As filed with the Securities and Exchange Commission on September 13, 2000
Registration No. 333-30186
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
6355
(Primary Standard Industrial Classification Code Number)
41-0991508
(I.R.S. Employer Identification No.)
Golden American Life Insurance Company
1475 Dunwoody Drive
West Chester, PA 19380-1478
(610) 425-3400
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Myles R. Tashman, Esq. COPY TO:
Golden American Life Insurance Company Stephen E. Roth, Esq.
1475 Dunwoody Drive Sutherland Asbill & Brennan LLP
West Chester, Pennsylvania 19380-1478 1275 Pennsylvania Avenue, N.W.
(610) 425-3400 Washington, D.C. 20004-2404
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
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 [ ]
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Calculation of Registration Fee
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering price aggregate offering Amount of
registered registered price per unit(1) price(1) registration fee(2)
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Annuity Contracts
(Interests in N/A N/A $50,000,000 $13,200
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) $378,787.88 was previously registered with the initial filing of this
registration statement on February 11, 2000 at which time $100 in
registration fees were previously paid.
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The Registrant hereby amends this Registration 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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
PART I
The Prospectus contained herein does not contain all of the
information permitted by Securities and Exchange Commission
Regulations. Therefore, this Form S-1 for Golden American Life
Insurance Company ("Golden American") incorporates by reference
the Statement of Additional Information for the GoldenSelect
Combination Variable and Fixed Annuity, and Part C (Other
Information) contained in the Registration Statement on Form N-4
(Post-Effective Amendment No. 1, File Nos. 333-30180, 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 obtained
free of charge from Golden American Life Insurance Company by
calling Customer Service at 800-366-0066.
PROFILE AND PROSPECTUS OF GOLDENSELECT NC VA
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
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PROFILE OF
GOLDENSELECT NC
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
OCTOBER 2, 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 provides a means for you to invest on a
tax-deferred basis in (i) one or more of 30 mutual fund investment
portfolios through our Separate Account B and/or (ii) in a fixed account
of Golden American with guaranteed interest periods. The 30 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.
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.
NC PROFILE PROSPECTUS BEGINS AFTER
108207 PAGE 7 OF THIS PROFILE
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 benefit, and (6) 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 $5,000 or more
($1,500 for a qualified Contract) up to and including age 85. You may
make additional payments of $100 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.
Who may purchase this Contract? Contracts offered by the prospectus
accompanying this Profile are available only to customers of First Union
National Bank 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").
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.
108207 2 NC PROFILE
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.
4 THE INVESTMENT PORTFOLIOS
You can direct your money into (1) the fixed account with guaranteed
interest periods of 6 months, 1, 3, 5, 7 and 10 years, and/or (2) into
any one or more of the following 30 mutual fund investment portfolios
through our Separate Account B. The investment portfolios are described
in the prospectuses for the GCG Trust and the Evergreen Variable Annuity
Trust. 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 IncomeSeries 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
EVERGREEN VARIABLE ANNUITY TRUST
Evergreen VA Equity Index Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Small Cap Value Fund
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
$50. 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 and the
asset-based administrative charge, on an annual basis, are as follows:
Mortality & Expense Risk Charge................. 1.25%
Asset-Based Administrative Charge............... 0.15%
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Total........................................ 1.40%
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 is 10% of premium payments not previously withdrawn received
within 10 years prior to the date of the withdrawal. The following table
shows the schedule of the surrender charge that will apply. The surrender
charge is a percent of each premium payment withdrawn.
108207 3 NC PROFILE
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |10+
SINCE PREMIUM PAYMENT | | | | | | | | | |
| | | | | | | | | |
SURRENDER CHARGE 8.5%| 8.5%| 8.5%| 8.5%| 8.5%| 8% | 7% | 6% | 4%| 2%| 0%
The following table is designed to help you understand the Contract
charges. The "Total Annual Insurance Charges" column includes the
mortality and expense risk charge, the asset-based administrative charge,
and reflects the annual contract administrative charge as 0.17% (based on
an assumed average contract value of $30,000). 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 1999 where the
charges have been annualized, 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 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. The 1 Year examples include an 8.5% surrender charge. For Years 1
and 10, the examples show the total annual charges assessed during that
time. For these examples, the premium tax is assumed to be 0%.
108207 4 NC PROFILE
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EXAMPLES:
TOTAL ANNUAL --------
TOTAL ANNUAL INVESTMENT TOTAL TOTAL CHARGES AT THE END OF:
INSURANCE PORTFOLIO ANNUAL
INVESTMENT PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
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THE GCG TRUST
Liquid Asset 1.57% 0.56% 2.13% $107 $266
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Limited Maturity Bond 1.57% 0.57% 2.14% $107 $267
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Global Fixed Income 1.57% 1.60% 3.17% $117 $368
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Fully Managed 1.57% 0.97% 2.54% $111 $308
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Total Return 1.57% 0.91% 2.48% $110 $302
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Asset Allocation Growth 1.57% 1.01% 2.58% $111 $311
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Equity Income 1.57% 0.96% 2.53% $111 $307
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Investors 1.57% 1.01% 2.58% $111 $311
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Value Equity 1.57% 0.96% 2.53% $111 $307
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Rising Dividends 1.57% 0.96% 2.53% $111 $307
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Diversified Mid-Cap 1.57% 1.01% 2.58% $111 $311
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Managed Global 1.57% 1.25% 2.82% $114 $335
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Large Cap Value 1.57% 1.01% 2.58% $111 $311
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All Cap 1.57% 1.01% 2.58% $111 $311
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Research 1.57% 0.91% 2.48% $110 $302
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Capital Appreciation 1.57% 0.96% 2.53% $111 $307
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Growth and Income 1.57% 1.11% 2.68% $112 $321
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Capital Growth 1.57% 1.05% 2.62% $112 $315
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Strategic Equity 1.57% 0.96% 2.53% $111 $307
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Special Situations 1.57% 1.11% 2.68% $112 $321
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Mid-Cap Growth 1.57% 0.91% 2.48% $110 $302
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Small Cap 1.57% 0.96% 2.53% $111 $307
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Growth 1.57% 1.04% 2.61% $111 $314
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Real Estate 1.57% 0.96% 2.53% $111 $307
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Hard Assets 1.57% 0.96% 2.53% $111 $307
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Developing World 1.57% 1.75% 3.32% $118 $381
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EVERGREEN VARIABLE ANNUITY TRUST
Evergreen VA Equity
Index Fund 1.57% 0.62% 2.19% $107 $240
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Evergreen VA
Foundation Fund 1.57% 0.95% 2.52% $111 $306
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Evergreen VA
Global Leaders Fund 1.57% 1.20% 2.58% $113 $330
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Evergreen VA
Small Cap Value Fund 1.57% 1.37% 2.58% $115 $346
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The "Total Annual Investment Portfolio Charges" column above reflect
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.
108207 5 NC PROFILE
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.
Any death benefit proceeds are taxable.
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 7. 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. Since this is a new
Contract, there is no actual performance history to illustrate. Actual
performance information will be shown in an updated prospectus. Please
keep in mind that past or hypothetical performance is not a guarantee of
future results.
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 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.
Under the death benefit, if you die before the annuity start date, your
beneficiary will receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract after pro rata
adjustments for any withdrawals; or
3) the cash surrender value.
Note: The amount of the death benefit could be reduced by premium
taxes owed and withdrawals not previously deducted.
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), and (ii)
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. Also, in certain situations, you may be entitled to a longer
free look period.
108207 6 NC 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.
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 Consideration-Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
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, which
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.
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.
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.
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, PA 19380
(800) 366-0066
or your registered representative.
108207 7 NC 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 NC
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OCTOBER 2, 2000
This prospectus describes GoldenSelect NC, 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 in one or more of 30 mutual fund investment portfolios.
You may also allocate premium payments 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, 7and 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 (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 October 2, 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.
AN INVESTMENT IN SUBACCOUNTS THROUGH THE GCG TRUST OR THE EVERGREEN
VARIABLE ANNUITY TRUST 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 AND THE EVERGREEN VARIABLE ANNUITY TRUST.
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THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF THIS COVER.
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NC-108207
The investment portfolios available under your Contract and the
portfolio managers are:
THE GCG TRUST
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)
Hard Assets Series
Developing World Series
Global Fixed Income 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 ASSETS MANAGEMENT, INC.
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN ASSET MANAGEMENT, INC.
Evergreen VA Equity Index Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Small Cap Value Fund
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.
NC-108207
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TABLE OF CONTENTS
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PAGE
Index of Special Terms 1
Fees and Expenses 2
Performance Information 7
Accumulation Unit 7
Net Investment Factor 7
Financial Statements 7
Performance Information 7
Golden American Life Insurance Company 8
The Trusts 9
Golden American Separate Account B 9
The Investment Portfolios 10
Investment Objectives 10
Investment Management Fees 13
The Fixed Interest Allocation 14
Selecting a Guaranteed Interest Period 14
Guaranteed Interest Rates 14
Transfers from a Fixed Interest Allocation 15
Withdrawals from a Fixed Interest Allocation 15
Market Value Adjustment 15
The Annuity Contract 17
Contract Date and Contract Year 17
Annuity Start Date 17
Contract Owner 17
Joint Owner 17
Annuitant 17
Beneficiary 18
Change of Contract Owner or Beneficiary 18
Purchase and Availability of the Contract 18
Crediting of Premium Payments 19
Administrative Procedures 20
Contract Value 20
Cash Surrender Value 20
Surrendering to Receive the Cash Surrender Value 21
The Subaccounts 21
Addition, Deletion or Substitution of Subaccounts
and Other Changes 21
The Fixed Account 21
Other Contracts 21
Other Important Provisions 22
Withdrawals 22
Regular Withdrawals 22
Systematic Withdrawals 22
Fixed Dollar Systematic Withdrawal Feature 23
IRA Withdrawals 24
Transfers Among Your Investments 24
Transfers by Third Parties 24
Dollar Cost Averaging 24
Automatic Rebalancing 26
Death Benefit 26
Death Benefit During the Accumulation Phase 26
Death Benefit During the Income Phase 27
NC-108207 i
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Required Distributions upon Contract Owner's Death 27
Charges and Fees 28
Charge Deduction Subaccount 28
Charges Deducted from the Contract Value 28
Surrender Charge 28
Waiver of Surrender Charge for Extended Medical Care 28
Free Withdrawal Amount 28
Surrender Charge for Excess Withdrawals 28
Premium Taxes 29
Administrative Charge 29
Transfer Charge 29
Charges Deducted from the Subaccounts 29
Mortality and Expense Risk Charge 29
Asset-Based Administrative Charge 29
Trust Expenses 29
The Annuity Options 30
Annuitization of Your Contract 30
Selecting the Annuity Start Date 31
Frequency of Annuity Payments 31
The Annuity Options 31
Income for a Fixed Period 31
Income for Life with a Period Certain 31
Joint Life Income 31
Annuity Plan 31
Payment When Named Person Dies 32
Other Contract Provisions 32
Reports to Contract Owners 32
Suspension of Payments 32
In Case of Errors in Your Application 32
Assigning the Contract as Collateral 32
Contract Changes-Applicable Tax Law 32
Free Look 33
Group or Sponsored Arrangements 33
Selling the Contract 33
Other Information 34
Voting Rights 34
State Regulation 34
Legal Proceedings 34
Legal Matters 34
Experts 34
Federal Tax Considerations 35
More Information About Golden American Life Insurance
Company 39
Unaudited Financial Statements of Golden American Life
Insurance Company
Financial Statements of Golden American Life Insurance
Company
Statement of Additional Information
Table of Contents
Appendix A
Market Value Adjustment Examples A1
Appendix B
Surrender Charge for Excess Withdrawals Example B1
NC-108207 ii
- --------------------------------------------------------------------------------
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 6
Annuitant 16
Annuity Start Date 15
Cash Surrender Value 18
Contract Date 15
Contract Owner 15
Contract Value 17
Contract Year 15
Fixed Interest Allocation 12
Free Withdrawal Amount 25
Market Value Adjustment 14
Net Investment Factor 6
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
NC-108207 1
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge:
COMPLETE YEARS ELAPSED 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |10+
SINCE PREMIUM PAYMENT | | | | | | | | | |
| | | | | | | | | |
SURRENDER CHARGE 8.5%| 8.5%| 8.5%| 8.5%| 8.5%| 8% | 7% | 6% | 4%| 2%| 0%
Transfer Charge............................... None**
* 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 may in the future charge $25 per transfer if you make more
than 12 transfers in a contract year.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE***
Administrative Charge ........................ $50
***We deduct this charge on each contract anniversary and on
surrender.
SEPARATE ACCOUNT ANNUAL CHARGES****
Mortality & Expense Risk Charge....... 1.25%
Asset-Based Administrative Charge..... 0.15%
-----
Total Separate Account Charges........ 1.40%
**** As a percentage of average daily assets in each subaccount.
The Separate Account Annual Charges are deducted daily.
NC-108207 2
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%
-------------------------------------------------------------------------------
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, except for (i) portfolios that
commenced operations in 2000; and (ii) newly formed portfolios
where the charges have been estimated.
NC-108207 3
EVERGREEN VARIABLE ANNUITY TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
----------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
----------------------------------------------------------------------------
Evergreen VA Equity Index Fund 0.32% 0.30% 0.62%(1) (3)
----------------------------------------------------------------------------
Evergreen VA Foundation Fund 0.75% 0.20% 0.95%(1)
----------------------------------------------------------------------------
Evergreen VA Global Leaders Fund 0.87% 0.33% 1.20%(2) (3)
----------------------------------------------------------------------------
Evergreen VA Small Cap Value Fund 0.87% 0.50% 1.37%(2) (3)
----------------------------------------------------------------------------
(1) Estimated for the fiscal period ending 12/31/2000.
(2) Restated for the fiscal year ended 12/31/99 to reflect current
fees.
(3) Other than the Evergreen VA Foundation Fund, from time to
time, the fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse a fund for certain of
its expenses in order to reduce expense ratios. The fund's
investment advisor may cease these waivers or reimbursements
at any time. The total expenses do not reflect fee waivers
and expense reimbursements. Estimated to include fee waivers
and expense reimbursements and restating to reflect current
fees, total expenses for the Evergreen VA Equity Index Fund
would have been .30%. Including fee waivers and expense
reimbursements, total expenses for the Evergreen VA Global
Leaders Fund and Evergreen VA Small Cap Value Funds were
1.01%.
The purpose of the foregoing tables is to help you understand various
costs and expenses that you will bear directly and indirectly. See the
prospectus for the GCG Trust for additional information concerning the
advisory fee based on the average daily net assets in each GCG Trust
portfolio and the prospectus for the Evergreen Variable Annuity Trust for
additional information on management fees and other expenses assessed
against assets in each Evergreen Variable Annuity Trust portfolio.
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 two examples are designed to show you the expenses you
would pay on a $1,000 investment that earns 5% annually. 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 0.17% of assets (based on an average
contract value of $30,000). Note that surrender charges may apply if you
choose to annuitize your Contract within the first 5 years, and under
certain circumstances, within the first 10 contract years. Thus, in the
event you annuitize your Contract under circumstances which require a
surrender charge, you should refer to Example 1 below which assumes
applicable surrender charges.
NC-108207 4
Example 1:
If you surrender your Contract at the end of the applicable time period,
you would pay the following expenses for each $1,000 invested:
----------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $107 $152 $199 $266
----------------------------------------------------------------------------
Limited Maturity Bond $107 $152 $200 $267
----------------------------------------------------------------------------
Global Fixed Income $117 $183 $251 $368
----------------------------------------------------------------------------
Fully Managed $111 $164 $220 $308
----------------------------------------------------------------------------
Total Return $110 $162 $217 $302
----------------------------------------------------------------------------
Asset Allocation Growth $111 $165 $222 $311
----------------------------------------------------------------------------
Equity Income $111 $164 $220 $307
----------------------------------------------------------------------------
Investors $111 $165 $222 $311
----------------------------------------------------------------------------
Value Equity $111 $164 $220 $307
----------------------------------------------------------------------------
Rising Dividends $111 $164 $220 $307
----------------------------------------------------------------------------
Diversified Mid-Cap $111 $165 $222 $311
----------------------------------------------------------------------------
Managed Global $114 $172 $234 $335
----------------------------------------------------------------------------
Large Cap Value $111 $165 $222 $311
----------------------------------------------------------------------------
All Cap $111 $165 $222 $311
----------------------------------------------------------------------------
Research $110 $162 $217 $302
----------------------------------------------------------------------------
Capital Appreciation $111 $164 $220 $307
----------------------------------------------------------------------------
Growth and Income $112 $168 $227 $321
----------------------------------------------------------------------------
Capital Growth $112 $166 $224 $315
----------------------------------------------------------------------------
Strategic Equity $111 $164 $220 $307
----------------------------------------------------------------------------
Special Situations $112 $168 $227 $321
----------------------------------------------------------------------------
Mid-Cap Growth $110 $162 $217 $302
----------------------------------------------------------------------------
Small Cap $111 $164 $220 $307
----------------------------------------------------------------------------
Growth $111 $166 $224 $314
----------------------------------------------------------------------------
Real Estate $111 $164 $220 $307
----------------------------------------------------------------------------
Hard Assets $111 $164 $220 $307
----------------------------------------------------------------------------
Developing World $118 $187 $258 $381
----------------------------------------------------------------------------
EVERGREEN VARIABLE
ANNUITY TRUST
Evergreen VA Equity
Index Fund $107 $154 $202 $272
----------------------------------------------------------------------------
Evergreen VA Foundation
Fund $111 $163 $219 $306
----------------------------------------------------------------------------
Evergreen VA Global
Leaders Fund $113 $171 $231 $330
----------------------------------------------------------------------------
Evergreen VA Small Cap
Value Fund $115 $176 $240 $346
----------------------------------------------------------------------------
NC-108207 5
Example 2:
If you do not surrender your Contract or if you annuitize on the annuity
start date, you would pay the following expenses for each $1,000
invested:
----------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset $22 $ 67 $114 $246
----------------------------------------------------------------------------
Limited Maturity Bond $22 $ 67 $115 $247
----------------------------------------------------------------------------
Global Fixed Income $32 $ 98 $166 $348
----------------------------------------------------------------------------
Fully Managed $26 $ 79 $135 $288
----------------------------------------------------------------------------
Total Return $25 $ 77 $132 $282
----------------------------------------------------------------------------
Asset Allocation Growth $26 $ 80 $137 $291
----------------------------------------------------------------------------
Equity Income $26 $ 79 $135 $287
----------------------------------------------------------------------------
Investors Value Equity $26 $ 80 $137 $291
----------------------------------------------------------------------------
Value Equity $26 $ 79 $135 $287
----------------------------------------------------------------------------
Rising Dividends $26 $ 79 $135 $287
----------------------------------------------------------------------------
Diversified Mid-Cap $26 $ 80 $137 $291
----------------------------------------------------------------------------
Managed Global $29 $ 87 $149 $315
----------------------------------------------------------------------------
Large Cap Value $26 $ 80 $137 $291
----------------------------------------------------------------------------
All Cap $26 $ 80 $137 $291
----------------------------------------------------------------------------
Research $25 $ 77 $132 $282
----------------------------------------------------------------------------
Capital Appreciation $26 $ 79 $135 $287
----------------------------------------------------------------------------
Growth and Income $27 $ 83 $142 $301
----------------------------------------------------------------------------
Capital Growth $27 $ 81 $139 $295
----------------------------------------------------------------------------
Strategic Equity $26 $ 79 $135 $287
----------------------------------------------------------------------------
Special Situations $27 $ 83 $142 $301
----------------------------------------------------------------------------
Mid-Cap Growth $25 $ 77 $132 $282
----------------------------------------------------------------------------
Small Cap $26 $ 79 $135 $287
----------------------------------------------------------------------------
Growth $26 $ 81 $139 $294
----------------------------------------------------------------------------
Real Estate $26 $ 79 $135 $287
----------------------------------------------------------------------------
Hard Assets $26 $ 79 $135 $287
----------------------------------------------------------------------------
Developing World $33 $102 $173 $361
----------------------------------------------------------------------------
EVERGREEN VARIABLE ANNUITY
TRUST
Evergreen VA Equity
Index $22 $ 69 $117 $252
----------------------------------------------------------------------------
Evergreen VA
Foundation $26 $ 78 $134 $286
----------------------------------------------------------------------------
Evergreen VA Global
Leaders $28 $ 86 $146 $310
----------------------------------------------------------------------------
Evergreen VA Small Cap
Value $30 $ 91 $155 $326
----------------------------------------------------------------------------
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.
NC-108207 6
- --------------------------------------------------------------------------------
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.
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 six months ended June 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 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
NC-108207 7
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.
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.
.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
- --------------------------------------------------------------------------------
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 other
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.
NC-108207 8
The Evergreen Variable Annuity Trust is also a mutual fund whose shares
are available to separate accounts of life insurance companies, including
Golden American, for both variable annuity contracts and variable life
insurance policies. The principal address of the Evergreen Variable
Annuity Trust is 201 South College Street, Charlotte, NC 28288.
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, Evergreen Variable Annuity Trust, Directed Services, Inc.,
Evergreen Asset Management, Inc., 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 AND THE EVERGREEN
VARIABLE ANNUITY TRUST IN THE ACCOMPANYING TRUSTS' PROSPECTUSES. YOU
SHOULD READ THEM CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
GOLDEN AMERICAN SEPARATE ACCOUNT B
- --------------------------------------------------------------------------------
Golden American Separate Account B ("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 (the "1940 Act"). Account B is a separate investment account used
for our variable annuity contracts. We own all the assets in Account B
but such assets are kept separate from our other accounts.
Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust, or
the Evergreen Variable Annuity Trust. 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 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 Account B. If the assets in 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
Account B but are not discussed in this prospectus. 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 -
Additions, Deletions 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. YOU CAN FIND MORE
DETAILED INFORMATION ABOUT THE INVESTMENT PORTFOLIOS IN THE PROSPECTUSES
FOR THE GCG TRUST AND THE EVERGREEN VARIABLE ANNUITY TRUST. YOU SHOULD
READ THESE PROSPECTUSES BEFORE INVESTING.
NC-108207 9
--------------------------------------------------------------------------
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.
-----------------------------------------------------
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.
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.
-----------------------------------------------------
NC-108207 10
--------------------------------------------------------------------------
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 growth of capital.
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 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.
-----------------------------------------------------
NC-108207 11
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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.
-----------------------------------------------------
EVERGREEN VARIABLE ANNUITY
TRUST
Evergreen VA Equity Seeks investment results that achieve
Index price and yield performance similar to the
Standard and Poor's 500 Composite Stock
Price Index ("S&P 500 Index").
Invests substantially all of its total
assets in equity securities that represent
a composite of the S&P 500 Index.
-----------------------------------------------------
Evergreen VA Seeks, in order of priority, reasonable
Foundation income, conservation of capital and
capital appreciation.
Invests principally in a combination of
common stocks, securities convertible into
or exchangeable for common stocks and
fixed income securities.
-----------------------------------------------------
Evergreen VA Global Seeks to provide investors with long-term
Leaders capital growth.
Invests at least 65% of its assets in a
diversified portfolio of U.S. and non-U.S.
equity securities of companies located in
the world's major industrialized
countries.
-----------------------------------------------------
Evergreen VA Small Seeks current income and capital growth in
Cap the value of its shares.
Invests primarily in common stocks and
convertible preferred stocks of small
companies (less than $1 billion in market
capitalization).
-----------------------------------------------------
NC-108207 12
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INVESTMENT
PORTFOLIO INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
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, including retaining
portfolio managers to manage the assets of various portfolios. 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 operations of the portfolio.
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 expenses 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.
Evergreen Asset Management Corp. serves as the investment advisor to the
Evergreen VA Foundation Fund, Evergreen VA Global Leaders Fund and the
Evergreen VA Small Cap Value Fund. Evergreen Investment Management
serves as the investment advisor to the Evergreen VA Equity Index Fund.
The Evergreen Variable Annuity Trust pays Evergreen Asset Management,
Inc. and Evergreen Investment Management, both subsidiaries of First
Union Corporation, a monthly advisory fee based on the average daily net
assets of the investment portfolio for managing the assets of the
portfolios and for administering the Evergreen Variable Annuity Trust.
Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. 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 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 PROSPECTUSES FOR EACH TRUST. YOU SHOULD READ
THESE PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
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.
NC-108207 13
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.
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 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, canceling 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 is 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.
NC-108207 14
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.
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.
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 pro-rata
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.
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
NC-108207 15
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 A.
- --------------------------------------------------------------------------------
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 and the Evergreen Variable Annuity Trust through 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 then 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.
NC-108207 16
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.
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.
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 the annuitant was the sole contract owner and there
is no beneficiary designation, the annuitant's estate will be the
beneficiary.
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.
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 advisor 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 before the annuity start date
and before a death benefit becomes payable, 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.
NC-108207 17
CHANGE OF CONTRACT OWNER OR BENEFICIARY
Before the annuity start date and before a death benefit becomes payable,
you may transfer ownership of a non-qualified Contract. A change in
ownership may affect the amount of the death benefit and the guaranteed
death benefit. The new owner's death will determine when a death benefit
is payable. 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.
If the new owner's age is less than 86, the death benefit in effect prior
to the change in owner will remain in effect. If the new owner's age is
86 or greater (based on the age of the older owner, if joint owners), the
death benefit will be the cash surrender value. Once a death benefit has
been changed due to a change in owner, a subsequent change to a younger
owner will not restore any death benefit.
PURCHASE AND AVAILABILITY OF THE CONTRACT
Contracts offered by this prospectus are available only to customers of
First Union National Bank and its affiliates. 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 $5,000 or more ($1,500 for qualified
Contracts). You may make additional payments of $100 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. 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.
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 within 2 business days after
receipt, if the application and all information necessary for processing
the Contract are complete. Subsequent premium payments will be processed
within 1 business day if we receive all necessary information. 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 is 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 subaccount
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 is
requested in error, we will allocate the subaccount payment(s)
proportionally among the other subaccount(s) in your current allocation
or your allocation instructions. For any subsequent premium payments, the
payment will be credited at the accumulation unit value next determined
after receipt of your premium payment and instructions.
NC-108207 18
Once we allocate your premium payment to the subaccounts selected by you,
we convert the premium payment into accumulation units. We divide the
amount of the premium payment 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, 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 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 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. Currently, initial premiums designated for Fixed Interest
Allocations are allocated to a Fixed Interest Allocation with the
guaranteed interest period you have chosen; however, in the future we may
allocate the premiums to the specially designated subaccount during the
free look period.
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 accumulation value next determined 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 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, 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 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 not
allocated to a Fixed
NC-108207 19
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 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 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, then we deduct any surrender charge, any
charge for premium taxes, the annual contract administrative fee, 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 advisor 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 30 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 Account B invests
in a corresponding portfolio of the GCG Trust or a corresponding
portfolio of the Evergreen Variable Annuity Trust.
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 have elected the dollar cost averaging, systematic
withdrawals, or automatic rebalancing programs or if you have other
outstanding instructions, and we substitute or
NC-108207 20
otherwise eliminate a
portfolio which is subject to those instructions, we will execute your
instructions using the substituted portfolios 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
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.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the same
investment portfolios of the Trusts. These contracts have different
charges that could affect 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,"
"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 withdrawal 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 is 10% of premium payments not previously withdrawn
received within 10 years prior to the date of the withdrawal.
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. Definitive guidance on the proper federal tax treatment
of the Market Value Adjustment has not been issued. You may want to
discuss the potential tax consequences of a Market Value Adjustment with
your tax adviser. 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.
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.
We offer the following three withdrawal options:
NC-108207 21
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. You
decide when you would like systematic payments to start as long as they
start 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, 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 the premiums not
previously withdrawn from the subaccounts in which you are invested.
Both forms of systematic withdrawals are subject to the following
maximum, which is calculated on each withdrawal date:
FREQUENCY MAXIMUM PERCENTAGE
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 the
premiums not previously withdrawn on the 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 systematic
withdrawal program.
If your systematic withdrawal is based on a percentage of the premiums
not previously withdrawn from the subaccounts in which you are invested
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) or 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.
NC-108207 22
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) or 72(t) distributions.
You choose the amount of the fixed systematic withdrawals, which may
total up to an annual maximum of 10% of your premium payments not
previously withdrawn 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 us. 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 systematic
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 Adjustment 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 pay out of amounts required to be distributed by the
Internal Revenue Service ("IRS") 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. 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
NC-108207 23
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.
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. Account B and the
Company will not be liable for following instructions communicated by
telephone or other 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 account 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 judgment and limit transfers made
by a third party.
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 less nits 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. Before choosing this program, 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
NC-108207 24
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 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.
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. 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
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable on the first
person to die of the contract owner or the first joint owner or, if the
contract owner is not an individual, the annuitant. Assuming you are the
NC-108207 25
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 under Contract
Owner's Death."
The death benefit applies on the first to die of the contract owner,
joint owner, or annuitant (if a contract owner is not an individual).
Assuming you are the contract owner and the annuitant, if you die during
the accumulation phase, your beneficiary will receive a death benefit
unless the beneficiary is the surviving spouse and elects to continue the
Contract. The death benefit under the Contract is the greatest of (i)
your contract value; (ii) total premium payments less pro rata
adjustments for any withdrawals; and (iii) the cash surrender value.
Pro rata withdrawal adjustment on the death benefit is calculated by (i)
dividing the contract value withdrawn by the contract value immediately
prior to the withdrawal, and then (ii) multiplying the result by the
amount of the death benefit component immediately prior to the
withdrawal.
The amount of the death benefit amount could be reduced by premium taxes
owed and withdrawals not previously deducted.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date,
we will pay the beneficiary any certain benefit remaining under the
annuity in effect at the time.
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 nonspouse 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
NC-108207 26
on the owner's date of death. Such cash payment will be in full
settlement of all our liability under the Contract.
If the 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.
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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 administering 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 with it.
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 10-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 |10+
SINCE PREMIUM PAYMENT | | | | | | | | | |
| | | | | | | | | |
SURRENDER CHARGE 8.5%| 8.5%| 8.5%| 8.5%| 8.5%| 8% | 7% | 6% | 4%| 2%| 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
NC-108207 27
written proof of illness. See your Contract for more information.
The waiver of surrender charge may not be available in all states.
FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount is 10% of premium
payments not previously withdrawn within 10 years prior to the date of
the withdrawal.
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 their
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 B. 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 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 $50 per Contract unless waived
under 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 mortality and expense risk
charge is equivalent, on an annual basis, to 1.25% of the
NC-108207 28
assets you have in each subaccount. The charge is deducted on each business
day at the rate of .003446% 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.
TRUST EXPENSES
There are fees and charges deducted from each investment portfolio of the
Trusts. See the prospectus for the GCG Trust for additional information
concerning the advisory fee based on the average daily net assets in each
GCG Trust portfolio and the prospectus for the Evergreen Variable Annuity
Trust for additional information on management fees and other expenses
assessed against assets in each Evergreen Variable Annuity Trust
portfolio. Each portfolio deducts portfolio management fees and charges
from the amounts you have invested in the portfolios. 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 advisors,
administrators and distributors of the portfolios in connection with
administrative, distribution or other services and cost savings
experienced by such investment advisors, administrators or distributors.
It is anticipated that such compensation will be based on assets of the
particular portfolios attributable to the Contract. Some advisors,
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 chosen. You may
change 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.
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
NC-108207 29
beneficiary (and gender, where appropriate under applicable law), the
total contract value applied to purchase a Fixed Interest Allocation,
and the applicable payment rate.
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. 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 attain age 70 1/2 or, in some case, retire. Distributions may
be made through annuitization or withdrawals. You should consult your
tax adviser for tax advice.
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. 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. Payment is made for
the life of the annuitant in equal monthly installments and guaranteed
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, payments continue 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
NC-108207 30
living. There is no minimum number of payments. Monthly payment amounts
are available if you ask for them.
OPTION 4. ANNUITY PLAN. The 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.
The minimum rates for Option 1 are based on 3% interest, compounded
annually. The minimum rates for Options 2 and 3 are based on 3% interest,
compounded annually, and the Annuity 2000 Mortality Table. We may pay a
higher rate at our discretion.
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 that when we calculate the amount of
the payment, 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% per year
for Option 1 and 2. We will, however, base the discount interest
rate on the interest rate used to calculate the payments for
Options 1 and 2 if such payments were not based on the tables in
the Contract.
(2) For Option 3, no amounts are payable after both named persons
have died.
(3) For Option 4, the annuity 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. You have 30 days to notify our Customer Service
Center of any errors or discrepancies contained in the report or in any
confirmation notices. 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
Securities and Exchange Commission ("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 sex given in the application or enrollment form is
misstated, the amounts payable or benefits provided by the Contract shall
be those that the premium payment would have bought at the correct age or
sex.
NC-108207 31
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 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.
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), and (ii) 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. or are exempt from such requirements.
Directed Services receives a maximum of 10% commission, and passes
through 100% of the commission to the broker-dealer whose registered
representative sold the contract.
NC-108207 32
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UNDERWRITER COMPENSATION
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NAME OF PRINCIPAL AMOUNT OF COMMISSION TO OTHER
UNDERWRITER BE PAID COMPENSATION
Directed Services, Inc. Maximum of 10% Reimbursement of any
of any initial covered expenses
or additional incurred
premium payments. by registered
representatives
in connection
with the
distribution
of the Contracts.
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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 variable 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.
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.
NC-108207 33
Experts
The audited financial statements of Golden American and Account B appearing
in this prospectus or in the Statement of Additional Information 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 Statement of Additional Information 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
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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 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
NC-108207 34
assure that they comply with the
applicable requirements when such requirements are clarified by
regulation or otherwise. 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,
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. 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.
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 the 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.
NC-108207 35
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 advisor 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 contributions 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 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.
NC-108207 36
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 (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 IRAS
Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject
to certain limitations, 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
tax may apply to amounts attributable to a conversion from an IRA if they
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 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.
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.
NC-108207 37
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.
NC-108207 38
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
June 30, December 31, December 31, December 31,
2000 1999 1998 1997
------------ ------------- ------------ --------------
Annuity and Interest
Sensitive Life
Product Charges..... $ 71,975 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss)
before Federal
Income Tax.......... $ 13,679 $ 19,737 $ 10,353 $ (279)
Net Income (Loss).... $ 8,077 $ 11,214 $ 5,074 $ (425)
Total Assets......... $ 11,287,557 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities.... $ 10,722,684 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's
Equity............ $ 564,873 $ 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,
through 1996 through | 1996 through
October 24, December 31, | August 13,
1997 1996 | 1996
------------- -------------- | --------------
Annuity and Interest |
Sensitive Life |
Product Charges..... $ 18,288 $ 8,768 | $ 12,259
Net Income (Loss) before |
Federal Income Tax.. $ (608) $ 570 | $ 1,736
Net Income (Loss).... $ 729 $ 350 | $ 3,199
Total Assets......... N/A $1,677,899 | N/A
Total Liabilities.... N/A $1,537,415 | N/A
Total Stockholder's
Equity............ N/A $ 140,484 | N/A
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 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 SIX MONTHS OF 2000 COMPARED TO THE SAME PERIOD OF 1999
PREMIUMS
PERCENTAGE DOLLAR
SIX MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
------ ---------- ------ ------
(Dollars in millions)
Variable annuity premiums:
Separate account.............. $ 765.7 (29.6)% $(322.1) $1,087.8
Fixed account................. 353.6 7.1 23.4 330.2
-------- ---- ------- --------
Total variable annuity
premiums..................... 1,119.3 (21.1) (298.7) 1,418.0
Variable life premiums......... 1.0 (78.1) (3.7) 4.7
-------- ---- ------- --------
Total premiums................. $1,120.3 (21.3)% $(302.4) $1,422.7
======== ==== ======= ========
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 decreased 29.6% during the
first six months of 2000 compared to the same period of 1999. Excluded
from the variable annuity separate account premiums above are $923.5
million and $50.7 million for the first six months of 2000 and 1999,
respectively, related to modified coinsurance agreements.
Variable life premiums decreased 78.1% in the first six 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 six
months ended June 30, 2000 totaled $131.4 million, or 12% of total
premiums ($406.6 million, or 29% from two significant broker/dealers for
the six months ended June 30, 1999).
REVENUES
PERCENTAGE DOLLAR
SIX MONTHS ENDED JUNE 30 2000 CHANGE CHANGE 1999
------ ---------- ------ ------
(Dollars in millions)
Annuity and interest sensitive
life product charges.......... $ 72.0 106.9% $ 37.2 $34.8
Management fee revenue......... 9.0 121.2 4.9 4.1
Net investment income 31.8 12.8 3.7 28.1
Realized losses on investments. (2.6) 53.6 (0.9) (1.7)
Net income from modified
coinsurance agreements........ 115.8 2,024.9 110.3 5.5
Other income................... 0.9 26.2 0.2 0.7
------ ------- ------ -----
$226.9 217.3% $155.4 $71.5
====== ======= ====== =====
Total revenues increased 217.3% in the first six months of 2000 from the
same period in 1999. Annuity and interest sensitive life product charges
increased 106.9% in the first six 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 $9.0 million and $4.1 million for the
first six months of 2000 and 1999, respectively.
Net investment income increased 12.8% in the first six months of 2000 due
to growth in invested assets from June 30, 1999. The Companies had $2.6
million of realized losses on the sale of investments in the first six
months of 2000 on the sale of fixed maturities and the writedown of an
impaired investment, compared to losses of $1.7 million in the same
period of 1999 related to the writedown of two fixed maturities.
Net income from modified coinsurance agreements increased by $110.3
million to $115.8 million for the first six months of 2000 as compared to
the first six 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 $111.8 million to other income in the
second quarter 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 $138.6 million, or
214.8%, to $203.1 million in the first six months of 2000. Interest
credited to account balances increased $20.0 million, or 24.3%, to $102.4
million in the first six months of 2000. The premium credit on the
Premium Plus product increased $22.3 million to $73.5 million at June 30,
2000 resulting in an increase in interest credited during the first six
months of 2000 compared to the same period in 1999. The bonus interest on
the fixed account decreased $2.3 million to $4.8 million at June 30, 2000
resulting in a decrease in interest credited during the first six months
of 2000 compared to the same period in 1999. The remaining increase in
interest credited relates to higher account balances associated with the
Companies' fixed account options within the variable products relative to
the balances at June 30, 1999.
Commissions increased $28.9 million, or 34.8%, to $112.2 million in the
first six months of 2000. Insurance taxes, state licenses, and fees
increased $0.4 million, or 15.9%, to $2.9 million in the first six 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 have been deferred, thus having very little impact on
current earnings.
General expenses increased $11.4 million, or 39.6%, to $40.2 million in
the first six 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 six 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
$25.0 million, or 233.8%, in the first six months of 2000. This increase
resulted from the deferral of expenses associated with the large sales
volume experienced since June 30, 1999. Deferred policy acquisition costs
decreased $52.3 million or 34.8% in the first six months of 2000. During
the second quarter of 2000, a modified coinsurance agreement was entered
into which resulted in a $109.3 million release of previously deferred
policy acquisition costs. 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 June 30,
2000 is $1.9 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 189.4%, or $6.6 million, to $10.1 million in
the first six months of 2000. Interest expense on a $25 million surplus
note issued December 1996 and expiring December 2026 was $1.0 million for
the first six 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 $2.2 million for the first six 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 $2.9 million for the first six months of 2000. Interest expense on a
$50 million surplus note, issued December 1999 and expiring December 2029
was $2.1 million for the first six months of 2000. Interest expense on a
$35 million surplus note issued December 1999 and expiring December 2029
was $1.6 million for the first six months of 2000. Golden American also
paid $0.3 million in 2000 and $0.2 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 $54,000 for the first six months of 2000
and 1999, respectively.
INCOME
Net income was $8.1 million for the first six months of 2000, an increase
of $6.7 million, or 468.0% from the same period of 1999.
Comprehensive income for the first six months of 2000 was $7.0 million,
an increase of $9.1 million from comprehensive loss of $2.1 million in
the same period of 1999.
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 insurance 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.
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.
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
For the Year For the Year October 25, 1997 | January 1, 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.
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
For the Year For the Year October 25, 1997 | January 1, 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.
EXPENSES
POST-MERGER COMBINED POST-MERGER | POST-ACQUISITION
------------- ------------ ---------------- | ----------------
For the Period | For the Period
For the Year For the Year October 25, 1997 | January 1, 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
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 increased slightly during the
first six 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 increase in the carrying value of
the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of investments as well as net purchases.
Growth in the cost basis of the Companies' investment portfolio resulted
from the investment of premiums from the sale of the Companies' fixed
account options, net of 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 June 30, 2000 and December 31, 1999, the Companies investments had a
yield of 6.7% and 6.6%, respectively. The Companies estimate the total
investment portfolio, excluding policy loans, had a fair value
approximately equal to 97.6% of amortized cost value at June 30, 2000
(97.6% at December 31, 1999).
FIXED MATURITIES: At June 30, 2000, the Companies had fixed maturities
with an amortized cost of $832.2 million and an estimated fair value of
$809.5 million. At December 31, 1999, the Companies had fixed maturities
with an amortized cost of $858.1 million and an estimated fair value of
$835.3 million. The Companies classify 100% of securities as available
for sale.
At June 30, 2000, net unrealized depreciation of fixed maturities of
$22.7 million was comprised of gross appreciation of $0.6 million and
gross depreciation of $23.3 million. Net unrealized holding losses on
these securities, net of adjustments for VPIF, DPAC, and deferred income
taxes of $7.0 million, were included in stockholder's equity at June 30,
2000.
At December 31, 1999, net unrealized depreciation of fixed maturities of
$22.8 million was comprised of gross appreciation of $0.9 million and
gross depreciation of $23.7 million. Net unrealized holding losses on
these securities, net of adjustments to VPIF, DPAC, and deferred income
taxes of $7.0 million were included in stockholder's equity at December
31, 1999.
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 ($545.4 million or 65.5%
at June 30, 2000 and $558.0 million or 65.0% at December 31, 1999), that
are rated BBB+ to BBB- by Standard & Poor's ($136.4 million or 16.4% at
June 30, 2000 and $123.5 million or 14.4% at December 31, 1999), and
below investment grade securities, which are securities issued by
corporations that are rated BB+ to B- by Standard & Poor's ($53.8 million
or 6.5% at June 30, 2000 and $64.6 million or 7.5% at December 31, 1999).
Securities not rated by Standard & Poor's had a National Association of
Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, or 5 ($96.6
million or 11.6% at June 30, 2000 and $112.0 million or 13.1% at December
31, 1999). The Companies' fixed maturity investment portfolio had a
combined yield at amortized cost of 6.7% and 6.6% at June 30, 2000 and
December 31, 1999, respectively.
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 June 30, 2000, the amortized cost value of the Companies' total
investments in below investment grade securities, excluding mortgage-
backed securities, was $67.3 million, or 6.3%, of the Companies'
investment portfolio ($72.3 million, or 6.9% at December 31, 1999). The
Companies intend to purchase additional below investment grade
securities, but do not expect the percentage of the portfolio invested in
such securities to exceed 10% of the investment portfolio. At June 30,
2000, the yield at amortized cost on the Companies' below investment
grade portfolio was 8.1% compared to 6.4% for the Companies' investment
grade corporate bond portfolio. At December 31, 1999, the yield at
amortized cost on the Companies' below investment grade portfolio was
7.8% 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 $63.8 million, or 94.8% of amortized cost value, at
June 30, 2000 ($69.1 million, or 95.5% of amortized cost value at
December 31, 1999).
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 six months of 2000 and for the year ended December 31,
1999, fixed maturities designated as available for sale with a combined
amortized cost of $125.7 million and $221.8 million, respectively, 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 $2.5 million in the first six months of 2000 and $1.3 million in 1999,
excluding the $1.6 million pre-tax loss on the write-down of bonds in
1999.
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.
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 approximately $1.0 million to reduce the carrying
value of the bonds to their combined net realizable value of $2.9
million. 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 approximately $1.6 million to further reduce the carrying
value of the bonds to their combined net realizable value of $1.1
million.
EQUITY SECURITIES: At June 30, 2000 and December 31, 1999, equity
securities represented 0.9% and 1.4%, respectively, of the Companies'
investment portfolio. At June 30, 2000 and December 31, 1999, the
Companies owned equity securities with a cost of $9.7 million and $15.0
million, respectively, and an estimated fair value of $10.5 million and
$17.3 million, respectively. At June 30, 2000 and December 31, 1999, net
unrealized appreciation of equity securities was comprised entirely of
gross appreciation of $0.8 million and $2.3 million, respectively. Equity
securities are primarily comprised of investments in shares of the mutual
funds underlying the Companies' registered separate accounts.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represented
9.9% and 9.5% of the Companies' investment portfolio at June 30, 2000 and
December 31, 1999, respectively. Mortgages outstanding were $105.5
million at June 30, 2000 with an estimated fair value of $101.9 million.
Mortgages outstanding were $100.1 million at December 31, 1999 with an
estimated fair value of $95.5 million. At June 30, 2000, the Companies'
mortgage loan portfolio includes 59 loans with an average size of $1.8
million and average seasoning of 0.6 years if weighted by the number of
loans. At December 31, 1999, the Companies' mortgage loan portfolio
included 58 loans with an average size of $1.7 million and average
seasoning of 0.7 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.
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 and 8% in 1998). As of June 30, 2000, there have been no
significant changes to the concentrations of mortgage loans on real
estate compared to December 31, 1999. At June 30, 2000 and December 31,
1999, the yield on the Companies' mortgage loan portfolio was 7.3%.
At June 30, 2000 and December 31, 1999, 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. Accrued investment income increased $1.6 million during
1999, due to an increase in the overall size of the portfolio resulting
from the investment of premiums allocated to the fixed account options of
the Companies' variable insurance products.
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 $109.3 million release of previously deferred policy
acquisition costs. At June 30, 2000, the Companies had DPAC and VPIF balances
of $590.8 million and $29.5 million,
respectively ($529.0 million and $31.7 million, respectively, at December
31, 1999). 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.
Property and equipment increased $6.5 million, or 89.0%, during 1999, due
to leasehold improvements, the purchase of furniture and other equipment
for Golden American's new offices in West Chester, Pennsylvania, and
growth in the business.
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 was $10.1 million as of June 30, 2000 and $8.2 million as of
December 31, 1999.
Other assets increased $1.7 million from December 31, 1999, due to
increases in a receivable from the separate account and prepaid expenses.
Other assets increased $1.8 million during 1999, due to increases in a
receivable from the separate account and accounts receivable.
At June 30, 2000, the Companies had $9.4 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 December 31, 1999, the Companies had $7.6 billion of separate account
assets compared to $3.4 billion at December 31, 1998. The increase in
separate account assets resulted from market appreciation, increased
transfer activity, and growth in sales of the Companies' variable annuity
products, net of redemptions.
At June 30, 2000, the Companies had total assets of $11.3 billion, a
20.2% increase from December 31, 1999. At December 31, 1999, the
Companies had total assets of $9.4 billion, a 97.6% increase from
December 31, 1998.
LIABILITIES. Future policy benefits for annuity and interest sensitive
life products decreased 4.1%, to $0.9 billion. Market appreciation,
transfers from the fixed account options, and premiums, net of
redemptions, accounted for the $1.8 billion, or 24.2%, increase in
separate account liabilities to $9.4 billion at June 30, 2000.
Future policy benefits for annuity and interest sensitive life products
increased $152.6 million, or 17.3%, to $1.0 billion at December 31, 1999,
reflecting premium growth in the Companies' fixed account options of the
variable products, net of transfers to the separate accounts. Market
appreciation, increased transfer activity, and premiums, net of
redemptions, accounted for the $4.2 billion, or 122.7%, increase in
separate account liabilities to $7.6 billion at December 31, 1999.
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, 7.979% 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, 7.25% surplus note to Equitable Life, which matures on
December 29, 2028. On December 17, 1996, Golden American issued a $25
million, 8.25% surplus note to Equitable, which matures on December 17,
2026. As a result of the merger, the surplus note is now payable to EIC.
Due to affiliates decreased $8.8 million or 69.7% to $3.8 million during
the first six months of 2000 due to declines in payables to related party
broker/dealers and a decrease in accrued interest on related party
surplus notes.
Other liabilities decreased $13.2 million or 24.7% to $40.1 million
during the first six months of 2000 due to the timing of the application
and settlement of policy payments and account transfers, as well as the
timing of the settlement of investment transactions. Other liabilities
increased $21.7 million during 1999 from $34.7 million at December 31,
1998, due primarily to increases in remittances to be applied,
outstanding checks, accrued interest payable, and pension liability.
In conjunction with the volume of variable annuity sales, the Companies'
total liabilities increased $1.8 billion, or 20.3%, during the first six
months of 2000 and totaled $10.7 billion at June 30, 2000. The
Companies' total liabilities increased $4.5 billion, or 102.6%, during
1999 and totaled $8.9 billion at December 31, 1999.
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 June 30, 2000, due
to a capital contribution from the Parent. Additional paid-in capital
increased $121.0 million, or 34.8%, from December 31, 1998 to $468.6
million at December 31, 1999, due to capital contributions 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 $33.3 million in the first
six months of 2000 compared to net cash used of $41.6 million in the same
period of 1999. Net cash used in operating activities was $73.4 million
in 1999 compared to $63.9 million in 1998. 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 second quarter of
2000, Golden American received $110.0 million in conjunction with the
modified coinsurance agreement with an affiliate, resulting in positive
cash flow from operating activities.
Net cash used in investing activities was $12.3 million during the first
six months of 2000 compared to $38.6 million in the same period of 1999.
This decrease is primarily due to greater net sales of fixed maturities
and equity securities, which were partially offset by an increase in net
purchases of short term investments during the first six months of 2000
than in the same period of 1999. Net sales of fixed maturities reached
$22.2 million during the first six months of 2000 compared to net
purchases of $9.3 million in the same period of 1999. Net purchases of
short term investments reached $33.9 million in the first six months of
2000 versus $26.4 million during the same period in 1999. Net purchases
of mortgage loans on real estate were $5.6 million during the first six
months of 2000 versus net sales of $3.6 million during the first six
months of 1999.
Net cash used in investing activities was $177.5 million during 1999 as
compared to $390.0 million in 1998. This decrease is primarily due to
greater net purchases of fixed maturities, equity securities, and
mortgage loans on real estate during 1998 than in 1999. Net purchases of
fixed maturities reached $124.0 million in 1999 versus $331.3 million in
1998. Net purchases of mortgage loans on real estate declined to $3.1
million from $12.6 million in the prior year.
Net cash used in financing activities was $25.7 million during the first
six months of 2000 compared to net cash provided by financing activities
of $82.8 million during the same period in 1999. The increase in net
reallocations to the Companies' separate accounts, which increased to
$412.2 million from $261.4 million during the prior year, contributed to
the decrease. Net reciprocal loan agreement borrowings of $40.0 million
during the first six months of 2000 provided cash to the Companies.
Net cash provided by financing activities was $258.6 million during 1999
as compared to $439.5 million during the prior year. In 1999, net cash
provided by financing activities was positively impacted by net fixed
account deposits of $626.5 million compared to $520.8 million in 1998 and
by a $6.7 million increase in net borrowings in 1999 compared to 1998.
This increase was offset by net reallocations to the Companies' separate
accounts, which increased to $650.3 million from $239.7 million during
the prior year. In 1999, another important source of cash provided by
financing activities was $121.0 million in capital contributions from the
Parent compared to $103.8 million in 1998. Another source of cash
provided by financing activities during 1999 was $160.0 million in
proceeds from surplus notes compared to $60.0 million in 1998.
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, which expires on
December 31, 2007. In addition, 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 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 $1.0
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 June 30, 2000, Golden American had reinsurance treaties
with four unaffiliated reinsurers and two affiliated reinsurers 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. Golden American expensed
approximately $264,000 during 1999 in connection with remediating
systems. 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.
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 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, Locust
Street Securities, Inc., Vestax Securities Corporation, Compu Life
Investors Services, Inc., IFG Network Securities, Inc. and Multi-
Financial Securities Corporation, are affiliates of Golden American.
During the first six 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. Golden American reinsured its mortality risk associated
with the Contract's guaranteed death benefit on Contracts issued through
December 31, 1999 with one or more appropriately licensed insurance
companies. 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. Golden American is currently pursuing additional alternative
reinsurance arrangements for new business. Golden American also,
effective June 1, 1994, entered into a reinsurance agreement on a
modified coinsurance basis with an affiliate of a broker-dealer which
distributes Golden American's products with respect to 25% of the
business produced by that broker-dealer.
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.
Pursuant to a service agreement between Golden American and Equitable
Life Insurance Company of Iowa ("Equitable Life"), Equitable Life
provides certain administrative, financial and other services to Golden
American. Equitable Life billed Golden American and its subsidiary First
Golden American Life Insurance Company of New York ("First Golden"), $0.7
million, $1.3 million and $1.1 million, for the six months ended June 30,
2000 and the years ended December 31, 1999 and 1998, respectively, under
this service agreement.
Golden American provides to DSI certain of its personnel to perform
management, administrative and clerical services and the use of certain
facilities. Golden American charges DSI for such expenses and all other
general and administrative costs, first on the basis of direct charges
when identifiable, and the remainder allocated based on the estimated
amount of time spent by Golden American's employees on behalf of DSI. In
the opinion of management, this method of cost allocation is reasonable.
In 1995, the service agreement between DSI and Golden American was
amended to provide for a management fee from DSI to Golden American for
managerial and supervisory services provided by Golden American. This
fee, calculated as a percentage of average assets in the variable
separate accounts, was $9.1 million for the six months ended June 30,
2000 and $10.1 million and $4.8 million for the years 1999 and 1998,
respectively.
Since January 1, 1998, Golden American and First Golden have had an asset
management agreement with ING Investment Management LLC ("ING IM"), an
affiliate, in which ING IM provides asset management and accounting
services for a fee, payable quarterly. For the six months ended June 30,
2000 and for the years ended December 31, 1999 and 1998, the Companies
incurred fees of $1.3 million, $2.2 million, and $1.5 million,
respectively, under this agreement.
Since 1997, Golden American has provided certain advisory, computer and
other resources and services to Equitable Life. Revenues for these
services totaled $3.3 million for first six months of 2000 and $6.1
million for 1999 and $5.8 million for 1998.
First Golden provides resources and services to DSI. Revenues for these
services totaled $0.1 million in the first six months of 2000, $0.4
million in 1999 and $0.1 million in 1998.
Golden American provides resources and services to ING Mutual Funds
Management Co., LLC, an affiliate. Revenues for these services totaled
$0.3 million for first six months of 2000 and $0.2 million for 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 $0.3 million
in the first six months of 2000 and $0.5 million in the year 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 $0.1 million in
the first six months of 2000 and $0.2 million in the year 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 $52,000 in the first six
months of 2000 and $103,000 in the year 1999.
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. On June 30, 2000, Golden American incurred a fee of $7,000,
under this agreement. No annual fee was paid in 1999.
DISTRIBUTION AGREEMENT. Under a distribution agreement, DSI acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) of the variable insurance
products issued by Golden American. For the first six months of 2000 and
years 1999 and 1998, commissions paid by Golden American to DSI
(including commissions paid by First Golden) aggregated $109.3 million,
$181.5 million and $117.5 million, respectively.
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 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.
DIRECTORS AND OFFICERS
NAME (AGE) POSITION(S) WITH THE COMPANY
Barnett Chernow (50) President and Director
Myles R. Tashman (57) Director, Executive Vice President,
General Counsel and Secretary
Michael W. Cunningham (51) Director
Mark A. Tullis (44) Director
Phillip R. Lowery (46) Director
James R. McInnis (52) Executive Vice President and Chief Marketing
Officer
Stephen J. Preston (42) Executive Vice President and Chief Actuary
E. Robert Koster (41) Senior Vice President and Chief Financial
Officer
Patricia M. Corbett (35) Treasurer and Assistant V.P.
David L. Jacobson (50) Senior Vice President and Assistant Secretary
William L. Lowe (36) Senior Vice President, Sales and Marketing
Ronald R. Blasdell (46) Senior Vice President, Project Implementation
Steven G. Mandel (40) 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 Pimerica, 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.
Ms. Patricia M. Corbett was elected Treasurer of Golden American in
December 1998. She joined Equitable Life Insurance Company of Iowa in
1987 and is currently Treasurer and Assistant Vice President of Equitable
Life and USG Annuity & Life Company.
Mr. David L. Jacobson joined Golden American in November 1993 as 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.
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.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM 3
OPTIONS IN FISCAL OR BASE EXPIRATION ----------------------
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.
- --------------------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
June 30, 2000 December 31, 1999
------------------------------------------------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $832,167; 1999 - $858,052) $809,473 $835,321
Equity securities, at fair value (cost: 2000 - $9,671; 1999 - $14,952) 10,510 17,330
Mortgage loans on real estate 105,521 100,087
Policy loans 12,425 14,157
Short-term investments 114,084 80,191
------------------------------------------------
Total investments 1,052,013 1,047,086
Cash and cash equivalents 9,649 14,380
Reinsurance recoverable 17,597 14,834
Reinsurance recoverable from affiliate 1,798 --
Due from affiliates 3,958 637
Accrued investment income 10,094 11,198
Deferred policy acquisition costs 590,821 528,957
Value of purchased insurance in force 29,463 31,727
Current income taxes recoverable 3 35
Deferred income tax asset 16,912 21,943
Property and equipment, less allowances for depreciation of
$4,076 in 2000 and $3,229 in 1999 14,567 13,888
Goodwill, less accumulated amortization of $10,075 in 2000
and $8,186 in 1999 141,052 142,941
Other assets 4,199 2,514
Separate account assets 9,395,431 7,562,717
------------------------------------------------
Total assets $11,287,557 $9,392,857
================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products $991,442 $1,033,701
Unearned revenue reserve 6,828 6,300
Other policy claims and benefits 68 8
------------------------------------------------
998,338 1,040,009
Reciprocal loan from affiliate 40,000 --
Surplus notes 245,000 245,000
Revolving note payable -- 1,400
Due to affiliates 3,835 12,651
Other liabilities 40,080 53,231
Separate account liabilities 9,395,431 7,562,717
------------------------------------------------
10,722,684 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 (10,207) (9,154)
Retained earnings 23,940 15,863
------------------------------------------------
Total stockholder's equity 564,873 477,849
------------------------------------------------
Total liabilities and stockholder's equity $11,287,557 $9,392,857
================================================
See accompanying notes.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands)
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
-------------------------------------------------------
Revenues:
Annuity and interest sensitive life product charges $71,975 $34,783
Management fee revenue 9,058 4,096
Net investment income 31,775 28,158
Realized losses on investments (2,637) (1,717)
Net income from modified coinsurance agreements 115,792 5,449
Other income 934 740
-------------------------------------------------------
226,897 71,509
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 102,445 82,427
Benefit claims incurred in excess of account balances 3,211 1,725
Underwriting, acquisition, and insurance expenses:
Commissions 112,158 83,226
General expenses 40,179 28,787
Insurance taxes, state licenses, and fees 2,910 2,511
Policy acquisition costs deferred (97,724) (149,988)
Amortization:
Deferred policy acquisition costs 35,757 10,713
Value of purchased insurance in force 2,278 3,231
Goodwill 1,889 1,889
-------------------------------------------------------
203,103 64,521
Interest expense 10,115 3,496
-------------------------------------------------------
213,218 68,017
-------------------------------------------------------
Income before income taxes 13,679 3,492
Income taxes 5,602 2,070
-------------------------------------------------------
Net income $8,077 $1,422
=======================================================
See accompanying notes.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
-------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $33,298 $(41,587)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale 123,182 90,910
Equity securities 5,195 --
Mortgage loans on real estate 3,281 3,606
Policy loans - net 1,732 --
-------------------------------------------------
133,390 94,516
Acquisition of investments:
Fixed maturities - available for sale (100,936) (100,242)
Mortgage loans on real estate (8,887) --
Policy loans - net -- (1,158)
Short term investments - net (33,893) (26,394)
-------------------------------------------------
(143,716) (127,794)
Net purchase of property and equipment (1,974) (5,324)
Issuance of reciprocal loan agreement receivables (16,900) --
Receipt of repayment of reciprocal loan agreement receivables 16,900 --
-------------------------------------------------
Net cash used in investing activities (12,300) (38,602)
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings 177,900 265,800
Repayment of reciprocal loan agreement borrowings (137,900) (265,800)
Proceeds from revolving note payable 54,800 56,345
Repayment of revolving note payable (56,200) (56,295)
Receipts from annuity and interest sensitive life
policies credited to account balances 355,662 330,935
Return of account balances on annuity
and interest sensitive life policies (87,841) (66,732)
Net reallocations to Separate Accounts (412,150) (261,404)
Contribution from parent 80,000 80,000
-------------------------------------------------
Net cash provided by (used in) financing activities (25,729) 82,849
-------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,731) 2,660
Cash and cash equivalents at beginning of period 14,380 6,679
-------------------------------------------------
Cash and cash equivalents at end of period $9,649 $9,339
=================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $12,649 $1,373
See accompanying notes.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
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 six months
ended June 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 $12,235,000 and $44,799,000 for the six months ended
June 30, 2000 and 1999, respectively. Total statutory capital and surplus was
$436,701,000 at June 30, 2000 and $368,928,000 at December 31, 1999.
RECLASSIFICATIONS
Certain amounts in the June 30, 1999, December 31, 1999, and March 31, 2000
financial statements have been reclassified to conform to the June 30, 2000
financial statement presentation.
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 second quarters of 2000 and 1999, total comprehensive
income (loss) for the Companies amounted to $6,428,000 and $(828,000),
respectively, and $7,024,000 and $(2,077,000) for the six months ended June 30,
2000 and 1999, respectively. Included in these amounts are total comprehensive
income (loss) for First Golden of $41,000 and $(226,000) for the second quarters
of 2000 and 1999, respectively, and $110,000 and $(244,000) for the six months
ended June 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 $(120,000) and $(2,348,000) during the second quarters of 2000 and 1999,
respectively, and $(588,000) and $(2,052,000) during the six months ended June
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 $(1,200,000)
and $584,000 for the second quarters of 2000 and 1999, respectively, and
$(2,041,000) and $335,000 for the six months ended June 30, 2000 and 1999,
respectively.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
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 an 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.
During the second quarter of 1999, Golden American determined that the carrying
value of 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 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 $53,398,000 and $109,252,000 in the
second quarter and the first six months of 2000, respectively ($45,503,000 and
$80,288,000, 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 second quarter and six months
ended June 30, 2000, the fee was $4,740,000 and $9,058,000, respectively
($2,281,000 and $4,096,000, 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
second quarter and first six months of 2000, the Companies incurred fees of
$616,000 and $1,274,000, respectively, under this agreement ($576,000 and
$1,114,000, respectively, for the same periods of 1999).
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("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. On June 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 $1,708,000 in the second quarter
of 2000 and $3,276,000 for the first six months of 2000 ($262,000 and $661,000,
respectively, for the same periods of 1999).
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
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 $355,000 in the second quarter of
2000 and $667,000 for the first six months of 2000 ($488,000 and $805,000,
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
$56,000 for the second quarter of 2000 and $108,000 for the first six months of
2000 ($241,000 and $483,000, 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 $165,000 for the second quarter of
2000 and $270,000 for the first six months of 2000 ($206,000 and $217,000,
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 $149,000 for the second
quarter of 2000 and $318,000 for the first six 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 $56,000 for the second
quarter of 2000 and $108,000 for the first six 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 second quarter of
2000 and $52,000 for the first six months of 2000.
For the second quarter of 2000, the Companies received premiums, net of
reinsurance, for variable products sold through 5 affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), and IFG Network
Securities, Inc. ("IFG"), of $9,500,000, $6,900,000, $100,000, $2,800,000, and
$1,500,000, respectively ($45,700,000, $32,600,000, $651,000, $7,900,000, and
$6,000,000, respectively, for the same period of 1999). For the first six months
of 2000, the Companies received premiums, net of reinsurance for variable
products sold through 5 affiliates, LSSI, Vestax, DSI, Multi-Financial, and IFG
of $67,000,000, $28,300,000, $800,000, $21,100,000, and $8,300,000, respectively
($75,300,000, $59,100,000, $2,300,000, $13,400,000 and $15,500,000,
respectively, for the same period of 1999).
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 0.15%. 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 $254,000 and
$229,000 for the second quarters of 2000 and 1999, respectively, and $336,000
and
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
4. RELATED PARTY TRANSACTIONS (continued)
$236,000 for the first six months of 2000 and 1999, respectively. Golden
American received interest income of $0 for the second quarter of 2000 and
$3,000 for the first six months of 2000. At June 30, 2000, Golden American had
borrowings of $40,000,000 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 $1,022,000 for the
second quarter of 2000 and $2,056,000 for the first six 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
$698,000 for the second quarter of 2000 and $1,575,000 for the first six 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 $1,453,000 for the second quarter of 2000 and
$2,906,000 for the first six 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 $1,087,000 and $1,088,000 for the second quarters
of 2000 and 1999, respectively, and $2,175,000 for the first six months of 2000,
unchanged from the same period in 1999.
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 $515,000 for the
quarter ended June 30, 2000, unchanged from the first quarter of 1999, and
$1,031,000 for the first six months of 2000, unchanged from the first six months
of 1999.
Stockholder's Equity: During the second quarter of 2000 and first six months of
2000, Golden American received capital contributions from its Parent of $0 and
$80,000,000, respectively ($60,000,000 and $80,000,000, respectively, for the
same periods of 1999).
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
5. COMMITMENTS AND CONTINGENCIES
Reinsurance: At June 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 June 30, 2000 and
December 31, 1999, the Companies had net receivables of $17,597,000 and
$14,834,000, respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $330,000 and $493,000,
respectively, for claims recoverable from reinsurers, $1,306,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $18,573,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $5,271,000 for the second quarter of 2000 and $7,908,000 for the
first six months of 2000 compared to $2,203,000 and $4,018,000 for the same
periods in 1999. Also included in the accompanying financial statements are net
policy benefits of $1,278,000 for the second quarter of 2000 and $1,835,000 for
the first six months of 2000 compared to $718,000 and $1,439,000 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 June 30, 2000, Golden
American had a net receivable of $1,798,000 and received $110,000,000 cash for a
total settlement of $111,798,000 under this agreement. The carrying value of the
separate account liabilities covered under this agreement represent 10.3% of
total separate account liabilities outstanding at June 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.
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 to expense an additional $1,000 in the second
quarter and $2,000 in the first six months of 2000, respectively. At June 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 $682,000 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
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
June 30, 2000
5. COMMITMENTS AND CONTINGENCIES (continued)
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 June 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 24% of the Companies'
sales during the second quarter of 2000 (28% by two broker/dealers in the same
period of 1999). One broker/dealer generated 12% of the Companies' sales during
the first six months of 2000 (29% by two broker/dealers in the same period of
1999). The Premium Plus product generated 74% and 75% of the Companies' sales
during the second quarter of 2000 and first six months of 2000, respectively
(79% and 77% 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 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 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 0.25% 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 quarters ended June 30, 2000 and 1999, the
Companies incurred interest expense of $8,000 and $50,000, respectively. During
the six months ended June 30, 2000 and 1999, the Companies incurred interest
expense of $36,000 and $54,000, respectively. At June 30, 2000, the Companies
did not have any borrowings under these agreements ($1,400,000 at December 31,
1999).
- --------------------------------------------------------------------------------
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
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
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
======== ======== ======== | ========
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.
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
======== ==== ======= ========
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
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
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.
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
======= ======= =======
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.
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)
====== ====== ==== | =======
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)
======= ======= ======= | ========
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.
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
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
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.
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.
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
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
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.
- --------------------------------------------------------------------------------
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 Withdrawal Option 5
Other Information 6
Financial Statements of Separate Account B 6
PLEASE TEAR OFF, COMPLETE AND RETURN THE FORM BELOW TO ORDER A FREE
STATEMENT OF ADDITIONAL INFORMATION FOR THE CONTRACTS OFFERED UNDER THE
PROSPECTUS. ADDRESS THE FORM TO OUR CUSTOMER SERVICE CENTER; THE ADDRESS
IS SHOWN ON THE 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
NC 108207 (10/00)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
NC-108207 39
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NC-108207 40
APPENDIX A
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.
NC-108207 39
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.
NC-108207 A2
APPENDIX B
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 30% of the contract value of $35,000.
In this example, $3,000 (0.10 x $30,000) is the maximum free withdrawal
amount that you may withdraw during the contract year without a surrender
charge. The total withdrawal would be $10,500 ($35,000 x .30).
Therefore, $7,500 (10,500 - 3,000) is considered an excess withdrawal of
a part of the initial premium payment of $10,000 and would be subject to
a 8.5% surrender charge of $637.50 ($7,500 x .085). This example does
not take into account any Market Value Adjustment or deduction of any
premium taxes.
NC-108207 B1
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled
in Delaware.
NC 108207 10/00
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 indemnitee. 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 N.V., 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 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
1 Distribution Agreement Between Golden American Life
Insurance Company and Directed Services, Inc. (1)
3(a) Restated Certificate of Incorporation of Golden American
Life Insurance Company, as amended. (1)
3(b) By-Laws of Golden American Life Insurance Company, as amended. (1)
3(c) Resolution of Board of Directors for Powers of Attorney. (1)
4(a) Individual Deferred Combination Variable and Fixed Annuity
Contract. (1)
4(b) Group Deferred Combination Variable and Fixed Annuity Certificate.(1)
4(c) Individual Deferred Variable Annuity Contract. (1)
4(d) Individual Retirement Annuity Rider Page. (1)
4(e) Roth Individual Retirement Annuity Rider. (1)
4(f) Individual Deferred Combination Variable and Fixed
Annuity Application. (2)
4(g) Group Deferred Combination Variable and Fixed
Annuity Enrollment Form. (2)
4(h) Individual Deferred Variable Annuity Application. (2)
5 Opinion and Consent of Myles R. Tashman.
10(a) Administrative Services Agreement between Golden American
and Equitable Life Insurance Company of Iowa. (1)
10(b) Service Agreement between Golden American and Directed
Services, Inc. (1)
10(c) Asset Management Agreement between Golden American and
ING Investment Management LLC. (1)
10(d) Reciprocal Loan Agreement between Golden American and
ING America Insurance Holdings, Inc. (1)
10(e) Revolving Note Payable between Golden American and
SunTrust Bank. (1)
10(f) Form of Participation Agreement between Golden American
and the Evergreen Variable Annuity Trust. (2)
10(g) Surplus Note, dated 12/17/96, between Golden American and
Equitable of Iowa Companies. (2)
10(h) Surplus Note, dated 12/30/98, between Golden American and
Equitable Life Insurance Company of Iowa. (2)
10(i) Surplus Note, dated 09/30/99, between Golden American and
ING AIH. (2)
10(j) Surplus Note, dated 12/08/99, between Golden American and
First Columbine Life Insurance Company. (1)
10(k) Surplus Note, dated 12/30/99, between Golden American and
Equitable of Iowa Companies. (1)
10(l) Form of Service Agreement among Golden American, Evergreen
Asset Management Corp., and First Capital Group. (2)
10(m) Reinsurance Agreement, dated 06/30/00, between Golden
American and Equitable Life Insurance Company of Iowa
10(n) Renewal of Revolving Note Payable between Golden American
and SunTrust Bank as of July 31, 2000 and expiring
July 31, 2001
23(a) Consent of Sutherland Asbill & Brennan LLP
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Myles R. Tashman, incorporated in Item 5 of this
Part II, together with the Opinion of Myles R. Tashman.
24 Powers of Attorney.
27 Financial Data Schedule.
(1) Incorporated herein by reference to the Initial Registration Statement
on Form S-1 for Separate Account B filed with the Securities and Exchange
Commission on February 11, 2000 (File No. 333-30186).
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 of the
on Form S-1 for Separate Account B filed with the Securities and Exchange
Commission on May 10, 2000 (File No. 333-30186).
(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, premium credit, and other expenses related to the
production of new business. The costs related to first year interest
bonuses and the premium credit 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
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of West Chester and State of Pennsylvania, on the 13th
day of September, 2000.
GOLDEN AMERICAN LIFE
INSURANCE COMPANY
(Registrant)
By:
------------------------
Barnett Chernow*
President
Attest: /s/ Myles R. Tashman
----------------------
Myles R. Tashman
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities indicated on September 13, 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/ Myles R. Tashman, Attorney-in-Fact
-----------------------
Myles R. Tashman
_______________________
*Executed by Myles R. Tashman on behalf of those indicated pursuant
to Power of Attorney.
EXHIBIT INDEX
ITEM EXHIBIT PAGE #
- ---- ------- ------
5 Opinion and Consent of Myles R. Tashman EX-5
10(m) Reinsurance Agreement, dated 06/30/00, btwn
GALIC & ELICI EX-10.M
10(n) Renewal of Revolving Note Payable btwn GALIC &
SunTrust Bank as of July 31, 2000 and expiring
July 31, 2001 EX-10.N
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