings..................... 177,900 488,950
Repayment of reciprocal loan agreement borrowings...................... (177,900) (488,950)
Proceeds from revolving note payable................................... 66,100 131,595
Repayment of revolving note payable.................................... (67,500) (131,595)
Receipts from annuity and interest sensitive life
policies credited to account balances............................... 506,412 540,464
Return of account balances on annuity
and interest sensitive life policies................................ (126,803) (98,715)
Net reallocations to Separate Accounts................................. (620,568) (439,223)
Contribution from parent .............................................. 80,000 100,000
------------- ------------
Net cash provided by (used in) financing activities.................... (162,359) 177,526
------------- ------------
Increase (decrease) in cash and cash equivalents....................... (4,401) 6,229
Cash and cash equivalents at beginning of period....................... 14,380 6,679
------------- ------------
Cash and cash equivalents at end of period............................. $ 9,979 $ 12,908
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for........................................
Interest............................................................ $ 18,068 $ 5,078
Taxes............................................................... $ 28 $ 10
See accompanying notes.
GPP4SF-108896 91
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. This Form is being filed with the reduced disclosure format
specified in General Instruction H(1) and (2) of Form 10-Q. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All adjustments were of a normal
recurring nature, unless otherwise noted in Management's Discussion and Analysis
and the Notes to Financial Statements. Operating results for the nine months
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. These financial statements
should be read in conjunction with the financial statements and related
footnotes included in the Golden American Life Insurance Company's annual report
on Form 10-K for the year ended December 31, 1999.
CONSOLIDATION
The condensed 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 is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $6,017,000 and $75,508,000 for the nine months ended
September 30, 2000 and 1999, respectively. Total statutory capital and surplus
was $441,698,000 at September 30, 2000 and $368,928,000 at December 31, 1999.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to conform to the September 30, 2000 financial statement presentation.
GPP4SF-108896 92
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
2. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the third quarters of 2000 and 1999, total comprehensive
income (loss) for the Companies amounted to $14,781,000 and $2,059,000,
respectively, and $21,805,000 and $(18,000) for the nine months ended September
30, 2000 and 1999, respectively. Included in these amounts are total
comprehensive income (loss) for First Golden of $549,000 and $(14,000) for the
third quarters of 2000 and 1999, respectively, and $659,000 and $(258,000) for
the nine months ended September 30, 2000 and 1999, respectively. Other
comprehensive income (loss) excludes net investment gains (losses) included in
net income which merely represent transfers from unrealized to realized gains
and losses. These amounts totaled $(834,000) and $(460,000) during the third
quarters of 2000 and 1999, respectively, and $(1,422,000) and $(2,512,000)
during the nine months ended September 30, 2000 and 1999, respectively. Such
amounts, which have been measured through the date of sale, are net of income
taxes and adjustments for value of purchased insurance in force and deferred
policy acquisition costs totaling $(1,080,000) and $(38,000) for the third
quarters of 2000 and 1999, respectively, and $(3,121,000) and $297,000 for the
nine months ended September 30, 2000 and 1999, respectively.
3. INVESTMENTS
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 impairment in value
appears to be other than temporary. During the second quarter of 2000, Golden
American determined that the carrying value of an impaired bond exceeded its
estimated net realizable value. As a result, at June 30, 2000, Golden American
recognized a total pre-tax loss of approximately $142,000 to reduce the carrying
value of the bond to its net realizable value of $329,000 at June 30, 2000.
During the third quarter of 1999, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at September 30, 1999, Golden American recognized a total pre-tax loss of
$1,639,000 to reduce the carrying value of the bonds to their combined net
realizable value of $1,137,000.
4. RELATED PARTY TRANSACTIONS
Operating Agreements: Directed Services, Inc. ("DSI"), an affiliate, 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. The
Companies paid commissions to DSI totaling $47,073,000 and $156,325,000 in the
third quarter and the first nine months of 2000, respectively ($50,131,000 and
$130,419,000, respectively, for the same periods of 1999).
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 third quarter and nine months ended
September 30, 2000, the fee was $6,521,000 and $15,579,000, respectively
($2,659,000 and $6,755,000, respectively, for the same periods of 1999).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
third quarter and first nine months of 2000, the Companies incurred fees of
$596,000 and $1,870,000, respectively, under this agreement ($523,000 and
$1,637,000, respectively, for the same periods of 1999).
GPP4SF-108896 93
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("Equitable Life"), an affiliate. In consideration of an annual fee,
payable September 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 a direct or indirect guaranty by Equitable Life
of the payment of any debt or other obligation, indebtedness, or liability 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. On September 30, 2000, Golden American incurred
a fee of $7,000, under this agreement. No annual fee was paid in 1999.
Golden American provides certain advisory, computer, and
other resources and services to Equitable Life. Revenues for
these services, which reduced general expenses incurred by Golden American,
totaled $1,534,000 in the third quarter of 2000 and
$4,810,000 for the first nine months of 2000 ($237,000 and $898,000,
respectively, for the same periods of 1999).
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 $339,000 in the third quarter of 2000 and $1,006,000 for the first
nine months of 2000 ($50,000 and $855,000 respectively, for the same periods of
1999).
The Companies provide resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by the Companies, totaled
$54,000 for the third quarter of 2000 and $162,000 for the first nine months of
2000 ($276,000 and $759,000 respectively, for the same periods of 1999).
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $117,000 for the third quarter of
2000 and $387,000 for the first nine months of 2000 ($159,000 and $376,000,
respectively, for the same periods of 1999).
Golden American provides resources
and services to United Life & Annuity Insurance Company, an affiliate. Revenues
for these services, which reduced general expenses incurred by Golden American,
totaled $145,000 for the third quarter of 2000 and $463,000 for the first nine
months of 2000.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $65,000 for the third
quarter of 2000 and $173,000 for the first nine months of 2000.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $26,000 for the third quarter of
2000 and $78,000 for the first nine months of 2000.
For the third quarter of 2000, the Companies received premiums, net of
reinsurance, for variable products sold through five affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), and IFG Network
Securities, Inc. ("IFG"), of $6,000,000, $700,000, $0, $2,100,000, and
$2,700,000, respectively ($46,600,000, $12,900,000, $0, $11,000,000, and
$4,300,000, respectively, for the same period of 1999). For the first nine
months of 2000, the Companies received premiums, net of reinsurance for variable
products sold through five affiliates, LSSI, Vestax, DSI, Multi-Financial, and
IFG of $73,000,000, $29,000,000, $800,000, $23,200,000, and $11,000,000,
respectively ($121,900,000, $72,000,000, $2,300,000, $24,400,000 and
$20,000,000, respectively, for the same period of 1999).
GPP4SF-108896 94
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
Modified Coinsurance Agreement: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued in 2000, excluding those with an interest rate
guarantee. The accompanying financial statements are presented net of the
effects of the agreement.
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 Department of Insurance of the
State of Delaware. Interest on any Golden American borrowings is charged at the
rate of ING AIH's cost of funds for the interest period plus 0.1%. 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 $91,000 and
$397,000 for the third quarters of 2000 and 1999, respectively, and $427,000 and
$633,000 for the first nine months of 2000 and 1999, respectively. At September
30, 2000, Golden American had no borrowings from ING AIH under this agreement.
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred interest expense of $1,020,000 for the third
quarter of 2000 and $3,076,000 for the first nine months of 2000.
On December 8, 1999, Golden American
issued a 7.979% surplus note in the amount of $35,000,000 to First
Columbine Life Insurance Company ("First Columbine"), an affiliate. The
note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American incurred interest expense of
$696,000 for the third quarter of 2000 and $2,271,000 for the first nine months
of 2000.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,449,000 for the third quarter of 2000 and
$4,355,000 for the first nine months of 2000. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $1,088,000 and $1,088,000 for the third quarters of
2000 and 1999, respectively, and $3,263,000 for the first nine months of 2000,
unchanged from the same period in 1999.
GPP4SF-108896 96
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. The note matures on December 17,
2026. Payment of 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 $516,000 for the
quarter ended September 30, 2000, and $1,547,000 for the first nine months of
2000, unchanged from the same periods in 1999.
Stockholder's Equity: During the third quarter of 2000 and first nine months of
2000, Golden American received capital contributions from its Parent of $0 and
$80,000,000, respectively ($20,000,000 and $100,000,000, respectively, for the
same periods of 1999).
5. COMMITMENTS AND CONTINGENCIES
Reinsurance: At September 30, 2000, the Companies had reinsurance treaties with
four unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks under its variable contracts as of December 31,
1999. Golden American remains liable to the extent its reinsurers do not meet
their obligations under the reinsurance agreements. At September 30, 2000 and
December 31, 1999, the Companies had net receivables of $19,362,000 and
$14,834,000 respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $2,961,000 and $493,000,
respectively, for claims recoverable from reinsurers, $3,928,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $20,329,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $6,564,000 for the third quarter of 2000 and $14,472,000 for the
first nine months of 2000 compared to $2,638,000 and $6,656,000 for the same
periods in 1999. Also included in the accompanying financial statements are net
policy benefits of $1,122,000 for the third quarter of 2000 and $2,957,000 for
the first nine months of 2000 compared to $2,569,000 and $4,008,000 for the same
periods in 1999.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued in 2000,
excluding those with an interest rate guarantee. At September 30, 2000, Golden
American had received a total settlement of $214.7 million under this agreement.
The carrying value of the separate account liabilities covered under this
agreement represent 17.1% of total separate account liabilities outstanding at
September 30, 2000. Golden American remains liable to the extent Equitable Life
does not meet its obligations under the agreement. The accompanying financial
statements are presented net of the effects of the agreement.
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.
The reinsurance treaties that
covered the nonstandard minimum guaranteed death benefits for new business have
been terminated for business issued after December 31, 1999. The Companies are
currently pursuing additional alternative reinsurance agreements for new
business issued after December 31, 1999. There can be no assurance that such
alternative agreements will be available. The reinsurance covering business in
force at December 31, 1999 will continue to apply in the future.
GPP4SF-108896 96
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
September 30, 2000
5. COMMITMENTS AND CONTINGENCIES (continued)
Guaranty Fund Assessments: Assessments are levied on 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 offset 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged no expense in the third quarter and $2,000 in the
first nine months of 2000. At September 30, 2000 and December 31, 1999, the
Companies have an undiscounted reserve of $2,450,000, and $2,444,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax offsets) and have established an asset totaling $692,000 and
$618,000, respectively, 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 and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The
Companies have various concentrations in the investment portfolio. As of
September 30, 2000, the Companies had one investment (other than bonds issued by
agencies of the United States government) exceeding ten percent of stockholder's
equity. The Companies' asset growth, net investment income, and cash flow are
primarily generated from the sale of variable insurance 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 have a severe impact on the
Companies' financial condition. Two broker/dealers, each having at least ten
percent of total sales, generated 27% of the Companies' sales during the third
quarter of 2000 (29% by two broker/dealers in the same period of 1999). One
broker/dealer generated 12% of the Companies' sales during the first nine months
of 2000 (29% by two broker/dealers in the same period of 1999). The Premium Plus
product generated 73% and 74% of the Companies' sales during the third quarter
of 2000 and first nine months of 2000, respectively (79% and 78% in the same
periods of 1999).
Revolving Note Payable: To enhance short-term liquidity, the
Companies established revolving notes payable effective July 27, 1998 and
expiring July 31, 1999 with SunTrust Bank, Atlanta (the "Bank"). As of July 31,
1999, the SunTrust Bank, Atlanta, revolving note facilities were first extended
to July 31, 2000, and as of July 31, 2000, they were extended to July 30, 2001.
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 notes accrue interest at an annual rate equal
to: (1) the cost of funds for the Bank for the period applicable for the advance
plus 0.225% 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 quarters ended September 30, 2000 and 1999, the
Companies incurred interest expense of $0 and $55,000, respectively. During the
nine months ended September 30, 2000 and 1999, the Companies incurred interest
expense of $36,000 and $109,000, respectively. At September 30, 2000, the
Companies did not have any borrowings under these agreements ($1,400,000 at
December 31, 1999).
GPP4SF-108896 97
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the periods from
October 25, 1997 through December 31, 1997, and January 1, 1997 through October
24, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and for the periods from October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997, in conformity with accounting
principles generally accepted in the United States.
/s/Ernst & Young LLP
Des Moines, Iowa
February 4, 2000
GPP4SF-108896 98
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
POST-MERGER
---------------------------
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Investments:
Fixed maturities, available for sale,
at fair value (Cost: 1999 - $858,052;
1998 - $739,772)....................... $835,321 $741,985
Equity securities, at fair value (cost:
1999 - $14,952; 1998 - $14,437)........ 17,330 11,514
Mortgage loans on real estate............ 100,087 97,322
Policy loans............................. 14,157 11,772
Short-term investments................... 80,191 41,152
---------- ----------
Total investments........................... 1,047,086 903,745
Cash and cash equivalents................... 14,380 6,679
Reinsurance recoverable..................... 14,834 7,586
Due from affiliates......................... 637 2,983
Accrued investment income................... 11,198 9,645
Deferred policy acquisition costs........... 528,957 204,979
Value of purchased insurance in force....... 31,727 35,977
Current income taxes recoverable............ 35 628
Deferred income tax asset................... 21,943 31,477
Property and equipment, less allowances for
depreciation of $3,229 in 1999 and $801
in 1998.................................. 13,888 7,348
Goodwill, less accumulated amortization of
$8,186 in 1999 and $4,408 in 1998........ 142,941 146,719
Other assets................................ 2,514 743
Separate account assets..................... 7,562,717 3,396,114
---------- ----------
Total assets................................ $9,392,857 $4,754,623
========== ==========
See accompanying notes.
GPP4SF-108896 99
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
POST-MERGER
-----------------------------
December 31, December 31,
1999 1998
-------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive
life products....................... $1,033,701 $881,112
Unearned revenue reserve.............. 6,300 3,840
Other policy claims and benefits......... 8 --
---------- ----------
1,040,009 884,952
Surplus notes.............................. 245,000 85,000
Revolving note payable..................... 1,400 --
Due to affiliates.......................... 9,547 --
Other liabilities.......................... 56,335 34,663
Separate account liabilities............... 7,562,717 3,396,114
---------- ----------
8,915,008 4,400,729
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............... 468,640 347,640
Accumulated other comprehensive loss..... (9,154) (895)
Retained earnings........................ 15,863 4,649
---------- ----------
Total stockholder's equity................. 477,849 353,894
---------- ----------
Total liabilities and stockholder's equity. $9,392,857 $4,754,623
========== ==========
See accompanying notes.
GPP4SF-108896 100
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
POST-
POST-MERGER ACQUISITION
--------------------------------------------|-------------
For the period |or the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | hrough
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
--------------------------------------------|--------------
Revenues |
Annuity and interest |
sensitive life product |
charges....................... $ 82,935 $ 39,119 $ 3,834 | $18,288
Management fee revenue........... 10,136 4,771 508 | 2,262
Net investment income............ 59,169 42,485 5,127 | 21,656
Realized gains (losses) |
on investments................ (2,923) (1,491) 15 | 151
Other income..................... 10,827 5,569 236 | 426
-------- ------- ------- | -------
160,144 90,453 9,720 | 42,783
|
Insurance benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to account |
balances..................... 175,851 94,845 7,413 | 19,276
Benefit claims incurred in |
excess of account balances... 6,370 2,123 -- | 125
Underwriting, acquisition, and |
insurance expenses: |
Commissions.................... 188,383 121,171 9,437 | 26,818
General expenses............... 60,194 37,577 3,350 | 13,907
Insurance taxes, state |
licenses, and fees........... 3,976 4,140 450 | 1,889
Policy acquisition costs |
deferred..................... (346,396) (197,796) (13,678) | (29,003)
Amortization: |
Deferred policy acquisition |
costs....................... 33,119 5,148 892 | 1,674
Value of purchased insurance |
in force.................... 6,238 4,724 948 | 5,225
Goodwill...................... 3,778 3,778 630 | 1,398
-------- ------- ------- | -------
131,513 75,710 9,442 | 41,309
|
Interest expense.................... 8,894 4,390 557 | 2,082
-------- ------- ------- | -------
140,407 80,100 9,999 | 43,391
-------- ------- ------- | -------
Income (loss) before income taxes... 19,737 10,353 (279) | (608)
|
Income taxes........................ 8,523 5,279 146 | (1,337)
-------- ------- ------- | -------
|
Net income (loss)................... $ 11,214 $ 5,074 $ (425) | $ 729
======== ======= ======= | =======
See accompanying notes.
GPP4SF-108896 101
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Income (Loss) Earnings Equity
------------------------------------------------------------
PRE-ACQUISITION
------------------------------------------------------------
Balance at January 1, 1997..... $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
====== ======== ======= ======= ========
-----------------------------------------------------------
POST-MERGER
-----------------------------------------------------------
Balance at October 25, 1997.... $2,500 $224,997 -- -- $227,497
Comprehensive income:
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.... 2,500 224,997 (895) 4,649 353,894
Comprehensive income:
Net income................... -- -- -- 11,214 11,214
Change in net unrealized
investment gains (losses). -- -- (8,259) -- (8,259)
--------
Comprehensive income........... 2,955
Contribution of Capital........ -- 121,000 -- -- 121,000
------ -------- ------- ------- --------
Balance at December 31,1999.... $2,500 $468,640 $(9,154) $15,863 $477,849
====== ======== ======= ======= ========
See accompanying notes.
GPP4SF-108896 102
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
OPERATING ACTIVITIES |
Net income (loss)................................. $11,214 $5,074 $(425) | $729
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Adjustments related to annuity and |
interest sensitive life products: |
Interest credited and other charges on |
interest sensitive products................ 175,851 94,845 7,413 | 19,276
Charges for mortality and administration..... 524 (233) (62) | (99)
Change in unearned revenues.................. 2,460 2,651 1,189 | 3,292
Increase (decrease) in policy liabilities and |
accruals..................................... 8 (10) 10 | --
Decrease (increase) in accrued investment |
income....................................... (1,553) (3,222) 1,205 | (3,489)
Policy acquisition costs deferred.............. (346,396) (197,796) (13,678) | (29,003)
Amortization of deferred policy |
acquisition costs............................ 33,119 5,148 892 | 1,674
Amortization of value of purchased |
insurance in force........................... 6,238 4,724 948 | 5,225
Change in other assets, due to/from |
affiliates, other liabilities, and accrued |
income taxes................................. 24,845 9,979 4,205 | (8,944)
Provision for depreciation and amortization.... 8,850 8,147 1,299 | 3,203
Provision for deferred income taxes............ 8,523 5,279 146 | 316
Realized (gains) losses on investments......... 2,923 1,491 (15) | (151)
-------- -------- ------- | ---------
Net cash provided by (used in) operating |
activities..................................... (73,394) (63,923) 3,127 | (7,971)
|
INVESTING ACTIVITIES |
Sale, maturity, or repayment of investments: |
Fixed maturities - available for sale.......... 220,547 145,253 9,871 | 39,622
Mortgage loans on real estate.................. 6,572 3,791 1,644 | 5,828
Short-term investments - net................... -- -- -- | 11,415
-------- -------- ------- | ---------
227,119 149,044 11,515 | 56,865
Acquisition of investments: |
Fixed maturities - available for sale.......... (344,587) (476,523) (29,596) | (155,173)
Equity securities.............................. -- (10,000) (1) | (4,865)
Mortgage loans on real estate.................. (9,659) (16,390) (14,209) | (44,481)
Policy loans - net............................. (2,385) (2,940) (328) | (3,870)
Short-term investments - net................... (39,039) (26,692) (13,244) | --
-------- -------- ------- | ---------
(395,670) (532,545) (57,378) | (208,389)
Net purchase of property and equipment............ (8,968) (6,485) (252) | (875)
-------- -------- ------- | ---------
Net cash used in investing activities............. (177,519) (389,986) (46,115) | (152,399)
See accompanying notes.
GPP4SF-108896 103
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
| POST-
POST-MERGER | ACQUISITION
-------------------------------------------|---------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings.............................. $396,350 $500,722 -- | --
Repayment of reciprocal loan agreement |
borrowings.............................. (396,350) (500,722) -- | --
Proceeds from revolving note payable....... 220,295 108,495 -- | --
Repayment of revolving note payable........ (218,895) (108,495) -- | --
Proceeds from surplus note................. 160,000 60,000 -- | --
Proceeds from line of credit borrowings.... -- -- $10,119 | $97,124
Repayment of line of credit borrowings..... -- (5,309) (2,207) | (80,977)
Receipts from annuity and interest |
sensitive life policies credited to |
account balances........................ 773,685 593,428 62,306 | 261,549
Return of account balances on annuity |
and interest sensitive life policies.... (147,201) (72,649) (6,350) | (13,931)
Net reallocations to separate accounts..... (650,270) (239,671) (17,017) | (93,069)
Contributions of capital by parent......... 121,000 103,750 -- | 1,011
-------- -------- ------- | ---------
Net cash provided by financing activities.. 258,614 439,549 46,851 | 171,707
-------- -------- ------- | ---------
|
Increase (decrease) in cash and cash |
equivalents............................. 7,701 (14,360) 3,863 | 11,337
Cash and cash equivalents at |
beginning of period..................... 6,679 21,039 17,176 | 5,839
-------- -------- ------- | ---------
Cash and cash equivalents at |
end of period........................... $14,380 $6,679 $21,039 | $17,176
======== ========= ======= | =========
|
SUPPLEMENTAL DISCLOSURE |
OF CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest................................ $6,392 $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....... -- 18,750 -- | --
See accompanying notes.
GPP4SF-108896 104
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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 collectively
with Golden American, 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. First Golden is
licensed to sell insurance products in New York and Delaware. 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. ("BT Variable") was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in new
bases of accounting reflecting estimated fair values of assets and liabilities
at their respective dates. As a result, the Companies' financial statements
included for the periods after October 24, 1997 are presented on the Post-Merger
new basis of accounting and for the period January 1, 1997 through October 24,
1997 are presented on the Post-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, 1999 and 1998, 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
GPP4SF-108896 105
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 becomes the new cost basis by a charge to realized losses in
the Companies' Statements of Operations.
Mortgage Loans On Real Estate: 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.
Fair Values: Estimated fair values, as reported herein, of conventional
mortgage-backed securities not actively traded in a liquid market are estimated
using a third party pricing process. This pricing process uses a matrix
calculation assuming a spread over U.S. Treasury bonds based upon the expected
average lives of the securities. Estimated fair values of publicly traded fixed
maturities are reported by an independent pricing service. 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, premium credit, and other expenses related to
the production of new business, have been deferred. Acquisition costs for
variable insurance 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.
GPP4SF-108896 106
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger and 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 of the variable products with fixed
interest guarantees 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 11.00% during 1999, 3.00% to
10.00% during 1998, and 3.30% to 8.25% during 1997. 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
contracts. Contractholders, rather than the Companies, bear the investment risk
for the variable insurance products. At the direction of the contractholders,
the separate accounts invest the premiums from the sale of variable insurance
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 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 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.
GPP4SF-108896 107
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Product charges recorded by the Companies from variable insurance 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 2000, 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, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department 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
The Companies manage their business as one segment, the sale of variable
insurance products designed to meet customer needs for tax-advantaged saving for
retirement and protection from death. Variable insurance products are sold to
consumers and corporations throughout the United States.
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
GPP4SF-108896 108
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
regarding all of the preceding items are inherently subject to change and are
reassessed periodically. Changes in estimates and assumptions could materially
impact the financial statements.
RECLASSIFICATIONS
Certain amounts for the periods ended in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 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 insurance 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 insurance 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 $85,578,000 in 1999, $68,002,000 in 1998, and $428,000
in 1997. Total statutory capital and surplus was $368,928,000 at December 31,
1999 and $183,045,000 at December 31, 1998.
GPP4SF-108896 109
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Fixed maturities............... $50,352 $35,224 $ 4,443 | $18,488
Equity securities.............. 515 -- 3 | --
Mortgage loans on real estate.. 7,074 6,616 879 | 3,070
Policy loans................... 485 619 59 | 482
Short-term investments......... 2,583 1,311 129 | 443
Other, net..................... 388 246 (154) | 24
------- ------- ------- | -------
Gross investment income........ 61,397 44,016 5,359 | 22,507
Less investment expenses....... (2,228) (1,531) (232) | (851)
------- ------- ------- | -------
Net investment income.......... $59,169 $42,485 $ 5,127 | $21,656
======= ======= ======= | =======
Realized gains (losses) on investments follows:
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Fixed maturities, available for |
sale.......................... $(2,910) $(1,428) $ 25 | $ 151
Mortgage loans on real estate... (13) (63) (10) | --
------- ------- ------- | -------
Realized gains (losses) on |
investments................... $(2,923) $(1,491) $15 | $151
======= ======= ======= | ========
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
POST-MERGER |POST-ACQUISITION
-------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
|
Fixed maturities, available for |
sale........................... $(24,944) $ 1,100 $ (3,494) | $ 4,197
Equity securities................ 5,301 (2,390) (68) | (462)
-------- -------- -------- | --------
Unrealized appreciation |
(depreciation) of securities.. $(19,643) $ (1,290) $ (3,562) | $ 3,735
======== ======== ======== | ========
GPP4SF-108896 110
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
At December 31, 1999 and December 31, 1998, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
POST-MERGER
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
(Dollars in thousands)
December 31, 1999
-----------------------------
U.S. government and
governmental agencies
and authorities............ $ 21,363 -- $ (260) $ 21,103
Public utilities.............. 53,754 $ 25 (2,464) 51,315
Corporate securities.......... 396,494 53 (12,275) 384,272
Other asset-backed securities. 207,044 850 (4,317) 203,577
Mortgage-backed securities.... 179,397 39 (4,382) 175,054
-------- ------ -------- --------
Total......................... $858,052 $ 967 $(23,698) $835,321
======== ====== ======== ========
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
======== ====== ======== ========
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. At December 31, 1999, net unrealized investment loss on fixed
maturities designated as available for sale totaled $22,731,000. Depreciation of
$6,955,000 was included in stockholder's equity at December 31, 1999 (net of
adjustments of $1,785,000 to VPIF, $10,246,000 to DPAC, and $3,745,000 to
deferred income taxes). 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 adjustments of $203,000 to VPIF, $455,000 to DPAC, and $550,000 to
deferred income taxes).
At December 31, 1999, net unrealized appreciation on equity securities was
comprised entirely of gross appreciation of $2,378,000. At December 31, 1998,
net unrealized depreciation of equity securities was comprised entirely of gross
depreciation of $2,923,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 1999 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.
GPP4SF-108896 111
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
POST-MERGER
-------------------------
Amortized Estimated
December 31, 1999 Cost Fair Value
- ---------------------------------------------------------------------
(Dollars in thousands)
Due within one year..................... $ 25,317 $ 25,186
Due after one year through five years... 355,205 344,998
Due after five years through ten years.. 83,004 78,976
Due after ten years..................... 8,085 7,530
-------- --------
471,611 456,690
Other asset-backed securities........... 207,044 203,577
Mortgage-backed securities.............. 179,397 175,054
-------- --------
Total................................... $858,052 $835,321
======== ========
An analysis of sales, maturities, and principal repayments of the Companies'
fixed maturities portfolio follows:
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
--------- -------- -------- --------
(Dollars in thousands)
POST-MERGER:
For the year ended December 31, 1999:
Scheduled principal repayments, calls,
and tenders.......................... $141,346 $216 $(174) $141,388
Sales................................... 80,472 141 (1,454) 79,159
-------- ---- ------- --------
Total................................... $221,818 $357 $(1,628) $220,547
======== ==== ======= ========
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
======== ==== ======= ========
GPP4SF-108896 112
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
3. INVESTMENT OPERATIONS (continued)
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 fourth quarter of 1998, Golden American determined that the carrying
value of two bonds exceeded their estimated net realizable value. As a result,
at December 31, 1998, Golden American recognized a total pre-tax loss of
$973,000 to reduce the carrying value of the bonds to their combined net
realizable value of $2,919,000. During the second quarter of 1999, further
information was received regarding these bonds and Golden American determined
that the carrying value of the two bonds exceeded their estimated net realizable
value. As a result, at June 30, 1999, Golden American recognized a total pre-tax
loss of $1,639,000 to further reduce the carrying value of the bonds to their
combined net realizable value of $1,137,000. During 1997, no investments were
identified as having an other than temporary impairment.
Investments on Deposit: At December 31, 1999 and 1998, affidavits of deposits
covering bonds with a par value of $6,470,000 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, 1999 and December 31, 1998. Fixed maturities included investments in basic
industrials (29% in 1999, 26% in 1998), conventional mortgage-backed securities
(22% in 1999, 25% in 1998), financial companies (16% in 1999, 19% in 1998), and
other asset-backed securities (19% in 1999, 11% in 1998). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (12% in 1999 and 1998), Utah (10% in 1999, 11% in
1998), and Georgia (9% in 1999, 10% in 1998). There are no other concentrations
of mortgage loans on real estate in any state exceeding ten percent at December
31, 1999 and 1998. Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(34% in 1999, 36% in 1998), industrial buildings (33% in 1999, 32% in 1998),
retail facilities (19% in 1999, 20% in 1998), and multi-family apartments (10%
in 1999, 8% in 1998). 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, 1999.
4. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. Total comprehensive income (loss) for the Companies includes
$(452,000) for the year ended December 31, 1999 for First Golden ($1,015,000 for
the year ended December 31, 1998 and $159,000, and $536,000, respectively, for
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997). 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 $(1,468,000) in
1999 and $(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 $(1,441,000) in 1999 and $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
GPP4SF-108896 113
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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, 1999 December 31, 1998
---------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
(Dollars in thousands)
ASSETS
Fixed maturities, available for sale.. $ 835,321 $ 835,321 $ 741,985 $ 741,985
Equity securities..................... 17,330 17,330 11,514 11,514
Mortgage loans on real estate......... 100,087 95,524 97,322 99,762
Policy loans.......................... 14,157 14,157 11,772 11,772
Short-term investments................ 80,191 80,191 41,152 41,152
Cash and cash equivalents............. 14,380 14,380 6,679 6,679
Separate account assets............... 7,562,717 7,562,717 3,396,114 3,396,114
LIABILITIES
Annuity products...................... 1,017,105 953,546 869,009 827,597
Surplus notes......................... 245,000 226,100 85,000 90,654
Revolving note payable................ 1,400 1,400 -- --
Separate account liabilities.......... 7,562,717 7,562,717 3,396,114 3,396,114
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 process. This pricing
GPP4SF-108896 114
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
process 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
current market value.
Revolving note payable: Carrying value reported in the Companies' historical
cost basis balance sheet approximates estimated fair value for this instrument,
as the agreement carries a variable interest rate provision.
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.
GPP4SF-108896 115
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
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 follows:
POST-MERGER
-------------------------------------------------
For the period
For the year For the year October 25, 1997
ended ended through
December 31, December 31, December 31, 1997
-------------------------------------------------
(Dollars in thousands)
Beginning balance........................ $35,977 $43,174 $44,297
------- ------- -------
Imputed interest......................... 2,373 2,802 1,004
Amortization............................. (7,930) (7,753) (1,952)
Changes in assumptions of timing of
gross profits.......................... (681) 227 --
------- ------- -------
Net amortization......................... (6,238) (4,724) (948)
Adjustment for unrealized gains (losses)
on available for sale securities....... 1,988 (28) (175)
Adjustment for other receivables and
merger costs........................... -- (2,445) --
------- ------- -------
Ending balance........................... $31,727 $35,977 $43,174
======= ======= =======
GPP4SF-108896 116
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
6. MERGER (continued)
Interest is imputed on the unamortized balance of VPIF at a rate of 7.33% for
the year ended December 31, 1999, 7.38% for the year ended December 31, 1998,
and 7.03% for the period October 25, 1997 through December 31, 1997. In 1999,
VPIF was adjusted to increase amortization by $681,000 to reflect changes in the
assumptions related to the timing of estimated gross profits. The amortization
of VPIF, net of imputed interest, is charged to expense. VPIF decreased
$2,664,000 during 1998 to adjust the value of other receivables and increased
$219,000 in 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, 1999 is $3,958,000 in 2000, $3,570,000 in 2001, $3,322,000 in
2002, $2,807,000 in 2003, and $2,292,000 in 2004. 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.
GPP4SF-108896 117
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
7. ACQUISITION (continued)
An analysis of the VPIF asset follows:
POST-ACQUISITION
----------------
For the period
January 1, 1997
through
October 24, 1997
----------------
(Dollars in thousands)
Beginning balance............ $ 83,051
--------
Imputed interest............. 5,138
Amortization................. (12,656)
Changes in assumption of
timing of gross profits.... 2,293
--------
Net amortization............. (5,225)
Adjustment for unrealized
gains on available for
sale securities............ (373)
--------
Ending balance............... $ 77,453
========
Interest was imputed on the unamortized balance of VPIF at rates of 7.70% to
7.80% for the period January 1, 1997 through October 24, 1997. The amortization
of VPIF, net of imputed interest, was charged to expense. VPIF was also adjusted
for the unrealized gains 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
the Parent's consolidated tax return for 5 years.
At December 31, 1999, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $161,799,000.
Approximately $5,094,000, $3,354,000, $53,310,000, and $100,041,000 of these NOL
carryforwards are available to offset future taxable income of the Companies
through the years 2011, 2012, 2013, and 2014, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
POST-MERGER |POST-ACQUISITION
--------------------------------------------|----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | --------------
(Dollars in thousands)
|
Current -- -- -- | $ 12
Deferred $8,523 $5,279 $146 | (1,349)
------ ------ ---- | -------
$8,523 $5,279 $146 | $(1,337)
====== ====== ==== | =======
GPP4SF-108896 118
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
The effective tax rate on income (loss) before income taxes is different from
the prevailing federal income tax rate. A reconciliation of this difference
follows:
POST-MERGER |POST-ACQUISITION
---------------------------------------------|-----------------
For the period | For the period
October 25, | January 1,
For the year For the year 1997 | 1997
ended ended through | through
December 31, December 31, December 31, | October 24,
1999 1998 1997 | 1997
------------ ------------ -------------- | -------------
(Dollars in thousands)
|
Income (loss) before income taxes.. $19,737 $10,353 $(279) | $ (608)
======= ======= ===== =======
|
Income tax (benefit) at federal |
statutory rate.........................$ 6,908 $ 3,624 $ (98) | $ (213)
Tax effect (decrease) of: |
Goodwill amortization............ 1,322 1,322 220 | --
Compensatory stock option and
restricted stock expense....... -- -- -- | (1,011)
Meals and entertainment.......... 199 157 23 | 53
Other items...................... 94 176 1 | (166)
------- ------- ------- | --------
Income tax expense (benefit)....... $ 8,523 $ 5,279 $146 | $ (1,337)
======= ======= ======= | ========
GPP4SF-108896 119
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
8. INCOME TAXES (continued)
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 1999 and 1998 follows:
POST-MERGER
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities
at fair value............................ -- $1,023
Net unrealized depreciation of available
for sale fixed maturities................ $3,745 --
Future policy benefitS..................... 133,494 66,273
Goodwill................................... 16,323 16,323
Net operating loss carryforwards........... 56,630 17,821
Other...................................... 1,333 1,272
------- -------
211,525 102,712
Deferred tax liabilities:
Net unrealized appreciation of securities
at fair value............................ (832) --
Net unrealized appreciation of available
for sale fixed maturities................ -- (332)
Fixed maturity securities.................. (17,774) (1,034)
Deferred policy acquisition costs.......... (154,706) (55,520)
Mortgage loans on real estate.............. (715) (845)
Value of purchased insurance in force...... (10,462) (12,592)
Other...................................... (1,348) (912)
------- -------
(185,837) (71,235)
------- -------
Valuation allowance........................... (3,745) --
------- -------
Deferred income tax asset..................... $21,943 $31,477
======= =======
At December 31, 1999, the Company reported, for financial statement purposes,
unrealized losses on certain investments which have not been recognized for tax
purposes. The Companies have established a valuation allowance against the
deferred income tax assets associated with unrealized depreciation on fixed
maturities available for sale as the Companies are uncertain as to whether their
capital losses, if ever realized, could be utilized to offset future capital
gains.
GPP4SF-108896 120
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 1999 and 1998, 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, 1999:
1999 1998
-----------------------------------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1... $ 4,454 $956
Service cost...................... 1,500 1,138
Interest cost..................... 323 97
Actuarial (gain) loss............. (2,056) 2,266
Benefit payments.................. -- (3)
------- -------
Benefit obligation at December 31. $ 4,221 $ 4,454
======= =======
Funded status:
Funded status at December 31...... $(4,221) $(4,454)
Unrecognized net loss............. 210 2,266
------- -------
Net amount recognized............. $(4,011) $(2,188)
======= =======
The Companies' plan assets were held by Equitable Life, an affiliate. During
1998, the Equitable Life Employee Pension Plan began investing in an undivided
interest of the ING-NA Master Trust (the "Master Trust"). Boston Safe Deposit
and Trust Company holds the Master Trust's investment assets.
The weighted-average assumptions used in the measurement of the Companies'
benefit obligation follows:
December 31 1999 1998
- -----------------------------------------------------------------
Discount rate.................... 8.00% 6.75%
Expected return on plan assets... 9.25 9.50
Rate of compensation increase.... 5.00 4.00
GPP4SF-108896 121
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
9. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
The following table provides the net periodic benefit cost for the fiscal years
1999, 1998, and 1997:
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
For the year For the year For the period | For the period
ended ended October 25, 1997 | January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997 |October 24, 1997
----------------------------------------------|-----------------
(Dollars in thousands) |
|
|
Service cost................ $1,500 $1,138 $114 | $568
Interest cost............... 323 97 10 | 15
Amortization of net loss.... -- -- -- | 1
------ ------ ---- | ----
Net periodic benefit cost... $1,823 $1,235 $124 | $584
====== ====== ==== | ====
There were no gains or losses resulting from curtailments or settlements during
1999, 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 $4,221,000, $2,488,000, and $0, respectively, as of December
31, 1999 and $4,454,000, $3,142,000, and $0, respectively, as of December 31,
1998.
During 1997, ING approved the 1997 Phantom Plan for certain key employees. The
Phantom Plan is similar to a standard stock option plan; however, the phantom
share option entitles the holder to a cash benefit in Dutch Guilders linked to
the rise in value of ING ordinary shares on the Amsterdam Stock Exchange. The
plan participants are entitled to any appreciation in the value of ING ordinary
shares over the Phantom Plan option price (strike price) of 53.85 Euros for
options issued on July 1, 1999, 140.40 Dutch Guilders for options issued on May
26, 1998, and 85.10 Dutch Guilders for options issued on May 23, 1997, not the
ordinary shares themselves.
Options are granted at fair value on the date of grant. Options in the Phantom
Plan are subject to forfeiture to ING should the individuals terminate their
relationship with ING before the three-year initial retention period has
elapsed. All options expire five years from the date of grant.
On July 1, 1999, ING issued 34,750 options to employees of Golden American
related to this plan at a strike price of 53.85 Euros.
On May 26, 1998, ING issued 42,400 options related to this plan at a strike
price of 140.40 Dutch Guilders. Since the strike price at December 31, 1998 was
higher than the ING share price, there was no compensation expense related to
these options in 1998.
On May 23, 1997, ING issued 3,500 options related to this plan at a strike price
of 85.10 Dutch Guilders. Since the strike price was lower than the ING share
price at December 31, 1998, Golden American incurred $46,000 of compensation
expense related to these options during 1998.
No expense was recognized in 1999 related to the above options. As of December
31, 1999, 58,250 options remain outstanding.
10. RELATED PARTY TRANSACTIONS
Operating Agreements: DSI, an affiliate, 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
GPP4SF-108896 122
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
distribute the Companies' variable insurance products and appoint
representatives of the broker/dealers as agents. For the years ended December
31, 1999 and 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 $181,536,000, $117,470,000, $9,931,000, and $26,419,000,
respectively.
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 years ended December 31, 1999
and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, the fee was $10,136,000, $4,771,000,
$508,000, and $2,262,000, 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 and accounting 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 years ended December 31, 1999 and 1998, the Companies
incurred fees of $2,227,000 and $1,504,000, respectively, 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 and $768,000
for the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, 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 1999 or in 1998.
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 $6,107,000 and $5,833,000 for the
years ended December 31, 1999 and 1998, respectively ($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).
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 $1,251,000 and $1,058,000 for the
years ended December 31, 1999 and 1998, respectively ($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
$387,000 in 1999 and $75,000 in 1998.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduce general
expenses incurred by Golden American, totaled $244,000 in 1999.
GPP4SF-108896 123
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by Golden American, totaled $460,000 in 1999.
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduce
general expenses incurred by the Companies, totaled $216,000 in 1999.
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduce general
expenses incurred by the Companies, totaled $103,000 in 1999.
In 1999, 1998, and 1997, the Companies received 10.0%, 9.6%, and 5.1% of total
premiums, net of reinsurance, for variable products sold through five affiliates
as noted in the following table:
POST-MERGER |POST-ACQUISITION
----------------------------------------------|-----------------
|
For the year For the year For the period | For the period
ended ended October 25, 1997 |January 1, 1997
December 31, December 31, through | through
1999 1998 December 31, 1997|October 24, 1997
------------ ------------ -----------------|----------------
(Dollars in millions)
|
LSSI.................................. $168.5 $122.9 $9.3 | $16.9
Vestax Securities Corporation......... 88.1 44.9 1.9 | 1.2
DSI................................... 2.5 13.6 2.1 | 0.4
Multi-Financial Securities Corporation 44.1 13.4 -- | --
IFG Network Securities, Inc........... 25.8 3.7 -- | --
------ ------ ----- | -----
Total................................. $329.0 $198.5 $13.3 | $18.5
====== ====== ===== | =====
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 from the Department of Insurance of the
State of Delaware. 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 $815,000 in
1999 and $1,765,000 in 1998. At December 31, 1999 and 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 and $362,000 for the period January 1, 1997 through October 24, 1997). The
outstanding balance was paid by a capital contribution and with funds borrowed
from ING AIH.
GPP4SF-108896 124
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
10. RELATED PARTY TRANSACTIONS (continued)
Surplus Notes: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of 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. Under this
agreement, Golden American incurred no interest in 1999.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of 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. Under this agreement, Golden American paid no interest in 1999.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
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. Under this agreement, Golden American
incurred interest expense of $1,469,000 in 1999. On December 30, 1999, ING AIH
assigned the note to Equitable Life.
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. Payment
of 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. Under this agreement, Golden American
incurred interest expense of $4,350,000 in 1999. 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. Payment of
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 1999, unchanged from 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).
Stockholder'S Equity: During 1999 and 1998, Golden American received capital
contributions from its Parent of $121,000,000 and $122,500,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 1999, the Companies had reinsurance treaties with
four unaffiliated reinsurers and one affiliated reinsurer covering a significant
portion of the mortality risks under its variable contracts. Golden American
remains liable to the extent reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance ceded in force for life mortality risks were
$119,575,000 and $111,552,000 at December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the Companies have a net receivable of $14,834,000
and $7,586,000, respectively, for reserve credits, reinsurance claims, or
GPP4SF-108896 125
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
other receivables from these reinsurers comprised of $493,000 and$439,000,
respectively, for claims recoverable from reinsurers, $1,201,000 and $543,000,
respectively, for a payable for reinsurance premiums, and $15,542,000 and
$7,690,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $9,883,000, $4,797,000, $326,000, and $1,871,000 and net policy
benefits recoveries of $3,059,000, $2,170,000, $461,000, and $1,021,000 for the
years ended December 31, 1999 and 1998 and for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997,
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
$1,729,000, $1,022,000, $265,000, and $335,000 for the years ended December 31,
1999 and 1998 and for the periods October 25, 1997 through December 31, 1997 and
January 1, 1997 through October 24, 1997, respectively.
The reinsurance treaties that covered the nonstandard minimum guaranteed death
benefits for new business have been terminated for business issued after
December 31, 1999. The Companies are currently pursuing alternative reinsurance
arrangements for new business issued after December 31, 1999. There can be no
assurance that such alternative arrangements will be available. The reinsurance
covering business in force at December 31, 1999 will continue to apply in the
future.
Guaranty Fund Assessments: Assessments are levied on 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, review information regarding known failures,
and revise estimates of future guaranty fund assessments. Accordingly, the
Companies accrued and charged to expense an additional $3,000 and $1,123,000 for
the years ended December 31, 1999 and 1998, respectively, $141,000 for the
period October 25, 1997 through December 31, 1997 and $446,000 for the period
January 1, 1997 through October 24, 1997. At December 31, 1999 and 1998, the
Companies have an undiscounted reserve of $2,444,000 and $2,446,000,
respectively, to cover estimated future assessments (net of related anticipated
premium tax credits) and has established an asset totaling $618,000 and
$586,000, respectively, 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 and
arbitrations. In some class action and other lawsuits involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the 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 insurance 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, each having at least ten percent of total sales,
generated 28% of the Companies' sales in 1999
GPP4SF-108896 126
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
11. COMMITMENTS AND CONTINGENCIES (continued)
(26% and 53% by two broker/dealers during 1998 and 1997, respectively).
The Premium Plus product generated 79% of the Companies' sales during 1999
(63% during 1998 and 11% 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 years ended December 31, 1999 and 1998 and for the periods
October 25, 1997 through December 31, 1997 and January 1, 1997 through October
24, 1997, rent expense totaled $2,273,000, $1,241,000, $39,000, and $331,000,
respectively. At December 31, 1999, minimum rental payments due under all
non-cancelable operating leases with initial terms of one year or more are: 2000
- - $3,596,000; 2001 - $3,403,000; 2002 - $2,859,000; 2003 - $2,486,000; 2004 -
$2,419,000, and 2005 and thereafter - $42,852,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
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. As of July 31, 1999, the SunTrust Bank,
Atlanta revolving note facility was extended to July 31, 2000. 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 years ended December 31, 1999 and 1998, the Companies incurred
interest expense of $198,000 and $352,000, respectively. At December 31, 1999,
the Companies had a $1,400,000 note payable to the Bank under this agreement.
GPP4SF-108896 127
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Table of Contents
ITEM PAGE
Introduction.............................................. 1
Description of Golden American Life Insurance Company..... 1
Safekeeping of Assets..................................... 1
The Administrator......................................... 1
Independent Auditors...................................... 1
Distribution of Contracts................................. 1
Performance Information................................... 2
IRA Partial Withdrawal Option............................. 10
Other Information......................................... 10
Financial Statements of Separate Account B................ 11
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE STATEMENT OF
ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE PROSPECTUS. SEND THE
FORM TO OUR CUSTOMER SERVICE CENTER AT THE ADDRESS SHOWN ON THE PROSPECTUS
COVER.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PLEASE SEND ME A FREE COPY OF THE STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT B.
Please Print or Type:
--------------------------------------------------
NAME
--------------------------------------------------
SOCIAL SECURITY NUMBER
--------------------------------------------------
STREET ADDRESS
--------------------------------------------------
CITY, STATE, ZIP
GPP4SF-108896 Galaxy PREMIUM PLUS-4 12/29/00
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
GPP4SF-108896 128
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- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
Except for the Asset Allocation Growth, Diversified Mid-Cap, Growth and Income,
Special Situations, Investors, Large Cap Value, All Cap, Managed Global, the ING
Global Brand Names, Prudential Jennison and the SP Jennison International Growth
subaccounts which did not commence operations as of December 31, 1999, the
following tables give (1) the accumulation unit value ("AUV"), (2) the total
number of accumulation units, and (3) the total accumulation unit value, for
each subaccount of Golden American Separate Account B available under the
Contract for the indicated periods. The date on which the subaccount became
available to investors and the starting accumulation unit value are indicated on
the last row of each table.
LIQUID ASSET
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $14.79 7,150,254 $105,783 $14.55 4,223,787 $61,465
1998 14.33 1,185,641 16,985 14.11 839,093 11,842
1997 13.83 131,429 1,818 13.65 61,012 846
10/1/97 13.71 -- -- 13.53 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $14.29 10,661,158 $152,353
1998 13.88 2,967,968 41,195
1997 13.44 298,288 4,009
10/1/97 13.33 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $16.72 1,726,180 $28,863 $16.45 863,647 $14,205
1998 16.77 633,316 10,620 16.52 334,521 5,526
1997 15.91 16,839 268 15.70 10,105 159
10/1/97 15.72 -- -- 15.52 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $16.15 2,219,351 $35,848
1998 16.25 910,113 14,787
1997 15.47 12,577 195
10/1/97 15.29 -- --
- ------------------------------------------------------------------
GLOBAL FIXED INCOME
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $11.79 439,601 $5,184 $11.70 219,011 $2,562
1998 13.09 187,670 2,456 13.00 80,199 1,043
1997 11.87 3,418 41 11.81 310 4
10/1/97 11.99 -- -- 11.93 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $11.60 603,046 $6,998
1998 12.92 180,373 2,330
1997 11.75 6,455 76
10/1/97 11.87 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A1
FULLY MANAGED
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $21.65 1,292,419 $27,978 $21.29 988,291 $21,044
1998 20.53 593,655 12,189 20.23 512,203 10,361
1997 19.66 36,852 725 19.40 28,440 552
10/1/97 9.49 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $20.91 3,030,152 $63,363
1998 19.90 1,673,484 33,294
1997 19.11 108,003 2,064
10/1/97 18.96 -- --
- ------------------------------------------------------------------
TOTAL RETURN
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $18.06 4,404,186 $79,539 $17.91 2,910,090 $52,124
1998 17.72 1,708,118 30,264 17.60 1,404,222 24,713
1997 16.02 54,291 874 16.02 25,888 415
10/1/97 16.10 -- -- 15.75 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $17.77 8,891,632 $158,001
1998 17.49 3,742,869 65,449
1997 15.94 147,659 2,354
10/1/97 15.68 -- --
- ------------------------------------------------------------------
EQUITY INCOME
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $21.47 1,085,728 $23,316 $21.12 617,614 $13,046
1998 21.94 257,646 5,652 21.61 207,605 4,486
1997 20.55 26,372 542 20.28 13,243 269
10/1/97 20.55 -- -- 20.29 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $20.74 2,236,042 $46,384
1998 21.26 713,431 15,164
1997 19.97 35,002 699
10/1/97 19.99 -- --
- ------------------------------------------------------------------
VALUE EQUITY
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $18.14 859,962 $15,603 $18.01 767,525 $13,823
1998 18.31 491,538 8,998 18.20 470,129 8,556
1997 18.28 28,327 518 18.20 40,454 736
10/1/97 18.85 -- -- 18.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $17.84 1,901,397 $33,924
1998 18.06 1,161,575 20,974
1997 18.09 117,054 2,117
10/1/97 18.67 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A2
RISING DIVIDENDS
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $25.83 3,855,308 $99,594 $25.59 3,388,151 $86,710
1998 22.61 1,802,632 40,757 22.43 1,454,269 32,624
1997 20.09 50,068 1,006 19.96 34,332 685
10/1/97 19.30 -- -- 19.19 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $25.31 9,238,054 $233,848
1998 22.22 4,169,562 92,659
1997 19.81 169,648 3,360
10/1/97 19.05 -- --
- ------------------------------------------------------------------
RESEARCH
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $28.04 3,732,084 $104,644 $27.80 3,987,090 $110,860
1998 22.89 1,882,609 43,093 22.73 1,664,084 37,830
1997 18.87 58,635 1,106 18.77 29,908 561
10/1/97 19.33 -- -- 19.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $27.58 7,961,890 $219,621
1998 22.59 3,540,785 79,977
1997 18.67 154,878 2,892
10/1/97 19.15 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $30.11 1,321,446 $39,790 $29.77 1,332,081 $39,650
1998 24.50 552,738 13,542 24.26 436,641 10,591
1997 22.05 12,122 267 21.87 20,531 449
10/1/97 21.95 -- -- 21.78 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $29.38 3,502,726 $102,900
1998 23.98 996,496 23,892
1997 21.65 66,918 1,449
10/1/97 21.57 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $21.06 3,183,975 $67,052 $20.94 3,036,436 $63,576
1998 17.01 1,393,674 23,707 16.94 1,251,474 21,197
1997 15.41 101,866 1,569 15.36 160,843 2,471
10/1/97 15.99 -- -- 15.95 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $20.82 7,329,545 $152,590
1998 16.87 2,660,020 44,867
1997 15.32 246,159 3,772
10/1/97 15.92 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A3
STRATEGIC EQUITY
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $21.92 1,284,045 $28,148 $21.78 1,027,948 $22,392
1998 14.23 291,183 4,143 14.16 162,917 2,307
1997 14.31 13,199 189 14.26 15,985 228
10/1/97 14.14 -- -- 14.10 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $21.61 2,946,931 $63,695
1998 14.07 748,842 10,538
1997 14.20 49,579 704
10/1/97 14.04 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $39.59 2,679,145 $106,080 $39.34 1,972,481 $77,589
1998 22.43 871,756 19,550 22.31 523,815 11,688
1997 18.52 35,953 666 18.45 13,732 253
10/1/97 18.94 -- -- 18.88 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $39.02 4,341,508 $169,421
1998 22.17 1,207,879 26,779
1997 18.36 48,168 885
10/1/97 18.79 -- --
- ------------------------------------------------------------------
SMALL CAP
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $22.82 2,787,333 $63,611 $22.68 1,823,715 $41,368
1998 15.37 1,029,412 15,820 15.30 594,716 9,098
1997 12.88 58,584 755 12.84 20,111 258
10/1/97 13.85 -- -- 13.82 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $22.55 3,575,459 $80,614
1998 15.23 1,273,236 19,390
1997 12.81 99,963 1,280
10/1/97 13.78 -- --
- ------------------------------------------------------------------
GROWTH
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $28.62 8,941,918 $255,925 $28.46 6,570,102 $186,953
1998 16.29 1,521,473 24,792 16.22 797,510 12,940
1997 13.03 97,853 1,275 12.99 34,329 446
10/1/97 15.18 -- -- 15.14 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $28.29 14,909,662 $421,842
1998 16.16 2,265,343 36,602
1997 12.96 226,700 2,938
10/1/97 15.10 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A4
REAL ESTATE
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $20.62 286,539 $5,909 $20.28 155,133 $3,147
1998 21.74 196,372 4,270 21.42 112,984 2,420
1997 25.48 10,718 273 25.14 8,060 203
10/1/97 25.25 -- -- 24.92 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $19.92 532,774 $10,613
1998 21.07 408,418 8,604
1997 24.76 44,523 1,102
10/1/97 24.56 -- --
- ------------------------------------------------------------------
HARD ASSETS
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $17.37 130,846 $2,273 $17.09 175,931 3,006
1998 14.28 50,015 714 14.07 33,343 469
1997 20.57 4,291 88 20.29 4,830 98
10/1/97 24.00 -- -- 23.68 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $16.78 559,019 $9,381
1998 13.84 205,654 2,846
1997 19.99 10,671 213
10/1/97 23.34 -- --
- ------------------------------------------------------------------
DEVELOPING WORLD
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $11.61 1,294,269 $15,027 $11.58 620,258 $7,181
1998 7.28 131,499 958 7.27 31,253 227
2/19/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $11.54 1,334,812 $15,410
1998 7.26 111,256 808
2/19/98 -- -- --
- ------------------------------------------------------------------
GALAXY EQUITY
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $11.79 8,936 $105 $11.79 11,848 $140
10/1/99 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $11.78 4,420 $52
10/1/99 10.00 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A5
GALAXY GROWTH AND INCOME
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $10.55 8,512 $90 $10.55 1,122 $12
10/1/99 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $10.54 493 $5
10/1/99 10.00 -- --
- ------------------------------------------------------------------
GALAXY SMALL COMPANY GROWTH
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $14.87 -- -- $14.87 -- --
10/1/99 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $14.87 -- --
10/1/99 10.00 -- --
GALAXY ASSET ALLOCATION
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $10.70 4,460 $48 $10.70 832 $9
10/1/99 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $10.70 7,153 $76
10/1/99 10.00 -- --
- ------------------------------------------------------------------
GALAXY HIGH QUALITY BOND
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $ 9.93 2,756 $27 $ 9.92 -- --
10/1/99 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $ 9.92 -- --
10/1/99 10.00 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A6
PIMCO HIGH YIELD BOND
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $10.24 3,028,750 $31,013 $10.21 1,524,636 $15,572
1998 10.08 872,132 8,791 10.07 424,746 4,277
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $10.19 5,377,440 $54,782
1998 10.06 1,487,999 14,969
5/1/98 10.00 -- --
- ------------------------------------------------------------------
PIMCO STOCKSPLUS GROWTH AND INCOME
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $13.13 2,808,279 $36,875 $13.10 2,387,540 $31,271
1998 11.11 883,763 9,820 11.10 467,386 5,188
5/1/98 10.00 -- -- 10.00 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $13.06 7,040,346 $91,978
1998 11.09 1,878,277 20,828
5/1/98 10.00 -- --
- ------------------------------------------------------------------
INTERNATIONAL EQUITY
- ----------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT ANNUAL RATCHET DEATH BENEFIT
- ----------------------------------------------------------------------------------------------------------------------
TOTAL # OF TOTAL # OF
ACCUMULATION ACCUMULATION
AUV AT UNITS AT TOTAL AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS) FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
1999 $15.57 2,749,756 $42,801 $15.59 1,959,322 $30,538
1998 10.29 1,067,090 10,979 10.32 680,862 7,025
1997 9.90 38,652 383 9.95 36,098 359
10/1/97 11.57 -- -- 11.62 -- --
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
7% SOLUTION ENHANCED DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
1999 $15.50 4,663,701 $72,274
1998 10.27 1,736,702 17,844
1997 9.92 72,955 724
10/1/97 11.60 -- --
- ------------------------------------------------------------------
GPP4SF-108896 A7
This page intentionally left blank.
APPENDIX B
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into
the guaranteed interest period; that the then Index Rate for a 7-year guaranteed
interest period ("J") is 8%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest Allocation on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $112,695 ($124,230 - $11,535).
EXAMPLE #2: FULL SURRENDER -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into
the guaranteed interest period; that the then Index Rate for a 7-year guaranteed
interest period ("J") is 6%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest Allocation on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount paid to you on full surrender ignoring any surrender
charge is $128,371 ($124,230 + $4,141 ).
EXAMPLE #3: WITHDRAWAL -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a withdrawal of $112,695 is requested 3
years into the guaranteed interest period; that the then Index Rate ("J") for a
7-year guaranteed interest period is 8%; and that no prior transfers or
withdrawals affecting this Fixed Interest Allocation have been made.
GPP4SF-108896 B1
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of the Fixed Interest Allocation on the date of
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$112,695 /((1.07/1.0850) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0850) )-1] = $11,535
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $112,695 as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $112,695, and also reduced by the Market Value
Adjustment of $11,535, for a total reduction in the Fixed Interest Allocation of
$124,230.
EXAMPLE #4: WITHDRAWAL -- EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
Assume $200,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate of 7%; that a withdrawal of $128,371 requested 3 years into
the guaranteed interest period; that the then Index Rate ("J") for a 7-year
guaranteed interest period is 6%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of Fixed Interest Allocation on the date of surrender is
3
$248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[$128,371 / ((1.07/1.0650) )] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [((1.07/1.0650) )-1] = $4,141
Therefore, the amount of the withdrawal paid to you ignoring any surrender
charge is $128,371, as requested. The Fixed Interest Allocation will be reduced
by the amount of the withdrawal, $128,371, but increased by the Market Value
Adjustment of $4,141, for a total reduction in the Fixed Interest Allocation of
$124,230.
GPP4SF-108896 B2
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
SURRENDER CHARGE FOR EXCESS WITHDRAWALS EXAMPLE
The following assumes you made an initial premium payment of $10,000 and
additional premium payments of $10,000 in each of the second and third contract
years, for total premium payments under the Contract of $30,000. It also assumes
a withdrawal at the beginning of the fifth contract year of 15% of the contract
value of $35,000. In this example, $3,500 ($35,000 x .10) is the maximum free
withdrawal amount that you may withdraw during the contract year without a
surrender charge. The total withdrawal would be $5,250 ($35,000 x .15).
Therefore, $1,750 ($5,250 - $3,500) is considered an excess withdrawal of a part
of the initial premium payment of $10,000 and would be subject to a 7% surrender
charge of $122.50 ($1,750 x .07). This example does not take into account any
Market Value Adjustment or deduction of any premium taxes.
GPP4SF-108896 C1
- --------------------------------------------------------------------------------
APPENDIX D
- --------------------------------------------------------------------------------
WITHDRAWAL ADJUSTMENT FOR 7% SOLUTION DEATH BENEFIT EXAMPLES
EXAMPLE #1: THE CONTRACT VALUE (AV) IS LOWER THAN THE DEATH BENEFIT
Assume a premium payment of $100,000 (including credits), AV at the time
of withdrawal of $87,000 and a 7% Solution minimum guarantee death benefit
("MGDB") at the time of withdrawal of $127,000. A total withdrawal of $27,000 is
made. The withdrawal is a combination of Special Withdrawal and Pro-Rata
Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000 ($127,000 - $7,000)
AV after Special Withdrawal = $80,000 ($87,000 - $7,000)
The Pro-Rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro-Rata Withdrawal Adjustment to MGDB = $30,000 ($120,000 *
($20,000 / $80,000))
MGDB after Pro-Rata Withdrawal = $90,000 ($120,000 - $30,000)
AV after Pro-Rata Withdrawal = $60,000 ($80,000 - $20,000)
EXAMPLE #2: THE CONTRACT VALUE (AV) IS GREATER THAN THE DEATH BENEFIT
Assume a premium payment of $100,000 (including credits), AV at the time
of withdrawal of $167,000 and a 7% Solution minimum guarantee death benefit
("MGDB") at the time of withdrawal of $127,000. A total withdrawal of $27,000 is
made. The withdrawal is a combination of Special Withdrawal and Pro-Rata
Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000 ($127,000 - $7,000)
AV after Special Withdrawal = $160,000 ($167,000 - $7,000)
The Pro-Rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro-Rata Withdrawal Adjustment to MGDB = $15,000 ($120,000 *
( $20,000 / $160,000))
MGDB after Pro-Rata Withdrawal = $105,000 ($120,000 - $15,000)
AV after Pro-Rata Withdrawal = $140,000 ($160,000 - $20,000)
GPP4SF-108896 D1
EXAMPLE #3: THE CONTRACT VALUE (AV) IS EQUAL TO THAN THE DEATH BENEFIT
Assume a premium payment of $100,000 (including credits), AV at the time
of withdrawal of $127,000 and a 7% Solution minimum guarantee death benefit
("MGDB") at the time of withdrawal of $127,000. A total withdrawal of $27,000
is made. The withdrawal is a combination of Special Withdrawal and Pro-Rata
Withdrawal.
Calculate the Effect of the Withdrawal
1. The Special Withdrawal is $7,000 (7% of $100,000).
MGDB after Special Withdrawal = $120,000 ($127,000 - $7,000)
AV after Special Withdrawal = $120,000 ($127,000 - $7,000)
The Pro-Rata Withdrawal is $20,000 ($27,000 - $7,000).
2. Pro-Rata Withdrawal Adjustment to MGDB = $20,000 ($120,000 *
($20,000 / $120,000))
MGDB after Pro-Rata Withdrawal = $100,000 ($120,000 - $20,000)
AV after Pro-Rata Withdrawal = $100,000 ($120,000 - $20,000)
GPP4SF-108896 D2
- --------------------------------------------------------------------------------
APPENDIX E
- --------------------------------------------------------------------------------
DEATH BENEFITS FOR CONTRACT OWNERS
WHO PURCHASED CONTRACTS PRIOR TO JANUARY 1, 2001
The following is a description of the death benefit options for contract owners
who purchased contracts prior to the effective date of this prospectus.
Effective with the date of this prospectus, we will be designating certain
investment portfolios as "Excluded Funds". We may add new portfolios as Excluded
Funds. We may also reclassify an existing portfolio as an Excluded Fund or
remove such classification upon 30 days notice to you. Such reclassification
will apply only to amounts transferred or otherwise added to such portfolio
after the effective date of the reclassification. Investment in Excluded Funds
will impact your death benefit. OTHER THAN AS SPECIFIED BELOW, PLEASE SEE THE
PROSPECTUS FOR A COMPLETE DESCRIPTION OF YOUR DEATH BENEFIT OPTIONS.
DEATH BENEFIT FOR EXCLUDED FUNDS
For the period of time, and to the extent, that you allocate premium or contract
value to Excluded Funds, your death benefit attributable to that allocation will
equal the contract value of that allocation. Any guarantee of death benefit in
excess of contract value otherwise provided with regard to allocations to
Non-Excluded Funds, does not apply to allocations to Excluded Funds. The death
benefit provided under the Contract may be reduced to the extent that you
allocate premium or contract value to Excluded Funds.
Transfers from Excluded Funds to Non-Excluded funds will reduce all death
benefit components for Excluded Funds on a pro-rata basis. Except with respect
to any maximum guaranteed death benefit, the resulting increase in the
Non-Excluded Funds death benefit component will equal the lesser of the
reduction in the death benefit for Excluded Funds and the contract value
transferred. With respect to the maximum guaranteed death benefit, where
applicable, the resulting increase in the Non-Excluded Funds maximum guaranteed
death benefit will equal the reduction in the maximum guaranteed death benefit
for Excluded Funds.
Transfers from Non-Excluded Funds to Excluded Funds will reduce the Non-Excluded
Funds death benefit components on a pro-rata basis. The resulting increase in
the death benefit components of Excluded Funds will equal the reduction in the
Non-Excluded Funds death benefit components.
Adjustments for transfers involving both Excluded Funds and Special Funds will
be calculated separately from adjustments for transfers involving Excluded Funds
and Non-Special Funds, where applicable.
DEATH BENEFIT FOR NON-EXCLUDED FUNDS
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date,
your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a
pro rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the total premium payments plus credits made under the Contract
reduced by a pro rata adjustment for any withdrawals, minus any
credits added within 1 year prior to death.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
GPP4SF-108896 E1
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawals;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within
1 year prior to death, which we determine as follows:
we credit interest each business day at the 7% annual effective
rate to the enhanced death benefit from the preceding day
(which would be the initial premium and the credit added if the
preceding day is the contract date), then we add additional
premiums paid and credits added since the preceding day, then we
adjust for any withdrawals (including any market value adjustment
applied to such withdrawal and any associated surrender charges)
since the preceding day. Special withdrawals are withdrawals of up
to 7% per year of cumulative premiums and premium credits. Special
withdrawals shall reduce the 7% Solution Enhanced Death Benefit by
the amount of contract value withdrawn. For any withdrawals in
excess of the amount available as a special withdrawal, a pro rata
adjustment to the death benefit is made. The maximum enhanced death
benefit is 3 times all premium payments and credits added, adjusted
to reflect withdrawals.* Each accumulated initial or additional
premium payment and credit will continue to grow at the 7% annual
effective rate until the maximum enhanced death is reached or the
contract owner attains age 80, if earlier.
*Depending on your Contract and the state of issue, this maximum may
be 2 times all premium payments and credits added.
Note for current Special Funds: Certain investment portfolios and
the Fixed Account are designated as "Special Funds" for purposes of
calculating the 7% Solution Enhanced Death Benefit. In addition to
the Fixed Account, the investment portfolios designated currently
as Special Funds are the Liquid Asset Portfolio and the Limited
Maturity Bond Portfolio. The actual interest rate used for
calculating the 7% Solution Enhanced Death Benefit for Special
Funds will be the lesser of (1) 7% and (2) the interest rate,
positive or negative, providing a yield on the enhanced death
benefit for Special Funds equal to the net return for the current
valuation period on the contract value allocated to Special Funds.
We may, with 30 days notice to you, designate any investment
portfolio as a Special Fund on existing contracts with respect to
new premiums added to such investment portfolio and also with
respect to new transfers to such investment portfolio. Thus
selecting these investment portfolios and/or the Fixed Account may
limit or reduce the enhanced death benefit.
Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary will receive the greatest of:
1) the contract value minus any credits added within 1 year prior to
death;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit minus any credits added within
1 year prior to death, which is determined as follows: On each
contract anniversary that occurs on or before the
contract owner turns age 80, we compare the prior enhanced death
benefit to the contract value and select the larger amount as the
new enhanced death benefit. On all other days, the enhanced death
benefit is the following amount: On a daily basis we first take the
enhanced death benefit from the preceding day (which would be the
initial premium and credit added if the preceding day is the
contract date), then we add additional premiums paid and credits
added since the preceding day, and then we adjust for any
withdrawals on a pro rata basis (including any market value
adjustment applied to such withdrawal and any associated surrender
charges) since the preceding day. That amount becomes the new
enhanced death benefit.
GPP4SF-108896 E2
Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity start
date, your beneficiary will receive the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit.
Under this benefit
option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet Enhanced
Death Benefit are calculated in the same manner as if each were the elected
benefit.
Note: In all cases described above, the amount of the death benefit could be
reduced by premium taxes owed and withdrawals not previously deducted.
ALL ENHANCED DEATH BENEFITS MAY NOT BE AVAILABLE IN EVERY STATE OR
UNDER ALL CONTRACTS.
GPP4SF-108896 E3
- --------------------------------------------------------------------------------
APPENDIX F
- --------------------------------------------------------------------------------
OPTIONAL RIDER BENEFITS FOR CONTRACT OWNERS
WHO PURCHASED CONTRACTS PIROR TO JANUARY 1, 2001
The following is a description of the optional rider benefits for contract
owners who purchased contracts prior to the effective date of this prospectus
and elected an optional rider benefit. Effective with the date of this
prospectus, we will be designating certain investment portfolios as "Excluded
Funds". We may add new portfolios as Excluded Funds. We may also reclassify an
existing portfolio as an Excluded Fund or remove such classification upon 30
days notice to you. Such reclassification will apply only to amounts transferred
or otherwise added to such portfolio after the effective date of the
reclassification. Investment in Excluded Funds will impact the benefit under any
optional rider that you have elected. IF YOU NEVER INVEST IN EXCLUDED FUNDS,
YOUR RIDER BENEFITS WILL BE UNAFFECTED. OTHER THAN AS SPECIFIED BELOW, PLEASE
SEE THE PROSPECTUS FOR A COMPLETE DESCRIPTION OF YOUR OPTIONAL RIDER BENEFITS.
OPTIONAL RIDER BENEFITS FOR EXCLUDED FUNDS
For the period of time, and to the extent, that you allocate premium or contract
value to Excluded Funds, any guarantee of an optional rider benefit does not
apply to those amounts. The optional rider benefit provided under the Contract
may be reduced to the extent that you allocate premium or contract value to
Excluded Funds.
For each rider benefit component contained in your rider, a corresponding
component will be created for allocations to Excluded Funds. Transfers from
Excluded Funds to Non-Excluded funds will reduce all rider benefit components
for Excluded Funds on a pro-rata basis. Except with respect to any maximum
guaranteed rider benefit, the resulting increase in the Non-Excluded Funds rider
benefit component will equal the lesser of the reduction in the rider benefit
component for Excluded Funds and the contract value transferred. With respect to
the maximum guaranteed benefit, where applicable, the resulting increase in the
Non-Excluded Funds maximum guaranteed benefit will equal the reduction in the
maximum guaranteed benefit for Excluded Funds.
Transfers from Non-Excluded Funds to Excluded Funds will reduce the Non-Excluded
Funds rider benefit component on a pro-rata basis. The resulting increase in the
rider benefit components of Excluded Funds will equal the reduction in the
Non-Excluded Funds benefit.
Adjustments for transfers involving both Excluded Funds and Special Funds will
be calculated separately from adjustments for transfers involving Excluded Funds
and Non-Special Funds, where applicable.
OPTIONAL RIDER BENEFIT FOR NON-EXCLUDED FUNDS
A. MINIMUM GUARANTEED ACCUMULATION BENEFIT ("MGAB"). We calculate your MGAB
as follows:
1. WE FIRST DETERMINE YOUR MGAB BASE. The MGAB Base is only a
calculation used to determine the MGAB. The MGAB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your annuity income, cash surrender value
and death benefits.
If you purchased the MGAB rider on the contract date, and
(i) elected the ten-year option, your MGAB Base is equal to your
initial premium and credit, plus any additional premium and
credit added to your Contract during the 2-year period after
your rider date, reduced pro rata for any withdrawals and
reduced for any transfers made within the last 3 years prior
to the MGAB Benefit Date; or
GPP4SF-108896 F1
(ii) elected the twenty-year option, except for the Special Funds
which require special calculations, your MGAB Base is equal
to your initial premium and credit, plus any additional
premium and credit added to your Contract during the 2-year
period after your contract date, accumulated at the MGAB Base
Rate, reduced pro rata for any withdrawals and reduced for
any transfers made within the last 3 years prior to the MGAB
Benefit Date. The MGAB Base Rate for allocations other than
allocations to the Special Funds is the annual effective rate
of 3.5265%. Accumulation of eligible additional premiums
starts on the date the premium was received.
ONLY PREMIUMS AND CREDITS ADDED TO YOUR CONTRACT DURING THE 2-YEAR
PERIOD AFTER YOUR RIDER DATE ARE INCLUDED IN THE MGAB BASE. ANY
ADDITIONAL PREMIUM PAYMENTS YOU ADDED TO YOUR CONTRACT AFTER THE
SECOND RIDER ANNIVERSARY ARE NOT INCLUDED IN THE MGAB BASE. Thus,
the MGAB rider may not be appropriate for you if you plan to add
substantial premium payments after your second rider anniversary.
If you purchased the MGAB rider after the contract date, your MGAB
Base is equal to your contract value on the rider date, plus
premiums and credits added during the 2-year period after your
rider date. Withdrawals taken while the MGAB rider is in effect, as
well as transfers made within 3 years prior to the MGAB Benefit
Date, will reduce the value of your MGAB Base pro rata. This means
that the MGAB Base (and the MGAB Charge Base) will be reduced by
the same percent as the percent of contract value that was
withdrawn (or transferred). We will look to your contract value
immediately before the withdrawal or transfer when we determine
this percent.
For any Special Fund under the twenty-year option, if the actual
interest credited to and/or the investment earnings of the contract
value allocated to the Special Fund over the calculation period is
less than the amount calculated under the formula above, that
lesser amount becomes the increase in your MGAB Base for the
Special Fund for that period. THE MGAB BASE RATE FOR EACH SPECIAL
FUND MAY BE POSITIVE OR NEGATIVE. Thus, investing in the Special
Funds may limit the MGAB benefit.
If you add the 20 year option rider after the contract date, any
payment of premiums after the rider date, and/or investments in the
Special Funds, may prevent the MGAB Base from doubling over the
waiting period.
2. WE THEN SUBTRACT YOUR CONTRACT VALUE ON THE MGAB BENEFIT DATE FROM
YOUR MGAB BASE. The contract value that we subtract includes both
the contract value in the subaccounts in which you are invested and
the contract value in your Fixed Interest Allocations, if any.
3. ANY POSITIVE DIFFERENCE IS YOUR MGAB. If there is a MGAB, we will
automatically credit it on the MGAB Benefit Date to the subaccounts
in which you are invested pro rata based on the proportion of your
contract value in the subaccounts on that date, unless you have
previously given us other allocation instructions. If you do not
have an investment in any subaccount on the MGAB Benefit Date, we
will allocate the MGAB to the Liquid Asset subaccount on your
behalf. After the crediting of the MGAB, the amount of your annuity
income, cash surrender value and death benefits will reflect the
crediting of the MGAB to your contract value to the extent the
contract value is used to determine such value.
B. MINIMUM GUARANTEED INCOME BENEFIT ("MGIB"). On the MGIB Benefit Date, we
calculate your MGIB annuity income as follows:
1. WE FIRST DETERMINE YOUR MGIB BASE. The MGIB Base is only a
calculation used to determine the MGIB. The MGIB Base does not
represent a contract value, nor does it guarantee performance of
the subaccounts in which you are invested. It is also not used in
determining the amount of your cash surrender value and death
benefits. Any reset of contract value under provisions of the
Contract or other riders will not increase the MGIB Base or MGIB
Base Maximum.
GPP4SF-108896 F2
(i) If you purchased the MGIB rider on the contract date, except
for the Special Funds which require special calculations, the
MGIB Base is equal to your initial premium and credit, plus
any additional premiums and credits added to your Contract
during the 5-year period after your contract date, accumulated
at the MGIB Base Rate (7% for all portfolios except the
Special Funds), reduced pro rata by all withdrawals taken
while the MGIB rider is in effect. Premiums and credits paid
less than 5 years prior to the earliest MGIB Benefit Date are
excluded from the MGIB Base.
(ii) If you purchased the MGIB rider after the contract date,
except for the Special Funds which require special
calculations, your MGIB Base is equal to your contract value
on the rider date plus any eligible premiums and credits added
to your Contract during the 5-year period after your rider
date, accumulated at the MGIB Base Rate (7% for all portfolios
except the Special Funds), reduced pro rata by all withdrawals
taken while the MGIB rider is in effect. Eligible additional
premium payments and credits are those added more than 5 years
before the earliest MGIB Benefit Date and are included in the
MGIB Base. Premiums and credits paid after the 5th rider
anniversary are excluded from the MGIB Base.
(iii)For any Special Fund, if the actual earnings and/or the
interest credited to the contract value allocated to the
Special Fund over the calculation period is less than the
amount determined under the formula above, that lesser amount
becomes the change in your MGIB Base for the Special Fund. THE
MGIB BASE RATE FOR EACH SPECIAL FUND MAY BE POSITIVE OR
NEGATIVE. Thus, investing in the Special Funds may limit the
MGIB benefit.
Of course, regardless of when purchased or how you invest,
withdrawals will reduce the value of your MGIB Base pro rata
to the percentage of the contract value withdrawn.
We offer a 7% MGIB Base Rate, except for the Special Funds.
The Company may at its discretion discontinue offering this
rate. The MGIB Base Rate is an annual effective rate.
The MGIB Base is subject to the
MGIB Base Maximum. The MGIB Base Maximum is the
amount calculated above until the earlier of: (i) the date the
oldest contract owner reaches age 80, or (ii) the date the
MGIB Base reaches two times the MGIB Eligible Premiums and
credits, adjusted for any withdrawals. MGIB Eligible Premiums
is the total of premiums paid more than 5 years before the
earliest MGIB Benefit Date.
2. Then we determine the MGIB annuity income by multiplying your MGIB
Base (adjusted for any Market Value Adjustment, surrender charge
and premium taxes) by the income factor, and then divide by $1,000.
Two MGIB Income Options are available under the MGIB Rider:
(i) Income for Life (Single Life or Joint with 100% Survivor) and
10-30 Year Certain;
(ii) Income for a 20-30 Year Period Certain; or
(iii)Any other income plan offered by the Company in connection
with the MGIB rider on the MGIB Benefit Date.
On the MGIB Benefit Date, we would apply the MGIB Base using the Table of
Income Factors specified in the MGIB rider for the Income Option you selected.
The guaranteed factors contained in the MGIB rider generally provide lower
payout per $1,000 of value applied than the guaranteed factors found in your
Contract.
Then we compare the MGIB annuity income under the rider guarantee for the
option selected with the annuity income under your Contract guarantee for the
same option. The greater amount of income will be available to you on the MGIB
Benefit Date.
C. MINIMUM GUARANTEED WITHDRAWAL BENEFIT (MGWB) RIDER. The MGWB Withdrawal
Account is only a calculation which represents the remaining amount available
for periodic payments under the MGWB
GPP4SF-108896 F3
rider. It does not represent a contract
value, nor does it guarantee performance of the subaccounts in which you are
invested. It will not affect your annuitization, surrender and death benefits.
The MGWB Withdrawal Account is equal to the Eligible Payment Amount adjusted for
any withdrawals. Withdrawals of up to 7% per year of the Eligible Payment Amount
will reduce the value of your MGWB Withdrawal Account by the dollar amount of
the withdrawal. Any withdrawals greater than 7% per year of the Eligible Payment
Amount will cause a reduction in both the MGWB Withdrawal Account and the
Eligible Payment Amount by the proportion that the withdrawal bears to the
contract value at the time of the withdrawal. The MGWB Withdrawal Account is
also reduced by the amount of any periodic payments paid under the MGWB rider
once your contract value is zero.
GUARANTEED WITHDRAWAL STATUS. You may continue
to make withdrawals in any amount permitted under your Contract so long as your
contract value is greater than zero. See "Withdrawals." However, making any
withdrawals in any year greater than 7% per year of the Eligible Payment Amount
will reduce the Eligible Payment Amount for future withdrawals and payments
under the MGWB rider by the proportion that the withdrawal bears to the contract
value at the time of the withdrawal. The MGWB rider will remain in force and you
may continue to make withdrawals each year so long as:
(i) your contract value is greater than zero;
(ii) your MGWB Withdrawal Account is greater than zero;
(iii) your latest allowable annuity start date has not been reached;
(iv) you have not elected to annuitize your Contract; and
(v) you have not died (unless your spouse has elected to continue
the contract), changed the ownership of the Contract or
surrendered the Contract.
The standard Contract provision limiting withdrawals to no more than 90% of the
cash surrender value is not applicable under the MGWB rider.
WITHDRAWAL ADJUSTMENTS. We will reduce the MGWB Withdrawal Account by the
dollar amount of any withdrawal taken up to 7% per year of the Eligible Payment
Amount. Any withdrawal taken in excess of 7% per year of the Eligible Payment
Amount will reduce both the MGWB Withdrawal Account and the Eligible Payment
Amount pro rata in proportion to the percentage of contract value withdrawn. If
a withdrawal reduces the MGWB Withdrawal Account to zero, the MGWB rider
terminates and no further benefits are payable under the rider.
AUTOMATIC PERIODIC BENEFIT STATUS. Under the MGWB rider, in the event your
contract value is reduced to zero your Contract is given what we refer to as
Automatic Periodic Benefit Status, if:
(i) your MGWB Withdrawal Account is greater than zero;
(ii) your latest allowable annuity start date has not been reached;
(iii) you have not elected to annuitize your Contract; and
(iv) you have not died, changed the ownership of the Contract or
surrendered the Contract.
Once your Contract is given Automatic Periodic Benefit Status, we will pay you
the annual MGWB periodic payments, beginning on the next contract anniversary,
equal to the lesser of the remaining MGWB Withdrawal Account or 7% annually of
your Eligible Payment Amount until the earliest of (i) your contract's latest
annuity start date, (ii) the death of the owner; or (iii) until your MGWB
Withdrawal Account is exhausted. We will reduce the MGWB Withdrawal Account by
the amount of each payment. Once your Contract is given Automatic Periodic
Benefit Status, we will not accept any additional premium payments in your
Contract and the Contract will not provide any benefits except those provided by
the MGWB rider. Any other rider terminates. Your Contract will remain in
Automatic Periodic Benefit Status until the earliest of (i) payment of all MGWB
periodic payments (ii) payment of the Commuted Value (defined below) or (iii)
the owner's death has occurred.
GPP4SF-108896 F4
On the contract's latest annuity start date, in
lieu of making the remaining MGWB periodic payments, we will pay you the
Commuted Value of your MGWB periodic payments remaining. We may, at our option,
extend your annuity start date in order to continue the MGWB periodic payments.
The Commuted Value is the present value of any then remaining MGWB periodic
payments at the current interest rate plus 0.50%. The current interest rate will
be determined by the average of the Ask Yields for U.S. Treasury Strips as
quoted by a national quoting service for period(s) applicable to the remaining
payments. Once the last MGWB periodic payment is made or we pay you the Commuted
Value, your Contract and the MGWB rider terminate.
GPP4SF-108896 F5
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company
domiciled in Delaware.
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GPP4SF-108896 Galaxy Premium Plus-4 12/29/00
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ING VARIABLE ANNUITIES |
GOLDEN AMERICAN LIFE INSURANCE COMPANY |
Golden American Life Insurance Company is a |
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108896 Galaxy Premium Plus-SF 12/29/2000 |
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following provisions regarding the Indemnification of
Directors and Officers of the Registrant are applicable:
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
INCORPORATORS
Delaware General Corporation Law, Title 8, Section 145
provides that corporations incorporated in Delaware may
indemnify their officers, directors, employees or agents
for threatened, pending or past legal action by reason
of the fact he/she is or was a director, officer,
employee or agent. Such indemnification is provided for
under the Company's By-Laws under Article VI.
Indemnification includes all liability and loss suffered
and expenses (including attorneys' fees) reasonably
incurred by such indemnity. Prepayment of expenses is
permitted, however, reimbursement is required if it is
ultimately determined that indemnification should not
have been given.
DIRECTORS' AND OFFICERS' INSURANCE
The directors, officers, and employees of the
registrant, in addition to the indemnifications
described above, are indemnified through the blanket
liability insurance policy of Registrant's ultimate
parent, ING Groep, NV, or directly by Equitable of
Iowa Companies, Inc. for liabilities not covered through
the indemnification provided under the By-Laws.
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
1 Underwriting Agreement Between Golden American Life
Insurance Company and Directed Services, Inc. (1)
3(a) Certificate of Amendment of the Restated Articles of
Incorporation of Golden American, dated (03/01/95). (4)
3(b) By-Laws of Golden American, dated (01/07/94). (4)
3(c) Resolution of Board of Directors for Powers of
Attorney, dated (04/23/99). (4)
4(a) Individual Deferred Variable and Fixed Annuity
Contract. (4)
4(b) Group Deferred Variable and Fixed Annuity Contract. (4)
4(c) Individual Deferred Variable Annuity Contract. (4)
4(d) Individual Retirement Annuity Rider Page. (1)
4(e) Individual Deferred Combination Variable and Fixed
Annuity Application. (6)
4(f) Group Deferred Combination Variable and Fixed Annuity
Enrollment Form. (6)
4(g) Individual Deferred Variable Annuity Application. (6)
4(h) Roth Individual Retirement Annuity Rider. (2)
4(i) Schedule Page to the Premium Plus Contract featuring
The Galaxy VIP Fund. (5)
4(j) Minimum Guaranteed Accumulation Benefit Rider. (6)
4(k) Minimum Guaranteed Income Benefit Rider. (6)
4(l) Minimum Guaranteed Withdrawal Benefit Rider. (6)
4(m) Death Benefit Endorsement No.1 (7% Solution Enhanced). (6)
4(n) Death Benefit Endorsement No.2 (Ratchet Enhanced). (6)
4(o) Death Benefit Endorsement No.3 (Standard). (6)
4(p) Death Benefit Endorsement No.4 (Max 7). (6)
5 Opinion and Consent of Myles R. Tashman, Esq.
10(a) Administrative Services Agreement between Golden American
and Equitable Life Insurance Company of Iowa. (3)
10(b) Service Agreement between Golden American and Directed
Services, Inc. (3)
10(c) Service Agreement between Golden American and EISI. (3)
10(d) Asset Management Agreement between Golden American and
ING Investment Management LLC. (4)
10(e) Reciprocal Loan Agreement between Golden American and ING
America Insurance Holdings, Inc. (4)
10(f) Revolving Note Payable between Golden American and SunTrust
Bank. (4)
10(g) Participation Agreement between Golden American and Warburg
Pincus Trust. (4)
10(h) Participation Agreement between Golden American and PIMCO Variable
Insurance Trust. (4)
10(i) Participation Agreement between Golden American and The Galaxy
VIP Fund. (8)
10(j) Surplus Note, dated 12/17/96, between Golden American and
Equitable of Iowa Companies. (8)
10(k) Surplus Note, dated 12/30/98, between Golden American and
Equitable Life Insurance Company of Iowa. (8)
10(l) Surplus Note, dated 09/30/99, between Golden American and
ING AIH. (8)
10(m) Surplus Note, dated 12/08/99, between Golden American and
First Columbine Life Insurance Company. (7)
10(n) Surplus Note, dated 12/30/99, between Golden American and
Equitable of Iowa Companies. (7)
10(o) Participation Agreement between Golden American and
Prudential Series Fund, Inc. (8)
10(p) Participation Agreement between Golden American and
ING Variable Insurance Trust. (8)
10(q) Amendment to the Participation Agreement between Golden
American and Prudential Series Fund, Inc.
10(r) Reinsurance Agreement, dated 06/30/00, between Golden
American and Equitable Life Insurance Company of Iowa (9)
10(s) Renewal of Revolving Note Payable between Golden American
and SunTrust Bank as of July 31, 2000 and expiring
July 31, 2001 (9)
23(a) Consent of Sutherland Asbill & Brennan LLP.
23(b) Consent of Ernst & Young LLP, Independent Auditors.
23(c) Consent of Myles R. Tashman, included together with Opinion
of Myles R. Tashman, Esq. in Exhibit 5 to this Registration
Statement.
24 Powers of Attorney.
27 Financial Data Schedule.
(1) Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on
September 24, 1997 (File No. 333-28743).
(2) Incorporated herein by reference to Amendment No. 2 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on February
12, 1998 (File No. 333-28743).
(3) Incorporated herein by reference to Amendment No. 3 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on April 30,
1998 (File No. 333-28743).
(4) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on April 23, 1999
(File No. 333-76945).
(5) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on September 24, 1999
(File No. 333-76945).
(6) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on December 2, 1999
(File No. 333-76945).
(7) Incorporated herein by reference to Registrant's Registration
Statement on form S-1 for Golden American Life Insurance Company
filed with the Securities and Exchange Commission on January 26, 2000
(File No. 333-95457).
(8) Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on April 26,
2000 (File No. 333-95457).
(9) Incorporated herein by reference to Amendment No. 2 to Registrant's
Registration Statement on form S-1 for Golden American Life Insurance
Company filed with the Securities and Exchange Commission on September
13, 2000 (File No. 333-95457).
(b) FINANCIAL STATEMENT SCHEDULE.
(1) All financial statements are included in the Prospectus
as indicated therein
(2) Schedules I, III and IV follow. All other schedules to the consolidated
financial statements required by Article 7 of Regulation S-X are
omitted because they are not applicable or because the information
is included elsewhere in the consolidated financial statements or
notes thereto.
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
BALANCE
SHEET
DECEMBER 31, 1999 COST 1 VALUE AMOUNT
- -----------------------------------------------------------------------------------------
TYPE OF INVESTMENT
Fixed maturities, available for sale:
Bonds:
United States government and governmental
agencies and authorities........................ $21,363 $21,103 $21,103
Public utilities................................. 53,754 51,315 51,315
Corporate securities............................. 396,494 384,272 384,272
Other asset-backed securities.................... 207,044 203,577 203,577
Mortgage-backed securities....................... 179,397 175,054 175,054
------------------------------------
Total fixed maturities, available for sale....... 858,052 835,321 835,321
Equity securities:
Common stocks: industrial,
miscellaneous, and all other..................... 14,952 17,330 17,330
Mortgage loans on real estate....................... 100,087 100,087
Policy loans........................................ 14,157 14,157
Short-term investments.............................. 80,191 80,191
--------------- ----------
Total investments................................... $1,067,439 $1,047,086
=============== ==========
Note 1: Cost is defined as original cost for common stocks, amortized cost for
bonds and short-term investments, and unpaid principal for policy loans and
mortgage loans on real estate, adjusted for amortization of premiums and accrual
of discounts.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------------------------------
FUTURE
POLICY
BENEFITS, OTHER
LOSSES, POLICY
DEFERRED CLAIMS CLAIMS INSURANCE
POLICY AND UNEARNED AND PREMIUMS
ACQUISITION LOSS REVENUE BENEFITS AND
SEGMENT COSTS EXPENSES RESERVE PAYABLE CHARGES
- ---------------------------------------------------------------------------
POST-MERGER
- ---------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1999:
Life insurance $528,957 $1,033,701 $6,300 $8 $82,935
YEAR ENDED
DECEMBER 31, 1998:
Life insurance 204,979 881,112 3,840 -- 39,119
PERIOD
OCTOBER 25, 1997
THROUGH
DECEMBER 31, 1997:
Life insurance 12,752 505,304 1,189 10 3,834
POST-ACQUISITION
- ---------------------------------------------------------------------------
PERIOD
JANUARY 1, 1997
THROUGH
OCTOBER 24, 1997:
Life insurance N/A N/A N/A N/A 18,288
COLUMN A COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
- ---------------------------------------------------------------------------
AMORTIZA-
BENEFITS TION OF
CLAIMS, DEFERRED
LOSSES POLICY
NET AND ACQUI- OTHER
INVESTMENT SETTLEMENT SITION OPERATING PREMIUMS
SEGMENT INCOME EXPENSES COSTS EXPENSES* WRITTEN
- ---------------------------------------------------------------------------
POST-MERGER
- ---------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1999:
Life insurance $59,169 $182,221 $33,119 $(83,827) --
YEAR ENDED
DECEMBER 31, 1998:
Life insurance 42,485 96,968 5,148 (26,406) --
PERIOD
OCTOBER 25, 1997
THROUGH
DECEMBER 31, 1997:
Life insurance 5,127 7,413 892 1,137 --
POST-ACQUISITION
- ---------------------------------------------------------------------------
PERIOD
JANUARY 1, 1997
THROUGH
OCTOBER 24, 1997:
Life insurance 21,656 19,401 1,674 20,234 --
* This includes policy acquisition costs deferred for first year commissions
and interest bonuses, and other expenses related to the production of
new business. The costs related to first year interest bonuses are
included in benefits claims, losses, and settlement expenses.
SCHEDULE IV
REINSURANCE
COLUMN A COLUMN B COLUMN C
- ----------------------------------------------------------------------------
CEDED TO
GROSS OTHER
AMOUNT COMPANIES
- ----------------------------------------------------------------------------
AT DECEMBER 31, 1999:
Life insurance in force................. $225,000,000 $119,575,000
===============================
AT DECEMBER 31, 1998:
Life insurance in force................. $181,456,000 $111,552,000
===============================
AT DECEMBER 31, 1997:
Life insurance in force................. $149,842,000 $96,686,000
===============================
SCHEDULE IV
REINSURANCE
COLUMN A COLUMN D COLUMN E COLUMN F
- ------------------------------------------------------------------------------------
PERCENTAGE
ASSUMED OF AMOUNT
FROM OTHER NET ASSUMED
COMPANIES AMOUNT TO NET
- ------------------------------------------------------------------------------------
AT DECEMBER 31, 1999:
Life insurance in force................. -- $105,425,000 --
========================================
AT DECEMBER 31, 1998:
Life insurance in force................. -- $69,904,000 --
========================================
AT DECEMBER 31, 1997:
Life insurance in force................. -- $53,156,000 --
========================================
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement
shall be deemed to be a new registration statement
relating to the securities offered therein, and the
offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of West Chester and the Commonwealth
of Pennsylvania, on the 15th day of December, 2000.
GOLDEN AMERICAN LIFE
INSURANCE COMPANY
(Registrant)
By:
------------------------
Barnett Chernow*
President
Attest: /s/ Linda E. Senker
------------------------
Linda E. Senker
Vice President and Associate
General Counsel of Depositor
As required by the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in
the capacities indicated on December 15, 2000.
Signature Title
President and Director
- --------------------
Barnett Chernow*
Senior Vice President and
- -------------------- Chief Financial Officer
E. Robert Koster*
DIRECTORS OF DEPOSITOR
- -----------------------
Myles R. Tashman*
- -----------------------
Michael W. Cunningham*
- -----------------------
Phillip R. Lowery*
- -----------------------
Mark A. Tullis*
By: /s/ Linda E. Senker, Attorney-in-Fact
-----------------------
Linda E. Senker
_______________________
*Executed by Linda E. Senker on behalf of those indicated pursuant
to Power of Attorney.
EXHIBIT INDEX
ITEM EXHIBIT PAGE #
- ---- ------- ------
5 Opinion and Consent of Myles R. Tashman, Esq. EX-5
10(q) Amendment to the Participation Agreement btwn
GALIC and Prudential Series Fund, Inc. EX-10.Q
23(a) Consent of Sutherland Asbill & Brennan LLP EX-23.A
23(b) Consent of Ernst & Young LLP, Independent Auditors EX-23.B
24 Powers of Attorney EX-24
27 Financial Data Schedule EX-27