As filed with the Securities and Exchange Commission on April 23, 2001
Registration No. 333-33924
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Amendment No. 2
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, Pennsylvania 19380-1478
(610) 425-3400
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Marilyn Talman, 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) 425-3516 Washington, D.C. 20004-2415
(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 $25,000,000 $6,600
Fixed Account)
(1) The maximum aggregate offering price is estimated solely for the
purpose of determining the registration fee. The amount to be registered
and the proposed maximum offering price per unit are not applicable since
these securities are not issued in predetermined amounts or units.
(2) Previously paid. Additionally, $378,787.88 was previously registered with
the initial filing of this registration statement on April 3, 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
This Registration Statement contains two separate Profiles,
Prospectuses and Statements of Additional Information called for
ease of reference Form One and Form Two. Form One and Form Two
are identical except as follows: Form One contains a description
of The GoldenSelect Access One contract offering the contractholder
a choice among the standard guaranteed death benefit and three
enhanced guaranteed death benefits. Form Two offers only the
standard guaranteed death benefit.
The Profiles and Prospectuses filed herein do not contain all of the
information permitted by Securities and Exchange Commission Regulations.
Therefore, this Registration Statement on Form S-1 for Golden American Life
Insurance Company ("Golden American") incorporates by reference the Statements
of Additional Information, and Part C (Other Information) contained in the
Registration Statement on Form N-4 (Post-Effective Amendment No. 1,
File Nos. 333-33914, 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.
ACCESS ONE PROFILE AND PROSPECTUS
(FORM ONE)
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware.
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109650 ACCESS ONE 05/01/2001
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
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PROFILE OF
GOLDENSELECT ACCESS(R) ONE
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
May 1, 2001
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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 38 mutual fund investment portfolios through our Separate Account
B and/or (ii) in a fixed account of Golden American with guaranteed interest
periods. The 38 mutual fund portfolios are listed on page [3]. We
currently offer guaranteed interest periods of 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.
ACCESS ONE PROFILE PROSPECTUS BEGINS AFTER
NON-PRINTED VERSION PAGE 6 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 benefits, (6) the type of death} benefit, and (7) the amount and frequency
of withdrawals.
2. YOUR ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity payments are the periodic payments you will begin receiving on the
annuity start date. You may choose one of the following annuity payment options:
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Annuity Options
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Option 1 Income for a fixed Payments are made for a
period specified number of years to you
or your beneficiary.
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Option 2 Income for life with Payments are made for the rest
a period certain of your life or longer for a
specified period such as 10 or
20 years or until the total
amount used to buy this option
has been repaid. This option
comes with an added guarantee
that payments will continue to
your beneficiary for the
remainder of such period if you
should die during the period.
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Option 3 Joint life income Payments are made for your life
and the life of another person
(usually your spouse).
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Option 4 Annuity plan Any other annuitization plan
that we choose to offer on the
annuity start date.
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Annuity payments under Options 1, 2 and 3 are fixed. Annuity payments under
Option 4 may be fixed or variable. If variable and subject to the Investment
Company Act of 1940, it will comply with the requirements of such Act. Once you
elect an annuity option and begin to receive payments, it cannot be changed.
3. PURCHASE (BEGINNING OF THE ACCUMULATION PHASE)
You may purchase the Contract with an initial payment of $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($50 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? The Contract is available only in connection
with a non-discretionary asset-based fee brokerage account. The Contract may be
purchased by individuals as part of a personal retirement plan (a "non-qualified
Contract"), or as a Contract that qualifies for special tax treatment when
purchased as either an Individual Retirement Annuity (IRA) or in connection with
a qualified retirement plan (each a "qualified Contract").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
The Contract is designed for people seeking long-term tax-deferred accumulation
of assets, generally for retirement or other long-term purposes. The
tax-deferred feature is more attractive to people in high federal and state tax
brackets. YOU SHOULD NOT BUY THIS CONTRACT: (1) IF YOU ARE LOOKING FOR A
SHORT-TERM
NON-PRINTED VERSION ACCESS ONE PROFILE
2
INVESTMENT; (2) IF YOU CANNOT RISK GETTING BACK LESS MONEY THAN YOU PUT IN; OR
(3) YOUR ASSETS ARE IN A PLAN WHICH PROVIDES FOR TAX-DEFERRAL AND YOU SEE NO
OTHER REASON TO PURCHASE THIS CONTRACT.
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 38 mutual fund investment portfolios through our Separate Account
B. The investment portfolios are described in the prospectuses for the GCG
Trust, the PIMCO Variable Insurance Trust, ING Variable Insurance Trust, the
Prudential Series Fund, the Pilgrim Variable Products Trust and the ProFunds.
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 Real Estate Series Capital Growth Series
Limited Maturity Bond Series Value Equity Series Capital Appreciation Series
Core Bond Series (formerly Investors Series Small Cap Series
Global Fixed Income Series) International Equity Series* Mid-Cap Growth Series
Fully Managed Series Rising Dividends Series Strategic Equity Series
Total Return Series Managed Global Series Special Situations
Asset Allocation Growth Series Large Cap Value Series Growth Series
Equity Income Series Hard Assets Series Developing World Series
All Cap Series Diversified Mid-Cap Series Internet TollkeeperSM Series
Growth and Income Series Research Series
THE PIMCO VARIABLE INSURANCE TRUST PILGRIM VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio (formerly ING Variable Insurance Trust)
PIMCO StocksPLUS Growth Pilgrim Global Brand Names Fund
and Income Portfolio (formerly ING Global Brand Names Fund)
PRUDENTIAL SERIES FUND PILGRIM VARIABLE PRODUCTS TRUST
Prudential Jennison Portfolio Pilgrim VP MagnaCap Portfolio
SP Jennison International Growth Portfolio Pilgrim VP SmallCap Opportunities Portfolio
Pilgrim VP Growth Opportunities Portfolio
PROFUNDS
ProFund VP Bull
ProFund VP Small-Cap
ProFund Europe 30
* Not currently available.
Internet TollkeeperSM is a service mark of Goldman, Sachs & Co.
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 and an asset-based administrative charge. 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:
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3
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Standard Enhanced Death Benefits
Death Benefit Annual Ratchet 7% Solution Max 7
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Mortality & Expense Risk Charge 0.35% 0.50% 0.70% 0.80%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 0.50% 0.65% 0.85% 0.95%
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We do not deduct any surrender charges for withdrawals.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.55% to 1.86% 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.
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column reflects the maximum mortality and
expense risk charge based on the Max 7 Enhanced Death Benefit and the
asset-based administrative charge. The "Total Annual Investment Portfolio
Charges" column reflects the portfolio charges for each portfolio and are based
on actual expenses as of December 31, 1999, except for (i) portfolios that
commenced operations during 2000 or 2001 where the charges have been estimated,
and (ii) newly formed portfolios where the charges have been estimated. The
column "Total Annual Charges" reflects the sum of the previous two columns. The
columns under the heading "Examples" show you how much you would pay under the
Contract for a 1-year period and for a 10-year period.
As required by the Securities and Exchange Commission, the examples assume that
you invested $1,000 in a Contract that earns 5% annually and that you withdraw
your money at the end of Year 1 or at the end of Year 10 (based on the Max 7
Enhanced Death Benefit). For Years 1 and 10, the examples show the total annual
charges assessed during that time and assume that you elected the Max 7 Enhanced
Death Benefit. For these examples, the premium tax is assumed to be 0%.
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NON-PRINTED VERSION ACCESS ONE PROFILE
4
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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 0.95% 0.55% 1.50% $15 $180
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Limited Maturity Bond 0.95% 0.55% 1.50% $15 $180
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Core Bond 0.95% 1.01% 1.96% $20 $229
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Fully Managed 0.95% 0.95% 1.90% $19 $222
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Total Return 0.95% 0.89% 1.84% $19 $216
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Asset Allocation Growth 0.95% 1.01% 1.96% $20 $229
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Equity Income 0.95% 0.95% 1.90% $19 $222
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All Cap 0.95% 1.01% 1.96% $20 $229
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Growth and Income 0.95% 1.11% 2.06% $21 $239
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Real Estate 0.95% 0.95% 1.90% $19 $222
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Value Equity 0.95% 0.95% 1.90% $19 $222
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Investors 0.95% 1.01% 1.96% $20 $229
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International Equity 0.95% 1.26% 2.21% $22 $254
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Rising Dividends 0.95% 0.95% 1.90% $19 $222
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Managed Global 0.95% 1.26% 2.21% $22 $254
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Large Cap Value 0.95% 1.01% 1.96% $20 $229
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Hard Assets 0.95% 0.95% 1.90% $19 $222
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Diversified Mid-Cap 0.95% 1.01% 1.96% $20 $229
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Research 0.95% 0.89% 1.84% $19 $216
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Capital Growth 0.95% 1.00% 1.95% $20 $227
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Capital Appreciation 0.95% 0.95% 1.90% $19 $222
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Small Cap 0.95% 0.95% 1.90% $19 $222
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Mid-Cap Growth 0.95% 0.89% 1.84% $19 $216
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Strategic Equity 0.95% 0.95% 1.90% $19 $222
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Special Situations 0.95% 1.11% 2.06% $21 $239
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Growth 0.95% 1.00% 1.95% $20 $227
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Developing World 0.95% 1.76% 2.71% $27 $304
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Internet Tollkeeper 0.95% 1.86% 2.81% $28 $314
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THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 0.95% 0.75% 1.70% $17 $201
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PIMCO StocksPLUS
Growth and Income 0.95% 0.65% 1.60% $16 $190
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PILGRIM VARIABLE INSURANCE TRUST
Pilgrim Global
Brand Names 0.95% 1.23% 2.18% $22 $251
THE PRUDENTIAL SERIES FUND
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Prudential Jennison 0.95% 1.04% 1.99% $20 $232
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SP Jennison
International Growth 0.95% 1.64% 2.59% $26 $292
PILGRIM VARIABLE PRODUCTS TRUST
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Pilgrim VP MagnaCap 0.95% 1.10% 2.05% $21 $238
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Pilgrim VP SmallCap
Opportunities 0.95% 1.10% 2.05% $21 $238
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Pilgrim VP Growth
Opportunities 0.95% 1.10% 2.05% $21 $238
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PROFUNDS
ProFund VP Bull 0.95% 1.80% 2.75% $28 $308
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ProFund VP Small-Cap 0.95% 1.80% 2.75% $28 $308
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ProFund VP Europe 30 0.95% 1.75% 2.70% $27 $303
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NON-PRINTED VERSION ACCESS ONE PROFILE
5
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" in the prospectus for the Contract.
6. TAXES
Under a qualified Contract, your premiums are generally pre-tax contributions
and accumulate on a tax-deferred basis. Premiums and earnings are generally
taxed as income when you make a withdrawal or begin receiving annuity payments,
presumably when you are in a lower tax bracket.
Under a non-qualified Contract, premiums are paid with after-tax dollars, and
any earnings will accumulate tax-deferred. You will generally be taxed on these
earnings, but not on premiums, when you make a withdrawal or begin receiving
annuity payments.
For owners of most qualified Contracts, when you reach age 70 1/2 (or, in some
cases, retire), you will be required by federal tax laws to begin receiving
payments from your annuity or risk paying a penalty tax. In those cases, we can
calculate and pay you the minimum required distribution amounts at your request.
If you are younger than 59 1/2 when you take money out, in most cases, you will
be charged a 10% federal penalty tax on the taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page [6].
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 Contract was not issued
before 2000, there is no actual performance history for the entire year to
illustrate. Actual performance information will be shown in updated prospectuses
beginning in 2000. Please keep in mind that past or hypothetical performance is
not a guarantee of future results.
9. DEATH BENEFIT
You may choose (i) the Standard Death Benefit, (ii) the 7% Solution Enhanced
Death Benefit, (iii) the Annual Ratchet Enhanced Death Benefit or (iv) the Max 7
Enhanced Death Benefit. The 7% Solution Enhanced Death Benefit, the Annual
Ratchet Enhanced Death Benefit and the Max 7 Enhanced Death Benefit are
available only if the contract owner or the annuitant (if the contract owner is
not an individual) is not more than 79 years old at the time of purchase. The 7%
Solution, Annual Ratchet and Max 7 Enhanced Death Benefits may not be available
where a Contract is held by joint owners.
The death benefit is payable when the first of the following persons dies: the
contract owner, joint owner, or annuitant (if a contract owner is not an
individual). Assuming you are the contract owner, if you die during the
accumulation phase, your beneficiary will receive a death benefit unless the
beneficiary is your surviving spouse and elects to continue the Contract. The
death benefit paid depends on the death benefit you have chosen. The death
benefit value is calculated at the close of the business day on which we receive
written notice and due proof of death, as well as required claim forms, at our
Customer Service Center. If your beneficiary elects to delay receipt of the
death benefit until a date after the time of your death, the amount of the
benefit payable in the future may be affected. If you die after the annuity
start date and you are the annuitant, your beneficiary will receive the death
benefit you chose under the annuity option then in effect.
Under the death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
Under the STANDARD DEATH BENEFIT, if you die before the annuity start date, your
beneficiary is eligible to receive the greatest of:
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1) the contract value;
2) the total premium payments made under the Contract, reduced by a pro
rata adjustment 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.
Under the 7% SOLUTION ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary is eligible to receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract reduced by a pro
rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit, which we determine as follows: we credit
interest each business day at the 7% annual effective rate to the
enhanced death benefit from the preceding day (which would be the
initial premium if the preceding day is the contract date),
then we add additional premiums paid since the preceding day and then we adjust
for any withdrawals made (including any market value adjustment applied to such
withdrawal) since the preceding day. Special withdrawals are withdrawals of up
to 7% per year of cumulative premiums. Special withdrawals shall reduce the 7%
Solution Enhanced Death Benefit by the amount of contract value withdrawn. For
any withdrawals in excess of the amount available as a special withdrawal, a pro
rata adjustment to the death benefit is made. The maximum enhanced death benefit
is 3 times all premium payments, adjusted to reflect withdrawals. Each
accumulated initial or additional premium payment will continue to grow at the
7% annual effective rate until reaching the maximum enhanced death benefit or
attained age 80 of the contract owner, if earlier.
Note for current Special Funds: Certain funds are designated as "Special Funds"
for purposes of calculating the 7% Solution Enhanced Death Benefit. Currently,
the funds designated as Special Funds are the Liquid Asset and Limited Maturity
Bond investment portfolios and the Fixed Account. The actual interest rate used
for calculating the 7% Solution Enhanced Death Benefit for Special Funds will be
the lesser of (1) 7% and (2) the interest rate, positive or negative, providing
a yield (which may be positive or negative) on the enhanced death benefit equal
to the net return for the current valuation period on the contract value
allocated to Special Funds. We may, with 30 days notice to you, designate any
funds as a Special Fund on existing contracts with respect to new premiums added
to such funds and also with respect to new transfers to such funds. Thus,
selecting these investments may limit or reduce the enhanced death benefit.
Under the ANNUAL RATCHET ENHANCED DEATH BENEFIT, if you die before the annuity
start date, your beneficiary is eligible to receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract; reduced by a pro
rata adjustment for any withdrawal;
3) the cash surrender value; or
4) the enhanced death benefit, which is determined as follows: On each
contract anniversary that occurs on or before the contract owner turns
age 80, we compare the prior enhanced death benefit to the contract
value and select the larger amount as the new enhanced death benefit.
On all other days, the enhanced death benefit is the following amount:
On a daily basis we first take the enhanced death benefit from the
preceding day (which would be the initial premium if the preceding day
is the contract date), then we add additional premiums paid since the
preceding day,
NON-PRINTED VERSION ACCESS ONE PROFILE
7
and then we adjust for any withdrawals on a pro rata basis (including
any market value adjustment applied to such withdrawal) since the
preceding day. That amount becomes the new enhanced death benefit.
Under the MAX 7 ENHANCED DEATH BENEFIT, if you die before the annuity start
date, your beneficiary will receive the greater of the 7% Solution Enhanced
Death Benefit and the Annual Ratchet Enhanced Death Benefit. Under this benefit
option, the 7% Solution Enhanced Death Benefit and Annual Ratchet Enhanced Death
Benefit are calculated in the same manner as if each were the elected benefit.
Note: In all cases described above, the amount of the death benefit could be
reduced by premium taxes owed and withdrawals not previously deducted. The
enhanced death benefits may not be available in all states.}
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after you receive it,
you will receive a refund of your adjusted contract value. We determine your
contract value 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 some states, you may be
entitled to a longer free look period.
TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You can make
transfers among your investment portfolios and your investment in the fixed
account as frequently as you wish without any current tax implications. The
minimum amount for a transfer is $100. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. The Company may,
in the future, charge a $25 fee for any transfer after the twelfth transfer in a
contract year or limit the number of transfers allowed. Keep in mind that if you
transfer or otherwise withdraw your money from the fixed account more than 30
days before the applicable maturity date, we will apply a market value
adjustment. A market value adjustment could increase or decrease your contract
value and/or the amount you transfer or withdraw. Keep in mind that transfers
between Special Funds and other investment portfolios may impact your death
benefit.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate. See
"Federal Tax Considerations-- Taxation of Death Benefit Proceeds" in the
prospectus for the Contract.
ADDITIONAL FEATURES. This Contract has other features you may be interested in.
These include:
Dollar Cost Averaging. This is a program that allows you to invest a
fixed amount of money in the investment portfolios each month. It may give
you a lower average cost per unit over time than a single one-time
purchase. Dollar cost averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses
in a declining market. This option is currently available only if you have
$1,200 or more in the Limited Maturity Bond or the Liquid Asset investment
portfolios or in the fixed account with a 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. These
withdrawals will not result in any surrender charges. 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.
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8
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, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
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NON-PRINTED VERSION ACCESS ONE PROFILE
9
- --------------------------------------------------------------------------------
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY PROSPECTUS
GOLDENSELECT ACCESS(R) ONE
- --------------------------------------------------------------------------------
May 1, 2001
This prospectus describes GoldenSelect Access One, a deferred group and
individual variable annuity contract (the "Contract") offered by Golden American
Life Insurance Company (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 38 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 1, 3, 5, 7 and 10 years. The interest earned on your money
as well as your principal is guaranteed as long as you hold them until the
maturity date. If you take your money out from a Fixed Interest Allocation more
than 30 days before the applicable maturity date, we will apply a market value
adjustment ("Market Value Adjustment"). A Market Value Adjustment could increase
or decrease your contract value and/or the amount you take out. You bear the
risk that you may receive less than your principal if we take a Market Value
Adjustment. For Contracts sold in some states, not all Fixed Interest
Allocations or subaccounts are available. You have a right to return a Contract
within 10 days after you receive it for a refund of the adjusted contract value
(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.
This prospectus provides information that you should know before investing
and should be kept for future reference. A Statement of Additional Information,
dated May 1, 2001, has been filed with the Securities and Exchange Commission.
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 Statement of Additional
Information ("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 THE SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO VARIABLE
INSURANCE TRUST, PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES FUND,
THE PILGRIM VARIABLE PRODUCTS TRUST OR THE PROFUNDS IS NOT A BANK DEPOSIT AND IS
NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG TRUST,
THE PIMCO VARIABLE INSURANCE TRUST, PILGRIM VARIABLE INSURANCE TRUST, THE
PRUDENTIAL SERIES FUND, THE PILGRIM VARIABLE PRODUCTS TRUST OR THE PROFUNDS.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
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The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED
(AN AFFILIATE)
Developing World Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
FIDELITY MANAGEMENT & Research Company
Asset Allocation Growth Series
Diversified Mid-Cap Series
GOLDMAN SACHS ASSET MANAGEMENT
Internet TollkeeperSM Series
ING INVESTMENT MANAGEMENT, LLC
(AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
ING PILGRIM INVESTMENTS, LLC (AN AFFILIATE)
International Equity Series*
JANUS CAPITAL CORPORATION
Growth Series
Growth and Income Series
Special Situations Series
KAYNE ANDERSON RUDNICK INVESTMENT
MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
Core Bond Series
(formerly Global Fixed Income Series)
PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V.
(AN AFFILIATE)
Pilgrim Global Brand Names Fund (formerly ING
Global Brand Names Fund
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
SP Jennison International Growth Portfolio
ING PILGRIM INVESTMENTS, LLC (AN AFFILIATE)
Pilgrim VP Growth Opportunities Portfolio
Pilgrim VP MagnaCap Portfolio
Pilgrim VP SmallCap Opportunities Portfolio
PROFUND ADVISORS LLC
ProFund VP Bull
ProFund VP Europe 30
ProFund VP Small-Cap
* Not currently available.
Internet TollkeeperSM Series is a service mark of Goldman, Sachs & Co.
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.
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TABLE OF CONTENTS
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PAGE
Index of Special Terms................................................ 1
Fees and Expenses..................................................... 2
Performance Information............................................... 6
Accumulation Unit............................................... 6
Net Investment Factor........................................... 6
Condensed Financial Information................................. 6
Financial Statements............................................ 6
Performance Information......................................... 6
Golden American Life Insurance Company................................ 7
The Trusts............................................................ 8
Golden American Separate Account B.................................... 8
The Investment Portfolios............................................. 9
Investment Objectives........................................... 9
Investment Management Fees...................................... 12
The Fixed Interest Allocation......................................... 13
Selecting a Guaranteed Interest Period.......................... 13
Guaranteed Interest Rates....................................... 13
Transfers from a Fixed Interest Allocation...................... 14
Withdrawals from a Fixed Interest Allocation.................... 14
Market Value Adjustment......................................... 15
The Annuity Contract.................................................. 16
Contract Date and Contract Year ................................ 16
Annuity Start Date.............................................. 16
Contract Owner.................................................. 16
Annuitant....................................................... 16
Beneficiary..................................................... 17
Purchase and Availability of the Contract....................... 17
Crediting of Premium Payments................................... 17
Administrative Procedures....................................... 18
Contract Value.................................................. 19
Cash Surrender Value............................................ 19
Surrendering to Receive the Cash Surrender Value................ 19
The Subaccounts................................................. 20
Addition, Deletion or Substitution of Subaccounts and
Other Changes................................................ 20
The Fixed Account............................................... 20
Other Contracts................................................. 20
Other Important Provisions...................................... 20
Withdrawals........................................................... 21
Regular Withdrawals............................................. 21
Systematic Withdrawals.......................................... 21
IRA Withdrawals................................................. 22
Transfers Among Your Investments...................................... 23
Dollar Cost Averaging........................................... 23
Automatic Rebalancing........................................... 24
Death Benefit ........................................................ 24
Death Benefit During the Accumulation Phase..................... 24
Standard Death Benefit.......................................... 25
Enhanced Death Benefits......................................... 25
Death Benefit During the Income Phase........................... 25
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TABLE OF CONTENTS (CONTINUED)
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PAGE
Continuation After Death-- Spouse............................... 25
Continuation After Death-- Non Spouse........................... 25
Required Distributions Upon Contract Owner's Death.............. 25
Charges and Fees...................................................... 26
Charge Deduction Subaccount..................................... 26
Charges Deducted from the Contract Value........................ 26
No Surrender Charge......................................... 26
Premium Taxes............................................... 26
Transfer Charge............................................. 26
Charges Deducted from the Subaccounts........................... 27
Mortality and Expense Risk Charge........................... 27
Asset-Based Administrative Charge........................... 27
Trust Expenses.................................................. 27
The Annuity Options................................................... 27
Annuitization of Your Contract.................................. 27
Selecting the Annuity Start Date................................ 28
Frequency of Annuity Payments................................... 28
The Annuity Options............................................. 28
Income for a Fixed Period................................... 28
Income for Life with a Period Certain....................... 28
Joint Life Income........................................... 28
Annuity Plan................................................ 29
Payment When Named Person Dies.................................. 29
Other Contract Provisions............................................. 29
Reports to Contract Owners...................................... 29
Suspension of Payments.......................................... 29
In Case of Errors in Your Application........................... 29
Assigning the Contract as Collateral............................ 29
Contract Changes-Applicable Tax Law............................. 30
Free Look....................................................... 30
Group or Sponsored Arrangements................................. 30
Selling the Contract............................................ 30
Other Information..................................................... 31
Voting Rights................................................... 31
State Regulation................................................ 31
Legal Proceedings............................................... 31
Legal Matters................................................... 31
Experts......................................................... 32
Federal Tax Considerations............................................ 32
More Information About Golden American Life Insurance Company......... 37
Financial Statements of Golden American Life Insurance Company........ 57
Statement of Additional Information
Table of Contents............................................... 87
Appendix A
Condensed Financial Information................................. A1
Appendix B
Market Value Adjustment Examples................................ B1
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INDEX OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following special terms are used throughout this prospectus. Refer to the
page(s) listed for an explanation of each term:
SPECIAL TERM PAGE
Accumulation Unit 6
Annual Ratchet Enhanced Death Benefit
Annuitant 16
Annuity Start Date 16
Cash Surrender Value 19
Contract Date 16
Contract Owner 16
Contract Value 19
Contract Year 16
Death Benefit 24
Fixed Interest Allocation 13
Market Value Adjustment 15
Max 7 Enhanced Death Benefit
Net Investment Factor 6
7% Solution Enhanced Death Benefit
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
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FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge................................................... None
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.
SEPARATE ACCOUNT ANNUAL CHARGES***
--------------------------------------------------------------------------------------------------------------
Standard Enhanced Death Benefits
Death Benefit Annual Ratchet 7% Solution Max 7
--------------------------------------------------------------------------------------------------------------
Mortality & Expense Risk Charge 0.35% 0.50% 0.70% 0.80%
Asset-Based Administrative Charge 0.15% 0.15% 0.15% 0.15%
Total 0.50% 0.65% 0.85% 0.95%
--------------------------------------------------------------------------------------------------------------
*** As a percentage of average daily assets in each subaccount. The
mortality and expense risk charge and the asset-based administrative
charge are deducted daily.
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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 0.54% 0.01% 0.55%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.54% 0.01% 0.55%
- --------------------------------------------------------------------------------
Core Bond 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Fully Managed 0.94% 0.01% 0.95%
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Total Return 0.88% 0.01% 0.89%
- --------------------------------------------------------------------------------
Asset Allocation Growth 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Equity Income 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Growth and Income 1.10% 0.01% 1.11%
- --------------------------------------------------------------------------------
Real Estate 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Value Equity 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
International Equity 1.25% 0.01% 1.26%
- --------------------------------------------------------------------------------
Rising Dividends 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Managed Global 1.25% 0.01% 1.26%
- --------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Hard Assets 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Diversified Mid-Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Research 0.88% 0.01% 0.89%
- --------------------------------------------------------------------------------
Capital Growth 0.99% 0.01% 1.00%
- --------------------------------------------------------------------------------
Capital Appreciation 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Small Cap 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Mid-Cap Growth 0.88% 0.01% 0.89%
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Strategic Equity 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Special Situations 1.10% 0.01% 1.11%
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Growth 0.99% 0.01% 1.00%
- --------------------------------------------------------------------------------
Developing World 1.75% 0.01% 1.76%
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Internet Tollkeeper 1.85% 0.01% 1.86%
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(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, 2000, except for (i) portfolios that commenced
operations in 2000 and 2001, 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, 2000.
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THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- ---------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES TOTAL EXPENSES
MANAGEMENT SERVICE OTHER AFTER EXPENSE AFTER EXPENSE
PORTFOLIO FEE FEE EXPENSES(1) REIMBURSEMENT(2) REIMBURSEMENT(2)
- ---------------------------------------------------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.15% 0.35% 0.35% 0.75%
PIMCO StocksPLUS Growth and
Income 0.40% 0.15% 0.11% 0.10% 0.65%
- ---------------------------------------------------------------------------------------------------------------------------
(1) "Other Expenses" reflects a 0.35% administrative fee for the High
Yield Bond Portfolio and a 0.10% administrative fee and 0.01%
representing organizational expenses and pro rata Trustees' fees for
the StocksPLUS Growth and Income Portfolio.
(2) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment
of organizational expenses and Trustees' fees, 0.75% and 0.65% of
average daily net assets for the PIMCO High Yield Bond and StocksPLUS
Growth and Income Portfolios, respectively. Without such reductions,
Total Annual Expenses for the fiscal year ended December 31, 2000
would have been 0.75% and 0.66% for the PIMCO High Yield Bond and
StocksPLUS Growth and Income Portfolios, respectively. Under the
Expense Limitation Agreement, PIMCO may recoup these waivers and
reimbursements in future periods, not exceeding three years, provided
total expenses, including such recoupment, do not exceed the annual
expense limit.
PILGRIM VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio)(1):
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT TOTAL TOTAL NET
MANAGEMENT 12B-1 OTHER PORTFOLIO WAIVER BY PORTFOLIO
PORTFOLIO FEE FEE EXPENSES EXPENSES ADVISER(2) EXPENSES
- ------------------------------------------------------------------------------------------------------------------------
Pilgrim Global Brand Names 1.00% 0.25% 1.72% 2.97% 1.74% 1.23%
- ------------------------------------------------------------------------------------------------------------------------
(1) The table shows the estimated operating expenses for the Portfolio as
a ratio of expenses to average daily net assets. These estimates are
based on the Portfolio's actual operating expenses for its most recent
complete fiscal year and fee waivers to which the Adviser has agreed
for the Portfolio.
(2) ING Mutual Funds Management Co. LLC, the Portfolio's Investment
Manager, has entered into a written expense limitation agreement with
the Portfolio, under which it will limit expenses of the Portfolio,
excluding interest, taxes, brokerage and extraordinary expenses,
subject to possible reimbursement to ING Mutual Funds Management Co.
LLC within three years. The amount of the Portfolio's expenses waived
or reimbursed during the last fiscal year by ING Mutual Funds
Management Co. LLC is shown under the heading "Waiver by Adviser." The
expense limits will continue through at least December 31, 2001.
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- ------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES(2) EXPENSES(2)
- ------------------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.19% 1.04%
SP Jennison International
Growth 0.85% 0.25% 0.54% 1.64%
- ------------------------------------------------------------------------------------------
(1) The 12b-1 fees for the Prudential Jennison Portfolio and the SP
Jennison International Growth Portfolio are imposed to enable the
portfolios to recover certain sales expenses, including compensation
to broker-dealers, the cost of printing prospectuses for delivery to
prospective investors and advertising costs for the portfolio. Over a
long period of time, the total amount of 12b-1 fees paid may exceed
the amount of sales charges imposed by the product.
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(2) Since the SP Jennison International Growth Portfolio had not commenced
operations as of December 31, 1999, expenses as shown are based on
estimates of the portfolio's operating expenses for the portfolio's
first fiscal year.
PILGRIM VARIABLE PRODUCTS TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio)(1):
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT TOTAL TOTAL NET
MANAGEMENT SERVICE OTHER PORTFOLIO WAIVER BY PORTFOLIO
PORTFOLIO FEE FEES EXPENSES(2) EXPENSES ADVISER(3) EXPENSES
- -----------------------------------------------------------------------------------------------------------------------
Pilgrim VP MagnaCap 0.75% 0.25% 7.15% 8.15% 7.05% 1.10%
- -----------------------------------------------------------------------------------------------------------------------
Pilgrim VP SmallCap
Opportunities 0.75% 0.25% 0.23% 1.23% 0.13% 1.10%
- -----------------------------------------------------------------------------------------------------------------------
Pilgrim VP Growth
Opportunities 0.75% 0.25% 1.44% 2.44% 1.34% 1.10%
- ------------------------------------------------------------------------------------------------------------------------
(1) The table shows the estimated operating expenses for Class S shares of
each Portfolio as a ratio of expenses to average daily net assets.
These estimates are based on each Portfolio's actual operating
expenses for Class R shares for the Trust's most recently completed
fiscal year and fee waivers to which ING Pilgrim Investments, LLC, the
Portfolios' Adviser, has agreed for each Portfolio.
(2) Because Class S shares are new for each Portfolio, the Other Expenses
for each Portfolio are based on Class R expenses of the Portfolio.
(3) ING Pilgrim Investments, LLC has entered into written expense
limitation agreements with each Portfolio which it advises under which
it will limit expenses of the Portfolio, excluding interest, taxes,
brokerage and extraordinary expenses, subject to possible
reimbursement to ING Pilgrim Investments, LLC within three years. The
expense limit for each such Portfolio is shown as "Total Net Portfolio
Expenses." For each Portfolio, the expense limits will continue
through at least December 31, 2001.
PROFUNDS ANNUAL EXPENSES (as a percentage of the average daily net assets of the
portfolio):
- ------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE EXPENSES(2) EXPENSES(2)
- ------------------------------------------------------------------------------------------
ProFund VP Bull 0.75% 0.25% 0.80% 1.80%
ProFund VP Small-Cap 0.75% 0.25% 0.80% 1.80%
ProFund VP Europe 30(1) 0.75% 0.25% 0.75% 1.75%
- ------------------------------------------------------------------------------------------
(1) Management fees and expenses for the ProFund VP Europe 30 are for the
12-month period ending December 12, 2000.
(2) Other expenses for the ProFund VP Bull and ProFund VP Small-Cap are
estimates as these ProFund Portfolios had not commenced operations as
of December 31, 2000.
The purpose of the foregoing tables is to help you understand the various costs
and expenses that you will bear directly and indirectly. See the prospectuses of
the GCG Trust, the PIMCO Variable Insurance Trust, Pilgrim Variable Insurance
Trust, the Prudential Series Fund, the Pilgrim Variable Products Trust, and the
ProFunds for additional information on management or advisory fees and in some
cases on other portfolio expenses.
Premium taxes (which currently range from 0% to 3.5% of premium payments) may
apply, but are not reflected in the tables above or in the examples below.
EXAMPLE:
The following example is designed to show you the expenses you would pay on a
$1000 investment that earns 5% annually. The example reflects the deduction of a
mortality and expense risk charge and an asset-based administrative charge.
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EXAMPLE 1:
Whether you surrender, continue to hold or annuitize 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 $15 $47 $ 82 $180
- --------------------------------------------------------------------------------
Limited Maturity Bond $15 $47 $ 82 $180
- --------------------------------------------------------------------------------
Core Bond $20 $62 $106 $229
- --------------------------------------------------------------------------------
Fully Managed $19 $60 $103 $222
- --------------------------------------------------------------------------------
Total Return $19 $58 $100 $216
- --------------------------------------------------------------------------------
Asset Allocation Growth $20 $62 $106 $229
- --------------------------------------------------------------------------------
Equity Income $19 $60 $103 $222
- --------------------------------------------------------------------------------
All Cap $20 $62 $106 $229
- --------------------------------------------------------------------------------
Growth and Income $21 $65 $111 $239
- --------------------------------------------------------------------------------
Real Estate $19 $60 $103 $222
- --------------------------------------------------------------------------------
Value Equity $19 $60 $103 $222
- --------------------------------------------------------------------------------
Investors $20 $62 $106 $229
- --------------------------------------------------------------------------------
International Equity $22 $69 $118 $254
- --------------------------------------------------------------------------------
Rising Dividends $19 $60 $103 $222
- --------------------------------------------------------------------------------
Managed Global $22 $69 $118 $254
- --------------------------------------------------------------------------------
Large Cap Value $20 $62 $106 $229
- --------------------------------------------------------------------------------
Hard Assets $19 $60 $103 $222
- --------------------------------------------------------------------------------
Diversified Mid-Cap $20 $62 $106 $229
- --------------------------------------------------------------------------------
Research $19 $58 $100 $216
- --------------------------------------------------------------------------------
Capital Growth $20 $61 $105 $227
- --------------------------------------------------------------------------------
Capital Appreciation $19 $60 $103 $222
- --------------------------------------------------------------------------------
Small Cap $19 $60 $103 $222
- --------------------------------------------------------------------------------
Mid-Cap Growth $19 $58 $100 $216
- --------------------------------------------------------------------------------
Strategic Equity $19 $60 $103 $222
- --------------------------------------------------------------------------------
Special Situations $21 $65 $111 $239
- --------------------------------------------------------------------------------
Growth $20 $61 $105 $227
- --------------------------------------------------------------------------------
Developing World $27 $84 $143 $304
- --------------------------------------------------------------------------------
Internet Tollkeeper $28 $87 $148 $314
- --------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $17 $54 $ 92 $201
- --------------------------------------------------------------------------------
PIMCO StocksPLUS Growth and Income $16 $50 $ 87 $190
- --------------------------------------------------------------------------------
PILGRIM VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
Pilgrim Global Brand Names $22 $68 $117 $251
- --------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison $20 $62 $107 $232
- --------------------------------------------------------------------------------
SP Jennison International Growth $26 $81 $138 $292
- --------------------------------------------------------------------------------
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap $21 $64 $110 $238
- --------------------------------------------------------------------------------
Pilgrim VP SmallCap Opportunities $21 $64 $110 $238
- --------------------------------------------------------------------------------
Pilgrim VP Growth Opportunities $21 $64 $110 $238
- --------------------------------------------------------------------------------
PROFUNDS TRUST
- --------------------------------------------------------------------------------
ProFund VP Bull $28 $85 $145 $308
- --------------------------------------------------------------------------------
ProFund VP Small-Cap $28 $85 $145 $308
- --------------------------------------------------------------------------------
ProFund VP Europe 30 $27 $84 $143 $303
- --------------------------------------------------------------------------------
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THIS EXAMPLE 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.
Compensation is paid for the sale of the Contracts. For information about this
compensation, see "Selling the Contract."
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each subaccount
of Separate Account B has its own accumulation unit value. The accumulation
units are valued each business day that the New York Stock Exchange is open for
trading. Their values may increase or decrease from day to day according to a
Net Investment Factor, which is primarily based on the investment performance of
the applicable investment portfolio. Shares in the investment portfolios are
valued at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
2) We add to (1) the amount of any dividend or capital gains distribution
declared for the subaccount and reinvested in such subaccount. We
subtract from that amount a charge for our taxes, if any.
3) We divide (2) by the net asset value of the subaccount at the end of
the preceding business day.
4) We then subtract the applicable daily mortality and expense risk
charge and the daily asset-based administrative charge from the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus, and (ii) the
total investment value history of each subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 2000 are included in the Statement of Additional Information. The
audited consolidated financial statements of Golden American for the years ended
December 31, 2000, 1999 and 1998 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
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. In addition,we may present historic performance data for the investment
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portfolios since their inception reduced by some or all of the fees and charges
under the Contract. Such adjusted historic performance includes data that
precedes the inception dates of the subaccounts of Separate Account B. This data
is designed to show the performance that would have resulted if the Contract had
been in existence before the separate account began investing in the portfolios.
Current yield for the Liquid Asset subaccount is based on income received by a
hypothetical investment over a given 7-day period, less expenses accrued, and
then "annualized" (i.e., assuming that the 7-day yield would be received for 52
weeks). We calculate "effective yield" for the Liquid Asset subaccount in a
manner similar to that used to calculate yield, but when annualized, the income
earned by the investment is assumed to be reinvested. The "effective yield" will
thus be slightly higher than the "yield" because of the compounding effect of
earnings. We calculate quotations of yield for the remaining subaccounts on all
investment income per accumulation unit earned during a given 30-day period,
after subtracting fees and expenses accrued during the period, assuming the
selection of the Max 7 Enhanced Death Benefit.
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.
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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. ING also owns ING Pilgrim Investments, LLC, a
portfolio manager of the GCG Trust, and the investment manager of the Pilgrim
Variable Insurance Trust and the Pilgrim Variable Products Trust. ING also owns
Baring International Investment Limited, another portfolio manager of the GCG
Trust and ING Investment Management Advisors B.V., a portfolio manager of the
Pilgrim Variable Insurance Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
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THE TRUSTS
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The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies not affiliated with
Golden American. Pending SEC approval, shares of the GCG Trust may also be sold
to certain qualified pension and retirement plans. The address of the GCG Trust
is 1475 Dunwoody Drive, West Chester, PA 19380.
The PIMCO Variable Insurance Trust is also a mutual fund whose shares are
available to separate accounts of insurance companies, including Golden
American, for both variable annuity contracts and variable life insurance
policies and to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
CA 92660.
The Pilgrim Variable Insurance Trust (formerly the ING Variable Insurance Trust)
is also a mutual fund whose shares are offered to separate accounts funding
variable annuity contracts offered by Golden American and other insurance
companies, both affiliated and unaffiliated with Golden American. The address of
Pilgrim Variable Insurance Trust is 40 North Central Avenue, Suite 1200,
Phoenix, AZ 85004.
The Prudential Series Fund, Inc. is also a mutual fund whose shares are
available to separate accounts funding variable annuity and variable life
insurance polices offered by The Prudential Insurance Company of America, its
affiliated insurers and other life insurance companies not affiliated with
Prudential, including Golden American. The address of the Prudential Series Fund
is 751 Broad Street, Newark, NJ 07102.
The Pilgrim Variable Products Trust is also a mutual fund whose shares are
offered to separate accounts funding variable annuity contracts offered by
Golden American and other insurance companies, both affiliated and unaffiliated
with Golden American. The address of Pilgrim Variable Products Trust is 40 North
Central Avenue, Suite 1200, Phoenix, AZ 85004.
The ProFunds is also a mutual fund whose shares are offered to separate accounts
funding variable annuity contracts offered by Golden American and other
insurance companies, both affiliated and unaffiliated with Golden American. The
address of ProFunds is 3435 Stelzer Road, Suite 1000, PO Box 182100, Columbus,
OH 43218-2000.
In the event that, due to differences in tax treatment or other considerations,
the interests of contract owners of various contracts participating in the
Trusts conflict, we, the Boards of Trustees of the GCG Trust, the PIMCO Variable
Insurance Trust, the Pilgrim Variable Insurance Trust, the Pilgrim Variable
Products Trust, ProFunds, the Board of Directors of the Prudential Series Fund,
and the management of Directed Services, Inc., Pacific Investment Management
Company, The Prudential Insurance Company of America, ING Pilgrim Investments,
Inc., ProFunds Advisors LLC 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 MORE DETAILED INFORMATION ABOUT THE GCG TRUST, THE PIMCO VARIABLE
INSURANCE TRUST, THE PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES
FUND, THE PILGRIM VARIABLE PRODUCTS TRUST, AND PROFUNDS IN THE ACCOMPANYING
PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
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GOLDEN AMERICAN SEPARATE ACCOUNT B
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Golden American Separate Account B ("Separate Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with the SEC
as a unit investment trust under the Investment Company Act of 1940 as amended
(the "1940 Act"). Separate Account B is a separate investment account used for
our variable annuity contracts. We own all the assets in Separate Account B but
such assets are kept separate from our other accounts.
Separate Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust, the PIMCO
Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the Prudential
Series Fund, the Pilgrim Variable Products Trust or the ProFunds. Each
investment portfolio has its own distinct investment objectives and policies.
Income, gains and losses, realized or unrealized, of a portfolio are credited to
or charged against the corresponding subaccount of Separate Account B without
regard to any other income, gains or losses of the Company. Assets equal to the
reserves and other contract liabilities with respect to each are not chargeable
with liabilities arising out of any other business of the Company. They may,
however, be subject to liabilities arising from subaccounts whose assets we
attribute to other variable annuity contracts supported by Separate Account B.
If the assets in Separate Account B exceed the required reserves and other
liabilities, we may transfer the excess to our general account. We are obligated
to pay all benefits and make all payments provided under the Contracts.
NOTE: We currently offer other variable annuity contracts that invest in
Separate Account B but are not discussed in this prospectus. Separate Account B
may also invest in other investment portfolios which are not available under
your Contract. Under certain circumstances, we may make certain changes to the
subaccounts. For more information, see "The Annuity Contract -- Addition,
Deletion, or Substitution of Subaccounts and Other Changes."
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THE INVESTMENT PORTFOLIOS
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During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU MAY LOSE YOUR PRINCIPAL.
INVESTMENT OBJECTIVES
The investment objective of each investment portfolio is set forth below. You
should understand that there is no guarantee that any portfolio will meet its
investment objectives. Meeting objectives depends on various factors, including,
in certain cases, how well the portfolio managers anticipate changing economic
and market conditions. Separate Account B also has other subaccounts investing
in other portfolios which are not available to the Contract described in this
prospectus. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENTi
PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE
TRUST, PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES FUND, PILGRIM
VARIABLE PRODUCTS TRUST AND THE PROFUNDS. YOU SHOULD READ THESE PROSPECTUSES
BEFORE INVESTING.
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE GCG TRUST
Liquid Asset Seeks high level of current income consistent with the
preservation of capital and liquidity.
Invests primarily in obligations of the U.S. Government
and its agencies and instrumentalities, bank
obligations, commercial paper and short-term corporate
debt securities. All securities will mature in less than
one year.
--------------------------------------------------------
Limited Maturity Bond Seeks highest current income consistent with low risk to
principal and liquidity. Also seeks to enhance its total
return through capital appreciation when market factors,
such as falling interest rates and rising bond prices,
indicate that capital appreciation may be available
without significant risk to principal.
Invests primarily in diversified limited maturity debt
securities with average maturity dates of five years or
shorter and in no cases more than seven years.
--------------------------------------------------------
Core Bond (formerly Seeks maximum total return, consistent with
Global Fixed preservation of capital and prudent investment
Income) management.
Invests primarily in a diversified portfolio of fixed
income instruments of varying maturities. The average
portfolio duration of the Portfolio normally varies
within a three-to six-year time frame.
--------------------------------------------------------
Fully Managed Seeks, over the long term, a high total investment
return consistent with the preservation of capital and
with prudent investment risk.
Invests primarily in the common stocks of established
companies believed by the portfolio manager to have
above-average potential for capital growth.
--------------------------------------------------------
Total Return Seeks above-average income (compared to a portfolio
entirely invested in equity securities) consistent with
the prudent employment of capital. Growth of capital and
income is a secondary goal.
Invests primarily in a combination of equity and fixed
income securities.
--------------------------------------------------------
Asset Allocation Growth Seeks to maximize total return over the long-term by
allocating assets among stocks, bonds, short-term
instruments and other investments.
Allocates investments primarily in a neutral mix over
time of 70% of its assets in stocks, 25% of its assets
in bonds, and 5% of its assets in short-term and money
market investments.
--------------------------------------------------------
Equity Income Seeks substantial dividend income as well as long-term
growth of capital.
Invests primarily in common stocks of well established
companies paying above-average dividends.
--------------------------------------------------------
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.
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
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.
--------------------------------------------------------
Real Estate Seeks capital appreciation. Current income is a
secondary objective.
Invests primarily in publicly traded real estate equity
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.
--------------------------------------------------------
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.
--------------------------------------------------------
International Equity Seeks long-term growth of capital.
(not currently
available)
Invests at least 65% of its net assets in equity
securities of issuers located in countries outside of
the United States. The Portfolio generally invests at
least 75% of its total assets in common and preferred
stocks, warrants and convertible securities.
--------------------------------------------------------
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."
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Diversified Mid-Cap Seeks long-term capital growth.
Normally invests at least 65% of its total assets in
common stocks of companies with medium market
capitalizations.
--------------------------------------------------------
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Research Seeks long-term growth of capital and future income.
Invests primarily in common stocks or securities
convertible into common stocks of companies believed to
have better than average prospects for long-term growth.
--------------------------------------------------------
Capital Growth Seeks long-term total return.
Invests primarily in common stocks of companies where
the potential for change (earnings acceleration) is
significant.
--------------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed by the
portfolio manager to be undervalued.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of companies in
developing or emerging countries.
--------------------------------------------------------
Internet Tollkeeper Seeks long-term growth of capital.
Invests primarily in equity securities of "Internet
Tollkeeper" companies, which are companies in sectors
which provide access, infrastructure, content and
services to Internet companies and customers, and which
have developed, or are seeking to develop predictable,
sustainable or recurring revenue by increasing
"traffic," or customers and sales, and raising "tolls,"
or prices in connection with the growth of the Internet.
--------------------------------------------------------
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return, consistent with
preservation of capital and prudent investment
management.
Invests at least 65% of its assets in a diversified
portfolio of junk bonds rated at least B by Moody's
Investor Services, Inc. or Standard & Poor's or, if
unrated, determined by the portfolio manager to be of
comparable quality.
--------------------------------------------------------
PIMCO StocksPLUS Seeks to achieve a total return which exceeds the total
Growth and Income return performance of the Standard & Poor's 500 Stock
Index.
Invests primarily in common stocks, options, futures,
options on futures and swaps.
--------------------------------------------------------
PILGRIM VARIABLE INSURANCE TRUST (formerly ING Variable Insurance Trust)
Pilgrim Global Brand Seeks to provide investors with long-term capital
Names Fund appreciation.
(formerly Global
Brand NamesING Invests at least 65% of its total assets in equity
Fund) securities of companies that have a well recognized
franchise, a global presence and derive most of their
revenues from sales of consumer goods.
--------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have shown growth in
earnings and sales, high return on equity and assets or
other strong financial data and are also attractively
valued in the opinion of the manager. Dividend income
from investments will be incidental.
--------------------------------------------------------
SP Jennison Seeks long-term growth of capital.
International Growth
Invests primarily in equity-related securities of
issuers located in at least five different foreign
countries.
--------------------------------------------------------
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap Seeks growth of capital, with dividend income as a
secondary consideration.
Invests primarily in equity securities of companies
meeting investment policy criteria of consistent and
substantially increasing dividends, reinvested earnings,
strong balance sheet and attractive price. Invests
primarily in companies included in the largest 500 U.S.
companies.
--------------------------------------------------------
Pilgrim VP SmallCap Seeks long-term capital appreciation.
Opportunities
Invests primarily in the common stock of smaller,
lesser-known U.S. companies that the portfolio manager
believes have above average prospects for growth.
--------------------------------------------------------
Pilgrim VP Growth Seeks long-term growth of capital.
Opportunities
Invests primarily in U.S. companies that the portfolio
manager believes have above average prospects for
growth.
--------------------------------------------------------
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
PROFUNDS Seeks daily investment results that correspond to the
ProFund VP Bull performance of the Standard & Poor's 500 Stock Index.
Invests in securities and other financial instruments,
such as futures and options on futures in pursuit of the
portfolio's objective regardless of market conditions,
trends or direction and seeks to provide correlation
with the benchmark on a daily basis.
--------------------------------------------------------
ProFund VP Small-Cap Seeks daily investment results that correspond to the
performance of the Russell 2000 Index.
Invests in securities and other financial instruments,
such as futures and options on futures in pursuit of the
portfolio's objective regardless of market conditions,
trends or direction and seeks to provide correlation
with the benchmark on a daily basis.
--------------------------------------------------------
ProFund VP Europe 30 Seeks daily investment results that correspond to the
performance of the ProFunds Europe 30 Index.
Invests in securities and other financial instruments,
such as futures and options on futures and American
Depository Receipts in pursuit of the portfolio's
objective regardless of market conditions, trends or
direction and seeks to provide correlation with the
benchmark on a daily basis.
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios. Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios. Directed Services (and not the GCG Trust) pays each portfolio
manager a monthly fee for managing the assets of a portfolio, based on the
annual rates of the average daily net assets of a portfolio. For a list of the
portfolio managers, see the front cover of this prospectus. Directed Services
does not bear the expense of brokerage fees and other transactional expenses for
securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and
expenses of the independent trustees, and extraordinary expenses, such as
litigation or indemnification expenses.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee based
on the average daily net assets of each of the investment portfolios, for
managing the assets of the portfolios and for administering the PIMCO Variable
Insurance Trust. PIMCO does not bear the expense of brokerage fees and other
transactional expenses for securities, taxes (if any) paid by a portfolio,
interest on borrowing, fees and expense of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
ING Pilgrim Investments, Inc. ("ING Pilgrim") serves as the overall manager
of Pilgrim Variable Insurance Trust. ING Pilgrim supervises all aspects of the
Trust's operations and provides investment advisory services to the portfolios
of the Trust, including engaging portfolio managers, as well as monitoring and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING Pilgrim, as well
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as each portfolio manager it engages, is a wholly owned indirect subsidiary of
ING Groep N.V. Except for agreements to reimburse certain expenses of the
portfolio, ING Pilgrim does not bear any portfolio expenses.
The Prudential Insurance Company of America ("Prudential") and its subsidiary,
Prudential Investments Fund Management LLC ("PIFM") serve as the overall
investment advisers to the Prudential Series Fund. Prudential and PIFM are
responsible for the management of the Prudential Series Fund and provide
investment advice and related services. For the Prudential Jennison Portfolio
and SP Jennison International Growth Portfolio, Prudential and PIFM engage
Jennison Associates LLC to serve as sub-adviser and to provide day-to-day
management. Prudential and PIFM pay the sub-adviser out of the fee they receive
from the Prudential Series Fund. Each portfolio pays its own administrative
costs.
ProFunds Advisors LLC serves as the investment advisor of the ProFunds. The
ProFunds pay ProFunds Advisors LLC a monthly advisory fee based on the average
daily net assets of each investment portfolio. Each portfolio pays its own
administrative costs.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, five portfolios deduct a
service fee, which is used to compensate service providers for administrative
and contract holder services provided on behalf of the portfolios, and six
portfolios deduct a distribution or 12b-1 fee, which is used to finance any
activity that is primarily intended to result in the sale of shares of the
applicable portfolio. Based on actual portfolio experience in 2000, together
with estimated costs for new portfolios, total estimated portfolio fees and
charges for 2001 range from 0.55% to 1.86%. See "Fees and Expenses" in this
prospectus.
We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
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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 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.
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Assets supporting amounts allocated to the Fixed Account are available to fund
the claims of all classes of our customer, contract owners and other creditors.
Interests under your Contract relating to the Fixed Account are registered under
the Securities Act of 1933, but the Fixed Account is not registered under the
1940 Act.
SELECTING A GUARANTEED INTEREST PERIOD
You may select one or more Fixed Interest Allocations with specified guaranteed
interest periods. A guaranteed interest period is the period that a rate of
interest is guaranteed to be credited to your Fixed Interest Allocation. We may
at any time decrease or increase the number of guaranteed interest periods
offered. In addition, we may offer DCA Fixed Interest Allocations, which are
6-month and 1-year Fixed Interest Allocations available exclusively in
connection with our dollar cost averaging program. For more information on DCA
Fixed Interest Allocations, see "Transfers Among Your Investments--Dollar Cost
Averaging."
Your contract value in the Fixed Account is the sum of your Fixed Interest
Allocations and the interest credited as adjusted for any withdrawals, transfers
or other charges we may impose, including any Market Value Adjustment. Your
Fixed Interest Allocation will be credited with the guaranteed interest rate in
effect for the guaranteed interest period you selected when we receive and
accept your premium or reallocation of contract value. We will credit interest
daily at a rate which yields the quoted guaranteed interest rate.
GUARANTEED INTEREST RATES
Each Fixed Interest Allocation will have an interest rate that is guaranteed as
long as you do not take your money out until its maturity date. We do not have a
specific formula for establishing the guaranteed interest rates for the
different guaranteed interest periods. We determine guaranteed interest rates at
our sole discretion. To find out the current guaranteed interest rate for a
guaranteed interest period you are interested in, please contact our Customer
Service Center or your registered representative. The determination may be
influenced by the interest rates on fixed income investments in which we may
invest with the amounts we receive under the Contracts. We will invest these
amounts primarily in investment-grade fixed income securities (i.e., rated by
Standard & Poor's rating system to be suitable for prudent investors) although
we are not obligated to invest according to any particular strategy, except as
may be required by applicable law. You will have no direct or indirect interest
in these investments. We will also consider other factors in determining the
guaranteed interest rates, including regulatory and tax requirements, sales
commissions and administrative expenses borne by us, general economic trends and
competitive factors. We cannot predict the level of future interest rates but no
Fixed Interest Allocation will ever have a guaranteed interest rate of less than
3% per year.
We may from time to time at our discretion offer interest rate specials for new
premiums that are higher than the current base interest rate then offered.
Renewal rates for such rate specials will be based on the base interest rate and
not on the special rates initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to one or
more new Fixed Interest Allocations with new guaranteed interest periods, or to
any of the subaccounts of Account B. We will transfer amounts from your Fixed
Interest Allocations starting with the guaranteed interest period nearest its
maturity date, until we have honored your transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract value
remaining in a Fixed Interest Allocation to less than $100, we will treat such
transfer request as a request to transfer the entire contract value in such
Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be
subject to a Market Value Adjustment. If you have a special Fixed Interest
Allocation that was offered exclusively with our dollar cost averaging program,
cancelling dollar cost averaging will cause a transfer of the entire contract
value in such Fixed Interest Allocation to the Liquid Asset subaccount, and such
a transfer will be subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer amounts
from the applicable Fixed Interest Allocation to the subaccounts and/or to new
Fixed Interest Allocations with guaranteed interest
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periods of any length we are offering at that time. You may not, however,
transfer amounts to any Fixed Interest Allocation with a guaranteed interest
period that extends beyond the annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed Interest
Allocations, or earlier if required by state law, we will send you a notice of
the guaranteed interest periods that are available. You must notify us which
subaccounts or new guaranteed interest periods you have selected before the
maturity date of your Fixed Interest Allocations. If we do not receive timely
instructions from you, we will transfer the contract value in the maturing Fixed
Interest Allocation to a new Fixed Interest Allocation with a guaranteed
interest period that is the same as the expiring guaranteed interest period. If
such guaranteed interest period is not available or would go beyond the annuity
start date, we will transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does not go
beyond the annuity start date. If no such guaranteed interest period is
available, we will transfer the contract value to a subaccount specially
designated by the Company for such purpose. Currently we use the Liquid Asset
subaccount for such purpose.
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. Be aware that withdrawals may have
federal income tax consequences, including a 10% penalty tax, as well as state
income tax consequences.
If you tell us the Fixed Interest Allocation from which your withdrawal will be
made, we will assess the withdrawal against that Fixed Interest Allocation. If
you do not, we will assess your withdrawal against the subaccounts in which you
are invested, unless the withdrawal exceeds the contract value in the
subaccounts. If there is no contract value in those subaccounts, we will deduct
your withdrawal from your Fixed Interest Allocations starting with the
guaranteed interest periods nearest their maturity dates until we have honored
your request.
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+.0025)) -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 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; and
o "N" is the remaining number of days in the guaranteed interest period
at the time of calculation.
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The Index Rate is the average of the Ask Yields for U.S. Treasury Strips as
quoted by a national quoting service for a period equal to the applicable
guaranteed interest period. The average currently is based on the period
starting from the 22nd day of the calendar month two months prior to the month
of the Index Rate determination and ending the 21st day of the calendar month
immediately before the month of determination. We currently calculate the Index
Rate once each calendar month but have the right to calculate it more
frequently. The Index Rate will always be based on a period of at least 28 days.
If the Ask Yields are no longer available, we will determine the Index Rate by
using a suitable and approved, if required, replacement method.
A Market Value Adjustment may be positive, negative or result in no change. In
general, if interest rates are rising, you bear the risk that any Market Value
Adjustment will likely be negative and reduce your contract value. On the other
hand, if interest rates are falling, it is more likely that you will receive a
positive Market Value Adjustment that increases your contract value. In the
event of a full surrender, transfer or annuitization from a Fixed Interest
Allocation, we will add or subtract any Market Value Adjustment from the amount
surrendered, transferred or annuitized. In the event of a partial withdrawal,
transfer or annuitization, we will add or subtract any Market Value Adjustment
from the total amount withdrawn, transferred or annuitized in order to provide
the amount requested. If a negative Market Value Adjustment exceeds your
contract value in the Fixed Interest Allocation, we will consider your request
to be a full surrender, transfer or annuitization of the Fixed Interest
Allocation.
Several examples which illustrate how the Market Value Adjustment works are
included in Appendix B.
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THE ANNUITY CONTRACT
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The Contract described in this prospectus is a deferred combination variable and
fixed annuity contract. The Contract provides a means for you to invest in one
or more of the available mutual fund portfolios of the GCG Trust, the PIMCO
Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the Prudential
Series Fund, the Pilgrim Variable Products Trust and the ProFunds through
Separate Account B. It also provides a means for you to invest in a Fixed
Interest Allocation through the Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-month
period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments under
your Contract. The Contract, like all deferred variable annuity contracts, has
two phases: the accumulation phase and the income phase. The accumulation phase
is the period between the contract date and the annuity start date. The income
phase begins when you start receiving regular annuity payments from your
Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another annuitant
is named in the application. You have the rights and options described in the
Contract. One or more persons may own the Contract. If there are multiple owners
named, the age of the oldest owner will determine the applicable death benefit
if such death benefit is available for multiple owners.
The death benefit becomes payable when you die. In the case of a sole contract
owner who dies before the income phase begins, we will pay the beneficiary the
death benefit 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.
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If the contract owner is a trust and a beneficial owner of the trust has been
designated, the beneficial owner will be treated as the contract owner for
determining the death benefit. If a beneficial owner is changed or added after
the contract date, this will be treated as a change of contract owner for
determining the death benefit. If no beneficial owner of the Trust has been
designated, the availability of enhanced death benefits will be based on the age
of the annuitant at the time you purchase the Contract.
JOINT OWNER. For non-qualified Contracts only, joint owners may be named in
a written request before the Contract is in effect. Joint owners may
independently exercise transfers and other transactions allowed under the
Contract. All other rights of ownership must be exercised by both owners. Joint
owners own equal shares of any benefits accruing or payments made to them. All
rights of a joint owner end at death of that owner if the other joint owner
survives. The entire interest of the deceased joint owner in the Contract will
pass to the surviving joint owner and the death benefit is paid upon the death
of the first of the joint owners to die. Joint owners may only select the
Standard Death Benefit option. Upon adding an additional owner to a contract
which was issued with an Enhanced Death Benefit option, generally, your death
benefit will be changed automatically to a Standard Death Benefit and your
mortality and expense risk charges will be lowered correspondingly to that which
is charged under the Standard Death Benefit Option. Also note that if any
owner's age is 86 or greater, even the standard death benefit guarantee will
also be lost. Note that returning a Contract to single owner status will not
restore any Enhanced Death Benefit. Unless otherwise specified, the term]"age"
when used for joint owners shall mean the age of the oldest owner.
ANNUITANT
The annuitant is the person designated by you to be the measuring life in
determining annuity payments. The annuitant's age determines when the income
phase must begin and the amount of the annuity payments to be paid. You are the
annuitant unless you choose to name another person. The annuitant may not be
changed after the Contract is in effect.
The contract owner will receive the annuity benefits of the Contract if the
annuitant is living on the annuity start date. If the annuitant dies before the
annuity start date, and a contingent annuitant has been named, the contingent
annuitant becomes the annuitant (unless the contract owner is not an individual,
in which case the death benefit becomes payable).
If there is no contingent annuitant when the annuitant dies before the annuity
start date, the contract owner will become the annuitant. The contract owner may
designate a new annuitant within 60 days of the death of the annuitant.
If there is no contingent annuitant when the annuitant dies before the annuity
start date and the contract owner is not an individual, we will pay the
designated beneficiary the death benefit then due. If a beneficiary has not been
designated, or if there is no designated beneficiary living, the contract owner
will be the beneficiary. If the annuitant was the sole contract owner and there
is no beneficiary designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies and any
contract owner is not an individual, distribution rules under federal tax law
will apply. You should consult your tax 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.
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One or more persons may be a beneficiary or contingent beneficiary. In the case
of more than one beneficiary, we will assume any death benefit proceeds are to
be paid in equal shares to the surviving beneficiaries.
You have the right to change beneficiaries during the annuitant's lifetime
unless you have designated an irrevocable beneficiary. When an irrevocable
beneficiary has been designated, you and the irrevocable beneficiary may have to
act together to exercise some of the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime,
you may transfer ownership of a non-qualified Contract. A change in ownership
may affect the amount of the death benefit, the. guaranteed death benefit and/or
the death benefit applied to the contract. The new owner's age, as of the date
of the change, will be used as the basis for determining which option to use. If
the new owner's age is greater than 85, the death benefit will be the cash
surrender value. The new owner's death will determine when a death benefit is
payable.
If the new owner's age is less than 80, the death benefit option in effect prior
to the change in owner will remain in effect. If the new owner's age is greater
than 79, but less than or equal to 85, and if the contract was issued with an
enhanced death benefit, the death benefit will become the Standard Death
Benefit. If the new owner's age is greater than 85, 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 enhanced
death benefits.
PURCHASE AND AVAILABILITY OF THE CONTRACT
The Contract is available only in connection with a non-discretionary
asset-based fee brokerage account. We will issue a Contract only if both the
annuitant and the contract owner are not older than age 85.
The initial premium payment must be $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of at least $500 or more ($50 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 information necessary. In certain states we also accept initial
and additional premium payments by wire order. Wire transmittals must be
accompanied by sufficient electronically transmitted data. We may retain your
initial premium payment for up to 5 business days while attempting to complete
an incomplete application. If the application cannot be completed within this
period, we will inform you of the reasons for the delay. We will also return the
premium payment immediately unless you direct us to hold the premium payment
until the application is completed.
We will allocate your initial payment according to the instructions you
specified. For initial premium payments, the payment will be credited at the
accumulation unit value next determined after we receive your premium payment
and the completed application. Once the completed application is received, we
will allocate the payment to the subaccounts and/or Fixed Interest Allocation
specified by you within 2 business days.
We will make inquiry to discover any missing information related to subsequent
payments. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent
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premium payments, the payment will be credited at the accumulation unit value
next determined after receipt of your premium payment and instructions.
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 Account B with respect to your Contract.
The net investment results of each subaccount vary with its investment
performance.
If your premium payment was transmitted by wire order from your broker-dealer,
we will follow one of the following two procedures after we receive and accept
the wire order and investment instructions. The procedure we follow depends on
state availability and the procedures of your broker-dealer.
(1) If either your state or broker-dealer do not permit us to issue a
Contract without an application, we reserve the right to rescind the
Contract if we do not receive and accept a properly completed
application or enrollment form within 5 days of the premium payment.
If we do not receive the application or form within 5 days of the
premium payment, we will refund the contract value plus any charges we
deducted, and the Contract will be voided. Some states require that we
return the premium paid, in which case we will comply.
(2) If your state and broker-dealer allow us to issue a Contract without
an application, we will issue and mail the Contract to you, or your
representative, together with an Application Acknowledgement Statement
for your execution. Until our Customer Service Center receives the
executed Application Acknowledgement Statement, neither you nor the
broker-dealer may execute any financial transactions on your Contract
unless they are requested in writing by you. We may require additional
information before complying with your request (e.g., signature
guarantee).
In some states, we may require that an initial premium designated for a
subaccount of 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. Initial premiums designated for Fixed Interest Allocations will
be 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 only after you have met all administrative requirements.
CONTRACT VALUE
We determine your contract value on a daily basis beginning on the contract
date. Your contract value is the sum of (a) the contract value in the Fixed
Interest Allocations, and (b) the contract value in each subaccount in which you
are invested.
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in your
Fixed Interest Allocation is the sum of premium payments 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.
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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
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 then subtract any contract
fees (including any rider charges) and premium taxes.
CASH SURRENDER VALUE
The cash surrender value is the amount you receive when you surrender the
Contract. The cash surrender value will fluctuate daily based on the investment
results of the subaccounts in which you are invested and interest credited to
Fixed Interest Allocations and any Market Value Adjustment. We do not guarantee
any minimum cash surrender value. On any date during the accumulation phase, we
calculate the cash surrender value as follows: we start with your contract
value, then we adjust for any Market Value Adjustment, then we deduct any charge
for premium taxes, 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.
Surrendering the Contract may have tax consequences. See "Federal Tax
Considerations."
Consult your tax adviser regarding the tax consequences associated with
surrendering your Contract. A surrender made before you reach age 59 1/2 may
result in a 10% tax penalty. See "Federal Tax Considerations" for more details.
THE SUBACCOUNTS
Each of the 38 subaccounts of Separate Account B offered under this prospectus
invests in an investment portfolio with its own distinct investment objectives
and policies. Each subaccount of Separate Account B invests in a corresponding
portfolio of the GCG Trust, the PIMCO Variable Insurance Trust, the Pilgrim
Variable Insurance Trust, the Prudential Series Fund, the Pilgrim Variable
Products Trust or the ProFunds.
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.
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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 otherwise
eliminate a portfolio which is subject to those instructions, we will execute
your instructions using the substituted or proposed replacement portfolio,
unless you request otherwise. The substitute or proposed replacement portfolio
may have higher fees and charges than any portfolio it replaces.
We also reserve the right to: (i) deregister Account B under the 1940 Act; (ii)
operate 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 Account B; and (v) combine 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
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," "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 owner, you
may withdraw all or part of your money. Keep in mind that if you request a
withdrawal for more than 90% of the cash surrender value, we will treat it as a
request to surrender the Contract.
You need to submit to us a written request specifying the Fixed Interest
Allocations or subaccounts from which amounts are to be withdrawn, otherwise the
withdrawal will be made on a pro rata basis from all of the subaccounts in which
you are invested. If there is not enough contract value in the subaccounts, we
will deduct the balance of the withdrawal from your Fixed Interest Allocations
starting with the guaranteed interest periods nearest their maturity dates until
we have honored your request. We will apply a Market Value Adjustment to any
withdrawal from your Fixed Interest Allocation taken more than 30 days before
its maturity date. We will determine the contract value as of the close of
business on the day we receive your withdrawal request at our Customer Service
Center. The contract value may be more or less than the premium payments made.
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.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED
WITH TAKING WITHDRAWALS. You are responsible for determining that withdrawals
comply with applicable law. A withdrawal made before the taxpayer reaches age 59
1/2 may result in a 10% penalty tax. See "Federal Tax Considerations" for more
details.
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We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each withdrawal
must be a minimum of $100. We will apply a Market Value Adjustment to any
regular withdrawal from a Fixed Interest Allocation that is taken more than 30
days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. You decide when you would like
systematic payments to start as long as it is at least 28 days after your
contract date. You also select the date on which the systematic withdrawals will
be made, but this date cannot be later than the 28th day of the month. If you
have elected to receive systematic withdrawals but have not chosen a date, we
will make the withdrawals on the same calendar day of each month as your
contract date. If your contract date is after the 28th day of the month, your
systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date
Maximum percentage
Frequency of Contract Value
Monthly 1.25%
Quarterly 3.75%
Annually 15.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce the amount withdrawn so
that it equals such percentage. Thus, your fixed dollar systematic withdrawals
will never exceed the maximum percentage. If you want fixed dollar systematic
withdrawals to exceed the maximum percentage, consider the Fixed Dollar
Systematic Withdrawal Feature which you may add to your regular fixed dollar
systematic withdrawal program.
If your withdrawal is based on a percentage of your contract value and the
amount to be systematically withdrawn based on that percentage would be less
than $100, we will automatically increase the amount to $100 as long as it does
not exceed the maximum percentage. If the systematic withdrawal would exceed the
maximum percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature
are available only in connection with Section 72(q) and 72(t) distributions. A
Fixed Interest Allocation may not participate in both the systematic withdrawal
option and the dollar cost averaging program at the same time.
You may change the amount or percentage of your systematic withdrawal once each
contract year or cancel this option at any time by sending satisfactory notice
to our Customer Service Center at least 7 days before the next scheduled
withdrawal date. If you submit a subsequent premium payment after you have
applied for systematic withdrawals, we will not adjust future withdrawals under
the systematic withdrawal program unless you specifically request that we do so.
The systematic withdrawal option may commence in a contract year where a regular
withdrawal has been taken but you may not change the amount or percentage of
your
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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 Market Value Adjustments. Systematic withdrawals
from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal
Feature are available only in connection with Section 72(q) and 72(t)
distributions. You choose the amount of the fixed systematic withdrawals, which
may total up to a maximum of 15% of your contract value as determined on the day
we receive your election of this feature. The maximum limit will not be
recalculated when you make additional premium payments, unless you instruct us
to do so. We will assess a 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 any Market Value Adjustment directly to your
contract value (rather than to the withdrawal) so that the amount of each
systematic withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum.
Such withdrawals are subject to Market Value Adjustments when they exceed the
applicable maximum percentage.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2 during the
current calendar year, you may elect to have distributions made to you to
satisfy requirements imposed by Federal tax law. IRA withdrawals provide payout
of amounts required to be distributed by the Internal Revenue Service rules
governing mandatory distributions under qualified plans. We will send you a
notice before your distributions commence. You may elect to take IRA withdrawals
at that time, or at a later date. You may not elect IRA withdrawals and
participate in systematic withdrawals at the same time. If you do not elect to
take IRA withdrawals, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax law
may be made. Thus, if you are participating in systematic withdrawals,
distributions under that option must be adequate to satisfy the mandatory
distribution rules imposed by federal tax law.
You may choose to receive IRA withdrawals on a monthly, quarterly or annual
basis. Under this option, you may elect payments to start as early as 28 days
after the contract date. You select the day of the month when the withdrawals
will be made, but it cannot be later than the 28th day of the month. If no date
is selected, we will make the withdrawals on the same calendar day of the month
as the contract date.
You may request that we calculate for you the amount that is required to be
withdrawn from your Contract each year based on the information you give us and
various choices you make. For information regarding the calculation and choices
you have to make, see the Statement of Additional Information. Or, we will
accept your written instructions regarding the calculated amount required to be
withdrawn from your Contract each year. 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
us 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.
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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
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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
judgement or in accordance with applicable law. We will apply a Market Value
Adjustment to transfers from a Fixed Interest Allocation taken more than 30 days
before its maturity date, unless the transfer is made under the dollar cost
averaging program. Keep in mind that transfers between Special Funds and other
investment portfolios may impact your death benefit.
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 approved
electronic means that we reasonably believe to be genuine. We require personal
identifying information to process a request for transfer made over the
telephone or internet.
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 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.
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 units are purchased if the value of its unit
is high. Therefore, a lower than average value per unit may be achieved over the
long term. However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities regardless of
fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
You elect the dollar amount you want transferred under this program. Each
monthly transfer must be at least $100. If your source account is the Limited
Maturity Bond subaccount, the Liquid Asset subaccount or a 1-year Fixed Interest
Allocation, the maximum amount that can be transferred each month is your
contract value in such source account divided by 12. You may change the transfer
amount once each contract year.
Transfers from a Fixed Interest Allocation under the dollar cost averaging
program are not subject to a Market Value Adjustment.
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 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 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.
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AUTOMATIC REBALANCING
If you have at least $10,000 of contract value invested in the subaccounts of
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 CHOICES
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DEATH BENEFIT DURING THE ACCUMULATION PHASE
During the accumulation phase, a death benefit is payable when either the
annuitant (when contract owner is not an individual), the contract owner or the
first of joint owners dies. Assuming you are the contract owner, your
beneficiary will receive a death benefit unless the beneficiary is your
surviving spouse and elects to continue the Contract. The death benefit value is
calculated at the close of the business day on which we receive written notice
and due proof of death, as well as any required paperwork, at our Customer
Service Center. If your beneficiary elects to delay receipt of the death benefit
until a date after the time of death, the amount of benefit payable in the
future may be affected. The proceeds may be received in a single sum or applied
to any of the annuity options. If we do not receive a request to apply the death
benefit proceeds to an annuity option, we will make a single sum distribution.
We will generally pay death benefit proceeds within 7 days after our Customer
Service Center has received sufficient information to make the payment. For
information on required distributions under federal income tax laws, you should
see "Required Distributions upon Contract Owner's Death."
You may choose from the following 4 death benefit choices: (1) the Standard
Death Benefit; (2) the 7% Solution Enhanced Death Benefit, (3) the Annual
Ratchet Enhanced Death Benefit; or (4) the Max 7 Enhanced Death Benefit. Once
you choose a death benefit, it cannot be changed. We may in the future stop or
suspend offering any of the enhanced death benefit options to new Contracts. A
change in ownership of the Contract may affect the amount of the death benefit
and the enhanced death benefit.
STANDARD DEATH BENEFIT. You will automatically receive the Standard Death
Benefit unless you elect one of the enhanced death benefits. The Standard Death
Benefit under the Contract is the greatest of (i) your contract value prior to
death; (ii) total premium payments reduced by a pro rata adjustment for any
withdrawal; and (iii) the cash surrender value.
ENHANCED DEATH BENEFITS. If the 7% Solution Enhanced Death Benefit, the Annual
Ratchet Enhanced Death Benefit or the Max 7 Enhanced Death Benefit is elected,
the death benefit under the Contract is the greatest of (i) the contract value;
(ii) total premium payments reduced by a pro rata adjustment for any withdrawal;
(iii) the cash surrender value; and (iv) the enhanced death benefit as
calculated below.
The Max 7 Enhanced Death Benefit is the greater of (1) the 7% Solution Enhanced
Death Benefit or (2) the Annual Ratchet Enhanced Death Benefit. Under this death
benefit option, the 7% Solution Enhanced Death Benefit and the Annual Ratchet
Enhanced Death Benefit are calculated in the same manner as if each were the
elected benefit.
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HOW THE ENHANCED DEATH BENEFIT IS CALCULATED 7% SOLUTION ANNUAL RATCHET
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On each business day that occurs On each contract anniversary
on or before the contract owner that occurs on or before the
turns 80, we credit interest at contract owner turns age 80,
the 7% annual effective rate* to we compare the prior
the enhanced death benefit from enhanced death benefit to
the preceding day (which would the contract value and
be the initial premium if the select the larger amount as
preceding day is the contract the new enhanced death benefit.
date), then we add additional On all other days, the
premiumss paid since the enhanced deather benefit is
preceding day, then we adjust the amount determined below.
for any withdrawals made We first take the enhanced
(including any Market Value death benefit from the
Adjustment applied to such preceding day (which would
withdrawals) since the preceding be the initial premium if the
day.** At age 80 or at the time valuation date is the
of maximum death benefit is contract date) and then we
reached, the accumulation rate add additional premiums paid
will change. since the preceding day, and
then reduce the Enhanced Death
The maximum enhanced death Benefit pro rata for any
benefit is 3 times all contract value withdrawn.
premimums payments as reduced That amount becomes the new
by adjustments for enhanced death benefit.
withdrawals.***
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* Certain funds are designated as "Special Funds" for purposes of calculating
the 7% Solution Enhanced Death Benefit. Currently, the funds designated as
Special Funds are the Liquid Asset and Limited Maturity Bond investment
portfolios and the Fixed Account. The interest rate used for calculating the 7%
Solution Enhanced Death Benefit for Special Funds will be the lesser of (1) 7%
and (2) the interest rate, positive or negative, providing a yield on the
Enhanced Death Benefit equal to the net return for the current valuation period
on the contract value allocated to Special Funds. We may, with 30 days notice to
you, designate any fund as a Special Fund on existing contracts with respect to
new premiums added to such funds and also with respect to new transfers to such
funds. Thus, selecting these investments may limit the enhanced death benefit.
** Each premium payment reduced by adjustments for any withdrawal will continue
to grow at the 7% annual effective rate until the maximum is reached.
***Each withdrawal reduces the enhanced death benefit and the maximum enhanced
death benefit as follows: If total withdrawals
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in a contract year do not exceed 7% of cumulative premiums and did not exceed 7%
of cumulative premiums in any prior contract year, such withdrawals will reduce
the enhanced death benefit and the maximum enhanced death benefit. Once
withdrawals in any contract year exceed 7% of cumulative premiums, withdrawals
will reduce enhanced death benefit and the maximum enhanced death benefit in
proportion to the reduction in contract value pro rata.
Pro rata withdrawal adjustment on all death benefit options 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
applicable death benefit component immediately prior to the withdrawal.
The enhanced death benefits are available only at the time you purchase your
Contract and only if the contract owner or annuitant (when the contract owner is
other than an individual) is less than 80 years old at the time of purchase. The
enhanced death benefits are not available where a Contract is owned by joint
owners.
The Death Benefit under the Contract is the greatest of (i) your contract
value prior to death; (ii) total premium payments reduced by a pro rata
adjustment for any withdrawal; and (iii) the cash surrender value.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date, the
Company will pay the beneficiary any certain benefit remaining under the annuity
in effect at the time.
CONTINUATION AFTER DEATH-SPOUSE
If at the contract owner's death, the surviving spouse of the deceased contract
owner is the beneficiary and such surviving spouse elects to continue the
contract as his or her own the following will apply:
If the guaranteed death benefit as of the date we receive due proof of death,
minus the contract value also on that date, is greater than zero, we will add
such difference to the contract value. Such addition will be allocated to the
variable subaccounts in proportion to the contract value in the subaccounts. If
there is no contract value in any subaccount, the addition will be allocated to
the Liquid Asset subaccount, or its successor.
The death benefit will continue to apply, with all age criteria using the
surviving spouse's age as the determining age.
This addition to contract value is available only to the spouse of the owner as
of the date of death of the owner if such spouse under the provisions of the
contract holder elects to continue the contract as his or her own.
CONTINUATION AFTER DEATH-NON SPOUSE
If the beneficiary or surviving joint owner is not the spouse of the owner, the
Contract may continue in force subject to the required distribution rules of the
Internal Revenue Code. See next section.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
If any 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
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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 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 Contract charges described below to cover our cost and expenses,
services provided and risks assumed under the Contracts. We incur certain costs
and expenses for distributing and administrating the Contracts, including
compensation and expenses paid in connection with sales of the Contracts, for
paying the benefits payable under the Contracts and for bearing various risks
associated with the Contracts. The amount of a Contract charge will not always
correspond to the actual costs associated with the charge. 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:
NO SURRENDER CHARGE. We do not deduct any surrender charges for
withdrawals.
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PREMIUM TAXES. We may make a charge for state and local premium taxes
depending 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 or on the annuity start
date.
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, auto rebalancing and transfers we make to and from any subaccount
specially designated by the Company for such purpose.
CHARGES DEDUCTED FROM THE SUBACCOUNTS
MORTALITY AND EXPENSE RISK CHARGE. The mortality and expense risk charge is
deducted each business day. The amount of the mortality and expense risk charge
depends on the death benefit you have elected. If you have elected the Standard
Death Benefit, the chare, on an annual basis, is equal to 0.35% of the assets
you have in each subaccount. The charge is deducted on each business day at the
rate of .000961% for each day since the previous business day. If you have
elected an enhanced death benefit, the charge, on an annual basis, is equal to
0.50% for the Annual Ratchet Enhanced Death Benefit, 0.70% for the 7% Solution
Enhanced Death Benefit or 0.80% for the Max 7 Enhanced Death Benefit, of the
assets you have in each subaccount. The charge is deducted each business day at
the rate of .001373%, 001925%, or 002201%, respectively, for each day since the
previous business day.
ASSET-BASED ADMINISTRATIVE CHARGE. The amount of the asset-based
administrative charge, on an annual basis, is equal to 0.15% of the assets you
have in each subaccount. The charge is deducted on each business day at the rate
of .000411% for each day since the previous business day. This charge is
deducted daily from your assets in each subaccount.
TRUST EXPENSES
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, five portfolios deduct a
service fee, which is used to compensate service providers for administrative
and contract holder services provided on behalf of the portfolios, and six
portfolios deduct a distribution or 12b-1 fee, which is used to finance any
activity that is primarily intended to result in the sale of shares of the
applicable portfolio. Based on actual portfolio experience in 2000, together
with estimated costs for new portfolios, total estimated portfolio fees and
charges for 2001 range from 0.55% to 1.86%. See "Fees and Expenses" in this
prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators, distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start date, we
will begin making payments to the contract owner under an income plan. We will
make these payments under the annuity option you chose.
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You may change an annuity option by making a written request to us at least 30
days before the annuity start date. The amount of the payments will be
determined by applying your contract value, adjusted for any applicable Market
Value Adjustment, on the annuity start date in accordance with the annuity
option you chose.
You may also elect an annuity option on surrender of the Contract for its cash
surrender value or you may choose one or more annuity options for the payment of
death benefit proceeds while it is in effect and before the annuity start date.
If, at the time of the contract owner's death or the annuitant's death (if the
contract owner is not an individual), no option has been chosen for paying death
benefit proceeds, the beneficiary may choose an annuity option within 60 days.
In all events, payments of death benefit proceeds must comply with the
distribution requirements of applicable federal tax law.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the contract value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each annuity option we will issue a separate written agreement putting the
annuity option into effect. Before we pay any annuity benefits, we require the
return of your Contract. If your Contract has been lost, we will require that
you complete and return the applicable lost Contract form. Various factors will
affect the level of annuity benefits, such as the annuity option chosen, the
applicable payment rate used and the investment performance of the portfolios
and interest credited to the Fixed Interest Allocations.
Our current annuity options provide only for fixed payments. Fixed annuity
payments are regular payments, the amount of which is fixed and guaranteed by
us. Some fixed annuity options provide fixed payments either for a specified
period of time or for the life of the annuitant. The amount of life income
payments will depend on the form and duration of payments you chose, the age of
the annuitant or beneficiary (and gender, where appropriate) under applicable
law, the total contract value applied to purchase a Fixed Interest Allocation,
and the applicable payment rate.
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 you do not select an annuity start date, it will automatically begin in the
month following the annuitant's 90th birthday, or 10 years from the contract
date, if later.
If the annuity start date occurs when the annuitant is at an advanced age, such
as over age 85, it is possible that the Contract will not be considered an
annuity for federal tax purposes. For more information, see "Federal Tax
Considerations" and the Statement of Additional Information. For a Contract
purchased in connection with a qualified plan, other than a Roth IRA,
distributions must commence not later than April 1st of the calendar year
following the calendar year in which you reach age 70 1/2 (or, in some cases,
retire). Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, we will make the payments monthly. There may be certain restrictions on
minimum payments that we will allow.
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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. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income for at least a period certain such as 10 or 20 years. Other
periods certain may be available to you on request. You may choose a refund
period instead. Under this arrangement, income is guaranteed until payments
equal the amount applied. If the person named lives beyond the guaranteed
period, we will continue payments until his or her death. We guarantee that each
payment will be at least the amount specified in the Contract corresponding to
the person's age on his or her last birthday before the annuity start date.
Amounts for ages not shown in the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there are 2
persons named to determine annuity payments. At least one of the persons named
must be either the contract owner or beneficiary of the Contract. We guarantee
monthly payments will be made as long as at least one of the named persons is
living. There is no minimum number of payments. Monthly payment amounts are
available if you ask for them.
OPTION 4. ANNUITY PLAN. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the Investment Company Act of 1940, it will comply with
the requirements of such Act.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided in the annuity agreement between you and Golden American. The
amounts we will pay are determined as follows:
(1) For Option 1, or any remaining guaranteed payments under Option 2, we
will continue payments. Under Options 1 and 2, the discounted values
of the remaining guaranteed payments may be paid in a single sum. This
means we deduct the amount of the interest each remaining guaranteed
payment would have earned had it not been paid out early. The discount
interest rate is never less than 3% for Option 1 and Option 2 per
year. We will, however, base the discount interest rate on the
interest rate used to calculate the payments for Options 1 and 2 if
such payments were not based on the tables in your Contract.
(2) For Option 3, no amounts are payable after both named persons have
died.
(3) For Option 4, the annuity option agreement will state the amount we
will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of each
calendar quarter. The report will show the contract value, cash surrender value,
and the death benefit as of the end of the calendar quarter. The report will
also show the allocation of your contract value and reflects the amounts
deducted from or
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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 Account B invests, as
well as any other reports, notices or documents we are required by law to
furnish to you.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
is closed; (2) when trading on the New York Stock Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in Account B may not reasonably occur or so that the Company may not
reasonably determine the value of Account B's net assets; or (4) during any
other period when the SEC so permits for the protection of security holders. We
have the right to delay payment of amounts from a Fixed Interest Allocation for
up to 6 months.
IN CASE OF ERRORS IN YOUR APPLICATION
If an age or gender given in the application or enrollment form is misstated,
the amounts payable or benefits provided by the Contract shall be those that the
premium payment would have bought at the correct age or gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
understand that your rights and any beneficiary's rights may be subject to the
terms of the assignment. An assignment may have federal tax consequences. You
should consult a tax adviser for tax advice. You must give us satisfactory
written notice at our Customer Service Center in order to make or release an
assignment. We are not responsible for the validity of any assignment.
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.
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GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce any 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. The principal address of Directed
Services is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. Directed
Services is a corporation organized under the laws of New York and is a wholly
owned subsidiary of Equitable of Iowa. Directed Services is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934, as well as
with securities commissions in the states in which it operates, and is a member
of the National Association of Securities Dealers, Inc. ("NASD").
Directed Services has the authority to enter into selling agreements with other
firms. Certain sales agreements may provide for payment of a quarterly trail
commission based on a percentage of contract value at the end of each quarter.
Directed Services has entered into selling agreements with broker-dealers to
sell the Contracts through registered representatives. Those representatives are
registered with the NASD, and if applicable, also with the states in which they
do business. They also are licensed as insurance agents in the states in which
they do business.
Directed Services receives no commissions for the sale of the Contracts but may
receive a quarterly trail commission for some Contracts. When such trail
commissions are received, Directed Services passes through the entire amount of
the commission to the broker-dealer whose registered representative sold the
Contract.
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UNDERWRITER COMPENSATION
- --------------------------------------------------------------------------------
NAME OF PRINCIPAL AMOUNT OF OTHER
UNDERWRITER COMMISSION TO BE PAID COMPENSATION
Directed Services, Inc. None Reimbursement of any
covered expenses
incurred
by registered
representatives
in connection
with the
distribution
of the Contracts.
- --------------------------------------------------------------------------------
We may make additional cash payments to broker-dealers for marketing and
educational expenses and for the reimbursement of certain expenses incurred by
registered representatives in connection with the distribution of the Contracts.
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OTHER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
We will vote the shares of a Trust owned by Account B according to your
instructions. However, if the Investment Company Act of 1940 or any related
regulations should change, or if interpretations of it or related regulations
should change, and we decide that we are permitted to vote the shares of 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
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count fractional votes. We will determine the number of shares you can instruct
us to vote 180 days or less before a Trust's 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 Account B which are not attributable to contract owners in the
same proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware. We are
also subject to the insurance laws and regulations of all jurisdictions where we
do business. The Contract offered by this prospectus has been approved where
required by those jurisdictions. We are required to submit annual statements of
our operations, including financial statements, to the Insurance Departments of
the various jurisdictions in which we do business to determine solvency and
compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be 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. We believe
that currently there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Company or Account B.
LEGAL MATTERS
The legal validity of the Contracts was passed on by Myles R. Tashman, Esquire,
Executive Vice President, General Counsel and Assistant Secretary of Golden
American. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided
advice on certain matters relating to federal securities laws.
EXPERTS
The audited financial statements of Golden American and 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
- --------------------------------------------------------------------------------
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
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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 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 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 Account B assets supporting the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any non-qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The non-qualified Contracts contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are clarified by
regulation or otherwise. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will generally
not be taxed on increases in the value of a Contract until a distribution occurs
or until annuity payments begin. (For these purposes, the agreement to assign or
pledge any portion of the contract value, and, in the case of a qualified
Contract, any portion of an interest in the qualified plan, generally will be
treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a natural
person generally must include in income any increase in the excess of the
contract value over the "investment in the contract" (generally, the premiums or
other consideration you paid for the contract less any nontaxable
withdrawals)during the taxable year. There are some exceptions to this rule and
a prospective contract owner that is not a natural person may wish to discuss
these with a tax adviser. The following discussion generally applies to
Contracts owned by natural persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs, 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 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
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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 recipient as follows: (i) if distributed
in a lump sum, they are taxed in the same manner as a surrender of the Contract,
or (ii) if distributed under a payment option, they are taxed in the same way as
annuity payments.
TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT. A
transfer or assignment of ownership of a Contract, the designation of an
annuitant, or payee other than an owner, 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,designation 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 one 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
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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.
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.
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ROTH IRA
Section 408A of the Code permits certain eligible individuals to contribute to a
Roth IRA. Contributions to a Roth IRA, which are subject to 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 the any IRA. A 10% penalty 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 a 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.
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.
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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 Year For the Year For the Year October 25,
Ended Ended Ended 1997 through
December 31, December 31, December 31, December 31,
2000 1999 1998 1997
----------- ----------- ----------- -----------
Annuity and Interest
Sensitive Life Product Charges ......... $ 144,877 $ 82,935 $ 39,119 $ 3,834
Net Income (Loss) before Federal Income Tax $ 32,862 $ 19,737 $ 10,353 $ (279)
Net Income (Loss) .......................... $ 19,180 $ 11,214 $ 5,074 $ (425)
Total Assets ............................... $11,852,677 $ 9,392,857 $ 4,754,623 $ 2,446,395
Total Liabilities .......................... $11,235,540 $ 8,915,008 $ 4,400,729 $ 2,219,082
Total Stockholder's Equity ................. $ 617,137 $ 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
42
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: low
levels of inflation, moderate interest rate levels, a growing U.S. economy; 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 provided. This analysis should be read
jointly with the consolidated financial statements, 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
2000 COMPARED TO 1999
PREMIUMS
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 2000 CHANGE CHANGE 1999
---- ---------- ------ ----
(Dollars in millions)
Variable annuity premiums:
Separate account ........... $ 1,307.3 (48.0)% $ (1,204.4) $ 2,511.7
Fixed account .............. 793.1 2.9 22.4 770.7
---------- ----- ---------- ----------
Total variable annuity premiums 2,100.4 (36.0) (1,182.0) 3,282.4
Variable life premiums ........ 1.6 (81.8) (7.0) 8.6
---------- ----- ---------- ----------
Total premiums ................ $ 2,102.0 (36.1)% $ (1,189.0) $ 3,291.0
========== ===== ========== ==========
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 decreased 48.0% in 2000. Excluded
from the variable annuity separate account premiums above are $1,787.9 million
and $97.9 million for the years ended December 31, 2000 and 1999, respectively,
related to modified coinsurance agreements. The fixed account portion of the
Companies' variable annuity premiums increased 2.9% in 2000. Excluding the
effect of the modified coinsurance agreements, the increase in premiums resulted
from increased sales of existing annuity products and from the introduction of a
new annuity product during 2000 called GoldenSelect Guarantee Annuity.
43
Variable life premiums decreased 81.8% in 2000. In August 1999, Golden American
discontinued offering variable life products, but the Companies continue to
accept additional premiums from existing policyholders.
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the year ended
December 31, 2000, totaled $235.3 million, or 11% of total net premiums compared
to $918.4 million, or 28%, from two significant broker/dealers for the year
ended December 31, 1999. Gross premiums for variable products from two
significant broker/dealers having at least ten percent of total sales for the
year ended December 31, 2000, totaled $831.0 million, or 21% of total gross
premiums compared to $1,018.9 million, or 30%, from two significant
broker/dealers for the year ended December 31, 1999.
REVENUES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 2000 CHANGE CHANGE 1999
---- ---------- ------ ----
(Dollars in millions)
Annuity and interest sensitive life product
charges ................................ $ 144.9 74.7% $ 62.0 $ 82.9
Management fee revenue .................... 23.0 106.4 11.9 11.1
Net investment income ..................... 64.1 8.4 4.9 59.2
Realized gains (losses) on investments .... (6.6) (124.2) (3.7) (2.9)
-------- ------ -------- --------
$ 225.4 50.0% $ 75.1 $ 150.3
======== ====== ======== ========
Total revenues increased 50.0%, or $75.1 million, to $225.4 million in 2000.
Annuity and interest sensitive life product charges increased 74.7%, or $62.0
million, to $144.9 million in 2000, 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 Directed
Services, Inc. ("DSI"), a wholly owned subsidiary of EIC. The fee paid to Golden
American for these services, which is calculated as a percentage of average
assets in the variable separate accounts, was $21.3 million for 2000 and $10.1
million for 1999. This increase is due to the increasing assets in the separate
accounts and renegotiation of the fee paid by DSI to Golden American.
Net investment income increased 8.4%, or $4.9 million, to $64.1 million in 2000
from $59.2 million in 1999, due to increasing investment yields, as well as a
larger average amount of assets backing the fixed account options within the
variable products.
During 2000, the Companies had net realized losses on investments of $6.6
million, mainly due to sales of fixed maturities, including a $142,000 write
down of an impaired fixed maturity. In 1999, the Companies had net realized
losses on investments of $2.9 million, including a $1.6 million write down of
two impaired fixed maturities.
44
EXPENSES
PERCENTAGE DOLLAR
FOR THE YEAR ENDED DECEMBER 31 2000 CHANGE CHANGE 1999
---- ---------- ------ ----
(Dollars in millions)
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ....... $ 195.1 11.3% $ 19.8 $ 175.3
Benefit claims incurred in excess of
account balances ......................... 4.9 (22.4) (1.4) 6.3
Underwriting, acquisition, and insurance
expenses:
Commissions ................................. 213.7 13.4 25.3 188.4
General expenses ............................ 84.9 41.1 24.7 60.2
Insurance taxes, state licenses, and fees ... 4.5 12.5 0.5 4.0
Policy acquisition costs deferred ........... (168.4) (51.4) 178.0 (346.4)
Expenses and charges reimbursed under
modified coinsurance agreements .......... (225.8) 2,341.7 (216.6) (9.2)
Amortization:
Deferred policy acquisition costs ........ 55.2 66.5 22.1 33.1
Value of purchased insurance in force .... 4.8 (23.0) (1.4) 6.2
Goodwill ................................. 3.8 -- -- 3.8
-------- ------- -------- --------
$ 172.7 41.9% $ 51.0 $ 121.7
======== ======= ======== ========
Total insurance benefits and expenses increased 41.9%, or $51.0 million, in 2000
from $121.7 million in 1999. Interest credited to account balances increased
11.3%, or $19.8 million, in 2000 from $175.3 million in 1999. The premium credit
on the Premium Plus variable annuity product increased $8.2 million to $132.0
million at December 31, 2000. The remaining increase in interest credited
relates to higher average account balances and higher average credited rates
associated with the Companies' fixed account options within the variable
products.
Commissions increased 13.4%, or $25.3 million, in 2000 from $188.4 million in
1999 due to increased sales of the fixed and separate account options in 2000.
Insurance taxes, state licenses, and fees increased 12.5%, or $0.5 million, in
2000 from $4.0 million in 1999. Changes in commissions and insurance taxes,
state licenses, and fees are generally related to changes in the level and
composition of variable product sales. Most costs incurred as the result of
sales have been deferred, thus having very little impact on current earnings.
General expenses increased 41.1%, or $24.7 million, in 2000 from $60.2 million
in 1999. Management expects general expenses to continue to increase in 2001 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 Insurance Company of
Iowa ("Equitable Life"), an affiliate, 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 2000, VPIF
established at the merger date of the Companies' Parent and ING, was adjusted to
reduce amortization by $1.6 million to reflect changes in the assumptions
related to the timing of estimated gross profits. During 1999, VPIF was adjusted
to increase amortization by $0.7 million to reflect changes in the assumptions
45
related to the timing of future gross profits. Amortization of DPAC increased
$22.1 million, or 66.5%, in 2000. This increase resulted from a growth in
deferred policy acquisition costs generated by expenses associated with the
large sales volume experienced since December 31, 1999. Deferred policy
acquisition costs decreased $178.0 million or 51.4% for the year ended December
31, 2000. This decrease was due to a modified coinsurance agreement which was
entered into during the second quarter of 2000, and which resulted in a $223.7
million decrease in 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 December 31, 2000, is $3.9 million in 2001, $3.6 million in 2002, $3.0
million in 2003, $2.4 million in 2004, and $1.9 million in 2005. Actual
amortization may vary based upon changes in assumptions and experience.
Expenses and charges reimbursed under modified coinsurance agreements increased
by $216.6 million to $225.8 million during 2000 as compared to the year ended
December 31, 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, covering a part of the business issued after January 1, 2000.
This reinsurance agreement contributed $218.8 million to expenses and charges
reimbursed under modified coinsurance agreements during the year ended December
31, 2000. This was offset by a corresponding decrease in deferred policy
acquisition costs and reimbursement of non-deferrable costs related to policies
reinsured under this agreement.
Interest expense increased 123.4%, or $11.0 million, in 2000 from $8.9 million
in 1999. 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, 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 $4.4 million
for the year ended December 31, 2000, unchanged from the same period of 1999.
Interest expense on a $75 million surplus note, issued September 30, 1999 and
expiring September 29, 2029 was $5.8 million for the year ended December 31,
2000, and $1.5 million for the year ended December 31, 1999. Interest expense on
a $50 million surplus note, issued December 1999 and expiring December 2029 was
$4.1 million for the year ended December 31, 2000. Interest expense on a $35
million surplus note issued December 1999 and expiring December 2029 was $3.0
million for the year ended December 31, 2000. Golden American also paid $0.4
million in 2000 and $0.8 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 $0.1 million and $0.2
million for the years ended December 31, 2000 and 1999, respectively.
INCOME. Net income for 2000 was $19.2 million, an increase of $8.0 million from
$11.2 million for 1999.
Comprehensive income for 2000 was $24.3 million, an increase of $21.3 million
from comprehensive income of $3.0 million for 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.
46
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 .................... 11.1 131.2 6.3 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)
-------- ----- ------- -------
$ 150.3 77.0% $ 65.4 $ 84.9
======== ===== ======= =======
Total revenues increased 77.0%, or $65.4 million, to $150.3 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.
47
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 .... $ 175.3 84.7% $ 80.4 $ 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)
Expenses and charges reimbursed under
modified coinsurance agreements ....... (9.2) 64.3 (3.6) (5.6)
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
-------- ----- -------- --------
$ 121.7 73.6% $ 51.6 $ 70.1
======== ===== ======== ========
Total insurance benefits and expenses increased 73.6%, or $51.6 million, in 1999
from $70.1 million in 1998. Interest credited to account balances increased
84.7%, or $80.4 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
48
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.
Expenses and charges reimbursed under modified coinsurance agreements increased
by $3.6 million due primarily to income received under a modified reinsurance
agreement with an unaffiliated reinsurer.
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.
FINANCIAL CONDITION
RATINGS. Currently, the Companies' ratings are A+ by A. M. Best Company, AA+ by
Fitch IBCA, Duff & Phelps Credit Rating Company, and AA+ by Standard & Poor's
Rating Services ("Standard & Poor's").
INVESTMENTS. The financial statement carrying value and amortized cost basis of
the Companies' total investments decreased slightly in 2000. All of the
Companies' investments, other than mortgage loans on real estate, are carried at
fair value in the Companies' financial statements. The decrease in the carrying
value of the Companies' investment portfolio was due to changes in unrealized
appreciation and depreciation of fixed maturities, offset by net sales. The
decrease in the cost basis of the Companies' investment portfolio resulted from
the sale of assets to support net transfers of policyholders from the Companies'
fixed account options to the separate account options, and a shift towards
short-term investments. 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 was invested
primarily in fixed maturities, short-term investments and mortgage loans on real
estate.
At December 31, 2000, the Companies investments had a yield of 6.7%. The
Companies estimate the total investment portfolio, excluding policy loans, had a
fair value approximately equal to 99.3% of amortized cost value at December 31,
2000.
Fixed Maturities: At December 31, 2000, the Companies had fixed maturities with
an amortized cost of $798.8 million and an estimated fair value of $792.6
million. The Companies classify 100% of securities as available for sale. Net
unrealized depreciation of fixed maturities of $6.2 million comprised of gross
appreciation of $5.8 million and gross depreciation of $12.0 million.
Depreciation of $1.5 million was included in stockholder's equity at December
31, 2000 (net of adjustments of $0.8 million to VPIF, $3.1 million to DPAC, and
$0.8 million to deferred taxes).
49
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 ($519.9 million or 65.1%), that are rated BBB+ to
BBB- by Standard & Poor's ($117.9 million or 14.7%), and below investment grade
securities, which are securities issued by corporations that are rated BB+ to B-
by Standard & Poor's ($53.5 million or 6.7%). Securities not rated by Standard &
Poor's had a National Association of Insurance Commissioners ("NAIC") rating of
1, 2, 3, 4, or 5 ($106.9 million or 13.4%) and investments with a rating of 6 on
which impairment writedowns have been recognized ($0.6 million or 0.1%). The
Companies' fixed maturity investment portfolio had a combined yield at amortized
cost of 6.8% December 31, 2000. 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 December 31, 2000, the amortized cost value of the Companies' total
investment in below investment grade securities, excluding mortgage-backed
securities, was $65.1 million, or 6.4%, of the Companies' investment portfolio.
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 December 31, 2000, the yield at
amortized cost on the Companies' below investment grade portfolio was 8.2%
compared to 6.6% for the Companies' investment grade corporate bond portfolio.
The Companies estimate the fair value of the below investment grade portfolio
was $60.2 million, or 92.6% of amortized cost value, at December 31, 2000.
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
significantly greater with respect to below investment grade securities than
with other corporate debt securities. Below investment grade securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Also, issuers of below investment grade securities usually have higher levels of
debt and are more sensitive to adverse economic conditions, such as a recession
or increasing interest rates, than are investment grade issuers. The Companies
attempt to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by company and by industry.
The Companies analyze the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Companies' ability
to realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e. if it is probable the Companies will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
received, which may necessitate future write-downs of securities in the
Companies' portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Companies' net income in
future periods.
In 2000, fixed maturities designated as available for sale with a combined
amortized cost of $211.3 million were sold, called, or repaid by their issuers.
In total, net pre-tax losses from sales, calls, and repayments of fixed
maturities amounted to $6.1 million in 2000, excluding the $142,000 pre-tax loss
recognized in June 2000 to reduce the carrying value of an impaired bond to its
net realizable value of $315,000.
Equity Securities: Equity securities at market represent 0.7% of the fair value
of the Companies' investment portfolio. At December 31, 2000, the Companies
owned equity securities with a cost of $8.6 million and an estimated fair value
of $6.8 million. Net unrealized depreciation of equity securities was comprised
entirely of gross depreciation of $1.8 million. 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 represent 9.9% of
the Companies' investment portfolio. Mortgages outstanding at amortized cost
were $99.9 million at December 31, 2000 with an estimated fair value of $100.5
million. The Companies' mortgage loan portfolio includes 56 loans with an
average size of $1.8 million and average seasoning of 0.6 years if weighted by
the number of loans.
50
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 (15% in 2000 and 12% in 1999), and Utah (9% in
2000, 10% in 1999). There are no other concentrations of mortgage loans on real
estate in any state exceeding ten percent at December 31, 2000 and 1999.
Mortgage loans on real estate have also been analyzed by collateral type with
significant concentrations identified in office buildings (29% in 2000, 34% in
1999), industrial buildings (35% in 2000, 33% in 1999), retail facilities (18%
in 2000, 19% in 1999), and multi-family apartments (10% in 2000 and 10% in
1999). At December 31, 2000, the yield on the Companies' mortgage loan portfolio
was 7.3%.
At December 31, 2000, no mortgage loan on real estate was delinquent by 90 days
or more. The Companies' loan investment strategy is consistent with other life
insurance subsidiaries of ING in the United States. The Companies have
experienced a historically low default rate in their mortgage loan portfolios.
OTHER ASSETS. Reinsurance recoverables increased $19.1 million during 2000, due
largely to an increase of $14.6 million in reinsurance reserves from an
intercompany reinsurance agreement between Golden American and Security Life of
Denver International Limited. On December 28, 2000, effective January 1, 2000,
Golden American entered into a reinsurance agreement with Security Life of
Denver International Limited, an affiliate, covering variable annuity minimum
guaranteed death benefits and minimum guaranteed living benefits. The remainder
of the increase was mainly due to an increase in reinsurance receivable from
surrenders, and was consistent with an increase in ceded premiums from 1999 to
2000.
Amounts due from affiliates increased by $38.1 million during 2000 due mainly to
a capital contribution receivable of $35.0 million from the parent company at
December 31, 2000. The remainder of the increase was an increased receivable for
management fee revenues. The increase was due to higher management fees in the
current year as well as the timing of the receivable settlement.
Accrued investment income decreased $1.6 million during 2000, due to a shift
from long-term to short-term investments at December 31, 2000 as compared to
December 31, 1999.
DPAC represents certain deferred costs of acquiring new insurance business,
principally first year commissions and interest bonuses, premium credits, and
other expenses related to the production of new business after the merger. Any
expenses which vary directly with the sales of the Companies' products are
deferred and amortized. The Companies' previous balances of DPAC and VPIF were
eliminated as of the merger date, and an asset representing VPIF was established
for all policies in force at the 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. At December 31, 2000, the Companies had
DPAC and VPIF balances of $635.1 million and $25.9 million, respectively, as
compared to DPAC and VPIF balances of $529.0 million and $31.7 million at
December 31, 1999.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the merger
date. Accumulated amortization of goodwill as of December 31, 2000 was $11.9
million.
Other assets increased $29.5 million during 2000, due mainly to an increase in
the receivable for securities sold.
At December 31, 2000, the Companies had $9.8 billion of separate account assets
compared to $7.6 billion at December 31, 1999. The increase in separate account
assets resulted from sales of the Companies' variable annuity products, net of
redemptions and reinsurance, and from net policyholder transfers to the separate
account options from the fixed account options within the variable products. The
increase was partially offset by negative equity market returns.
At December 31, 2000, the Companies had total assets of $11.9 billion, a 26.2%
increase from December 31, 1999.
51
LIABILITIES. Future policy benefits for annuity and interest sensitive life
products increased $29.2 million, or 2.8%, to $1.1 billion reflecting mainly an
increase in reserves due to the introduction of minimum guaranteed living
benefits as new riders available to policyholders as of February, 2000 on
certain variable products. Sales, net of redemptions and reinsurance, and
increased transfer activity to the separate account options accounted for the
$2.2 billion, or 30.0%, increase in separate account liabilities to $9.8 billion
at December 31, 2000.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029.
On December 8, 1999, Golden American issued a $35 million, 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 of
Equitable into EIC, the surplus note is now payable to EIC.
Amounts due to affiliates increased by $7.2 million from $12.7 million at
December 31, 1999 to $19.9 million at December 31, 2000. This was mainly due to
the overpayment of the cash settlement for the modified coinsurance agreement
with an affiliate.
Other liabilities increased $16.2 million from $53.2 million at December 31,
1999, due primarily to the timing of the settlement of account transfers, an
increase in outstanding checks, and an increased pension liability, partly
offset by a decrease in the payable for securities purchased.
In conjunction with the volume of variable annuity sales, the Companies' total
liabilities increased $2.3 billion, or 26.0%, during 2000 and totaled $11.2
billion at December 31, 2000.
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 $115.0 million, or
24.5%, from December 31, 1999 to $583.6 million at December 31, 2000, 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 $72.7 million in 2000 compared to
net cash used by operating activities of $74.0 million in 1999. The Companies
have predominantly had negative cash flows from operating activities since
Golden American started issuing variable insurance products in 1989. These
negative operating cash flows result primarily from the funding of commissions
and other deferrable expenses related to the continued growth in the sales of
variable annuity products. During 2000, these
52
negative cash flows were offset by the effects of a modified coinsurance
agreement entered into with an affiliate which resulted in the reimbursement of
policy acquisition costs incorporated in a net cash settlement of $218.8
million. This was partially offset also by the use of cash from increases in
reinsurance recoverable, due from affiliates and other assets.
Net cash provided by investing activities was $28.0 million during 2000 as
compared to net cash used in investing activities of $177.5 million in 1999.
This increase is primarily due to lower purchases of fixed maturities during
2000 than in 1999. Net sales of fixed maturities totaled $51.1 million in 2000
versus net purchases of $124.0 million in 1999. This change was mainly due to
the relatively constant level policyholder account balances in the fixed account
options during 2000 as compared to an increase during 1999, combined with a
shift toward short-term investments.
Net cash used by financing activities was $51.9 million during 2000 as compared
to net cash provided by financing activities of $259.2 million during the prior
year. In 2000, net cash provided by financing activities was positively impacted
by net fixed account deposits of $660.4 million compared to $627.1 million in
1999. This increase was more than offset by net reallocations to the Companies'
separate accounts, which increased to $825.9 million from $650.3 million during
the prior year. In 2000, another important source of cash provided by financing
activities was $115.0 million in capital contributions from the Parent compared
to $121.0 million in 1999. Another source of cash provided by financing
activities during 1999 was $160.0 million in proceeds from surplus notes. No
surplus notes were issued during 2000.
The Companies' liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH, which expires on December 31, 2007. In addition, the
Companies have established an $85.0 million revolving note facility with
SunTrust Bank, Atlanta, which expires on July 31, 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 the use of modified coinsurance
agreements will cover these net cash outflows. ING AIH is committed to the
sustained growth of Golden American. During 2001, 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. Previously, Golden American's business
operations were housed in leased facilities located in Wilmington, Delaware and
leased facilities in Pennsylvania. During 2000, Golden American occupied 105,000
square feet of leased space; and an affiliate occupied 20,000 square feet in the
same facilities. Golden American's New York subsidiary is housed in leased space
in New York, New York. The Companies intend to spend approximately $3.9 million
on capital needs for 2001.
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 2001, 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
53
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 2001.
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 that the Companies have total adjusted capital well above all
required capital levels.
Reinsurance: At December 31, 2000, Golden American had reinsurance treaties with
six unaffiliated reinsurers and three affiliated reinsurers covering a
significant portion of the mortality risks and guaranteed death and living
benefits 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 on or after
January 1, 2000, excluding those with an interest rate guarantee.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering variable
annuity minimum guaranteed death benefits and minimum guaranteed living benefits
of variable annuities issued on or after January 1, 2000. An irrevocable letter
of credit was obtained through Bank of New York in the amount of $10,500,000
related to this agreement.
On December 29, 2000, First Golden entered into a reinsurance treaty with London
Life Reinsurance Company of Pennsylvania, an unaffiliated reinsurer, covering
the minimum guaranteed death benefits of First Golden's variable annuities
issued on or after January 1, 2000.
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
and guaranteed living benefits that depend on the performance of the variable
separate accounts. Currently, the majority of death and living 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.
54
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
year end 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 year end 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 620 sales
agreements with broker-dealers, seven of whom, Locust Street Securities, Inc.,
Vestax Securities Corporation, Compu Life Investors Services, Inc., IFG Network
Securities, Inc., Multi-Financial Securities Corporation, Primevest Financial
Services and Washington Square Securities, Inc. are affiliates of Golden
American. As of December 31, 2000, one broker-dealers produces 10% or more of
Golden American's product sales net of reinsurance.
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
55
comparable to those of Golden American. There are over 2500 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.
AGREEMENTS WITH AFFILIATES. Pursuant to a service agreement between Golden
American and 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"), $1.3 million and $1.3 million, for the years ended
December 31, 2000 and 1999, 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 $21.3 million and $10.1 million for the years 2000 and 1999, 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, based on assets under management and payable quarterly. For the years
ended December 31, 2000 and 1999, Golden American and First Golden incurred fees
of $2.5 million and $2.2 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
$6.2 million for 2000 and $6.1 million for 1999.
The Companies provide resources and services to DSI. Revenues for these services
totaled $0.2 million for 2000 and $0.4 of 1999.
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services totaled $0.5 million for
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 $0.6 million and $0.5
million for the years ended December 31, 2000 and 1999, respectively.
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 $0.3 million and $0.2 million
for the years ended December 31, 2000 and 1999, respectively.
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 $0.1 million and $0.1 million for the
years ended December 31, 2000 and 1999, 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. On June 30, 2000,
Golden American incurred a fee of $7,000, under this agreement. No annual fee
was paid in 1999.
56
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 which as of December 31, 2000, are sold through other
broker/dealer institutions. For the years 2000 and 1999, commissions paid by
Golden American to DSI (including commissions paid by First Golden) aggregated
$208.9 million and $181.5 million, respectively.
EMPLOYEES. 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 most of Golden American's records
are maintained. This office space is leased. Other records are maintained in Des
Moines and Atlanta at the offices of Equitable and ING, respectively.
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 10 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
57
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
- -------------------------- ----------------------------------------------------
Robert C. Salipante (44) Chief Executive Officer and Director
Chris D. Schreier (44) President
Barnett Chernow (50) President and CEO, Investment Products Group
Myles R. Tashman (57) Executive Vice President, General Counsel
and Assistant Secretary
Wayne R. Huneke (49) Director and Chief Financial Officer
Thomas J. McInerney (44) Director
Mark A. Tullis (45) Director
Phillip R. Lowery (48) Director
Paula Cludray-Engelke (44) Secretary
James R. McInnis (53) Executive Vice President and Chief Marketing Officer
Stephen J. Preston (43) Executive Vice President and Chief Actuary
E. Robert Koster (42) Senior Vice President
David S. Pendergrass (41) Vice President and Treasurer
David L. Jacobson (51) Senior Vice President and Assistant Secretary
William L. Lowe (37) Senior Vice President
Ronald R. Blasdell (47) Senior Vice President
Steven G. Mandel (41) Senior Vice President and Chief Information Officer
Gary F. Haynes (56) Senior Vice President and Assistant Secretary
Andrew D. Chua (46 ) Senior Vice President
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. Robert C. Salipante was elected Director and Chief Executive Officer of
Golden American in March, 2001. He has served as a Director of ReliaStar Life
Insurance Company from October, 1995 to the present. He served ReliaStar
Financial Corp. from February, 1996 to November, 1996 as Senior Vice President,
Individual Insurance Division and Technology and from November, 1996 to July,
1999 as Senior Vice President, Personal Financial Services. He was elected
President, Chief Operating Officer and Director of ReliaStar Financial Corp.
July, 1999 to August, 2000. He became General Manager and Chief Executive
Officer, US Retail Financial Services in September, 2000.
Mr. Chris D. Schreier was elected President of Golden American in March, 2001.
From January, 1994 to September, 1996 he served as Assistant Vice President and
Assistant Controller for ReliaStar Financial Corp. He was elected Second Vice
President of ReliaStar Financial Corp. and ReliaStar Life Insurance Company from
September, 1996 to January, 1999. He has served as Vice President and Controller
of ReliaStar Financial Corp. since January, 1999.
Mr. Barnett Chernow became President and CEO of Investment Products Group in
March 2001 and President of First Golden in April, 1998. From 1998 to 2001, Mr.
Chernow served as President of Golden American. From 1996 to 1998, Mr. Chernow
served as Executive Vice President 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 effective
January, 1996 and Assistant Secretary effective March, 2001. He served as a
Director of Golden American from January, 1998 to March, 2001. He also serves as
a Director, Executive Vice President, General Counsel and Secretary of First
Golden.
58
Mr. Wayne R. Huneke was elected Director, Senior Vice President and Chief
Financial Officer of Golden American in March, 2001. Since October, 1995 he has
served as a Director of ReliaStar Life Insurance Company. He served ReliaStar
Financial Corp. as Senior Vice President, Chief Financial Officer from August,
1994 to November, 1997, from November, 1997 to May, 1999 he served as Senior
Vice President, ReliaStar Financial Markets. He became Senior Executive Vice
President of ReliaStar Financial Corp. in May, 1999.
Mr. Thomas J. McInerney was elected as a Director of Golden American in March,
2001. He served Aetna U.S. Healthcare, Inc. as Vice President, National Accounts
from April, 1996 to March, 1997. From August, 1997 to the present he has served
as Director and from September, 1997 to the present he has served as President
of Aetna Life Insurance & Annuity Company. He has served as President and
Director of Aetna Insurance Company of America from September, 1997 to the
present.
Mr. Mark A. Tullis became a Director of Golden American and First Golden in
December 1999. He has served as Executive Vice President, Strategy and
Operations for ING Americas Region since September 1999. From June, 1994 to
August, 1999, he was with Primerica, serving as Executive Vice President at the
time of his departure.
Mr. Phillip R. Lowery became a Director of Golden American in April, 1999 and
First Golden in December, 1999. He has served as Executive Vice President and
Chief Actuary for ING Americas Region since 1990.
Ms. Paula Cludray-Engelke was elected Secretary of Golden American in March,
2001. From October, 1985 to October, 2000 Ms. Cludray-Engelke served with
ReliaStar Life Insurance Company (f/k/a Northwestern National Life Insurance
Company) in various compliance positions. From October, 2000 to the present she
has served as an Attorney with ING US Legal Services.
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. E. Robert Koster was elected Senior Vice President of Golden American and
Senior Vice President and Chief Financial Officer of First Golden in September,
1998. From September, 1998 to March, 2001, he was also Chief Financial Officer
of Golden American. From August, 1984 to September, 1998 he has held various
positions with ING companies in The Netherlands.
Mr. David S. Pendergrass was elected Treasurer and Vice President of Golden
American in December, 2000. Since October, 1995 he has served as a Vice
President and Treasurer of ING North America Insurance Corporation.
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. 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. 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. Steven G. Mandel joined Golden American in October 1988 and became Senior
Vice President and Chief Information Officer in June, 1998.
Mr. Ronald R. Blasdell joined Golden American in February, 1994 and became
Senior Vice President, Project Implementation in June, 1998.
59
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.
Mr. Andrew D. Chua joined Golden American as Vice President in June, 1998 and
became a Senior Vice President in February, 2000. From January, 1998 to May,
1998, Mr. Chua was employed by Transamerica Life & Annuity Company. From
January, 1993 to December, 1997, Mr. Chua was employed by National Actuarial
Network, Inc.
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 five
highly compensated executive officers for the fiscal year ended December 31,
2000. 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 and the four other most
highly compensated executive officers for the fiscal year ended December 31,
2000.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ----------------------
RESTRICTED SECURITIES
NAME AND STOCK AWARDS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS 1 OPTIONS OPTIONS COMPENSATION2
- ------------------ ---- ------ ------- ------- ------- -------------
Barnett Chernow ... 2000 $ 409,447 $ 638,326 10,200 $ 26,887
President 1999 $ 300,009 $ 698,380 6,950 $ 20,464
1998 $ 284,171 $ 105,375 8,000
James R. McInnis .. 2000 $ 337,543 $1,210,898 5,200 $ 19,487
Executive Vice 1999 $ 250,007 $ 955,646 5,550 $ 15,663
President 1998 $ 250,004 $ 626,245 2,000
William L. Lowe ... 2000 $ 205,144 $ 821,545 3,500 $ 81
Senior Vice
President
Stephen J. Preston 2000 $ 230,170 $ 426,994 5,000 $ 14,713
Executive Vice 1999 $ 198,964 $ 235,002 2,050 $ 12,564
President and Chief 1998 $ 173.870 $ 32,152 3,500
Actuary
Gary Haynes ....... 2000 $ 201,136 $ 404,773 3,000 $ 14,735
Senior Vice
President
- --------------------
1 The amount shown relates to bonuses paid in 2000, 1999 and 1998.
2 Other compensation for 2000 and 1999 includes a business allowance for each
named executive which is required to be applied to specific business
expenses of the named executive.
60
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 ..... 10,200 0.85% $ 54.56 04/03/2010 $ 348,987 $ 886,937
James R. McInnis .... 5,200 0.43% $ 54.56 04/03/2010 $ 178,425 $ 452,164
William L. Lowe ..... 3,500 0.29% $ 54.56 04/03/2010 $ 120,094 $ 304,341
Stephen J. Preston .. 5,000 0.42% $ 54.56 04/03/2010 $ 171,562 $ 434,773
Gary Haynes ......... 3,000 0.25% $ 54.56 04/03/2010 $ 102,937 $ 260,864
- ----------------
1 Stock appreciation rights granted in 2000 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.
61
- --------------------------------------------------------------------------------
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, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements 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, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 12, 2001
62
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
December 31, December 31,
2000 1999
----------- -----------
ASSETS
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2000 - $798,751; 1999 - $858,052) ............ $ 792,578 $ 835,321
Equity securities, at fair value (cost: 2000 - $8,611;
1999 - $14,952) ..................................... 6,791 17,330
Mortgage loans on real estate .......................... 99,916 100,087
Policy loans ........................................... 13,323 14,157
Short-term investments ................................. 106,775 80,191
----------- -----------
Total investments ......................................... 1,019,383 1,047,086
Cash and cash equivalents ................................. 63,207 14,380
Reinsurance recoverable ................................... 19,331 14,834
Reinsurance recoverable from affiliates ................... 14,642 --
Due from affiliates ....................................... 38,786 637
Accrued investment income ................................. 9,606 11,198
Deferred policy acquisition costs ......................... 635,147 528,957
Value of purchased insurance in force ..................... 25,942 31,727
Current income taxes recoverable .......................... 511 35
Deferred income tax asset ................................. 9,047 21,943
Property and equipment, less allowances for depreciation of
$5,638 in 2000 and $3,229 in 1999 ...................... 14,404 13,888
Goodwill, less accumulated amortization of $11,964 in 2000
and $8,186 in 1999 ..................................... 139,163 142,941
Other assets .............................................. 32,019 2,514
Separate account assets ................................... 9,831,489 7,562,717
----------- -----------
Total assets .............................................. $11,852,677 $ 9,392,857
=========== ===========
See accompanying notes.
63
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
December 31, December 31,
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDER`S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products .......... $ 1,062,891 $ 1,033,701
Unearned revenue reserve .............................. 6,817 6,300
Other policy claims and benefits ......................... 82 8
------------ ------------
1,069,790 1,040,009
Surplus notes ............................................... 245,000 245,000
Revolving note payable ...................................... -- 1,400
Due to affiliates ........................................... 19,887 12,650
Other liabilities ........................................... 69,374 53,232
Separate account liabilities ................................ 9,831,489 7,562,717
------------ ------------
11,235,540 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 ............................... 583,640 468,640
Accumulated other comprehensive loss ..................... (4,046) (9,154)
Retained earnings ........................................ 35,043 15,863
------------ ------------
Total stockholder's equity .................................. 617,137 477,849
------------ ------------
Total liabilities and stockholder's equity .................. $ 11,852,677 $ 9,392,857
============ ============
See accompanying notes.
64
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Year Ended December 31 2000 1999 1998
--------- --------- ---------
REVENUES:
Annuity and interest sensitive life product
charges .................................... $ 144,877 $ 82,935 $ 39,119
Management fee revenue ........................ 22,982 11,133 4,771
Net investment income ......................... 64,140 59,169 42,485
Realized losses on investments ................ (6,554) (2,923) (1,491)
--------- --------- ---------
225,445 150,314 84,884
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ...... 195,088 175,257 94,845
Benefit claims incurred in excess of account
balances ................................ 4,943 6,370 2,123
Underwriting, acquisition and insurance expenses:
Commissions ................................... 213,719 188,383 121,171
General expenses .............................. 84,936 60,205 37,612
Insurance taxes, state licenses, and fees ..... 4,528 3,976 4,140
Policy acquisition costs deferred ............. (168,444) (346,396) (197,796)
Amortization:
Deferred policy acquisition costs .......... 55,154 33,119 5,148
Value of purchased insurance in force ...... 4,801 6,238 4,724
Goodwill ................................... 3,778 3,778 3,778
Expenses and charges reimbursed under
modified coinsurance agreements ............ (225,787) (9,247) (5,604)
--------- --------- ---------
172,716 121,683 70,141
Interest expense ................................. 19,867 8,894 4,390
--------- --------- ---------
192,583 130,577 74,531
--------- --------- ---------
Income before income taxes ....................... 32,862 19,737 10,353
Income taxes ..................................... 13,682 8,523 5,279
--------- --------- ---------
Net income ....................................... $ 19,180 $ 11,214 $ 5,074
========= ========= =========
See accompanying notes.
65
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in thousands)
Additional Accumulated Other Retained Total
Common Paid-in Comprehensive Earnings Stockholder's
Stock Capital Income (Loss) (Deficit) Equity
--------------------------------------------------------------------
Balance at December 31, 1997 ..... $ 2,500 $ 224,997 $ 241 $ (425) $ 227,313
Comprehensive income:
Net income ................. -- -- -- 5,074 5,074
Change in net unrealized
investment gains (losses) -- -- (1,136) -- (1,136)
Comprehensive income .......... 3,938
Contribution of capital ....... -- 122,500 -- -- 122,500
Other ......................... -- 143 -- -- 143
--------- --------- --------- --------- ---------
Balance at December 31, 1998 ..... 2,500 347,640 (895) 4,649 353,894
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
Comprehensive income:
Net income ................. -- -- -- 19,180 19,180
Change in net unrealized
investment gains (losses) -- -- 5,108 -- 5,108
Comprehensive income .......... 24,288
Contribution of capital ....... -- 115,000 -- -- 115,000
--------- --------- --------- --------- ---------
Balance at December 31, 2000 ..... $ 2,500 $ 583,640 $ (4,046) $ 35,043 $ 617,137
========= ========= ========= ========= =========
See accompanying notes.
66
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31 2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Net income .......................................... $ 19,180 $ 11,214 $ 5,074
Adjustments to reconcile net income 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 ......................... 195,088 175,257 94,845
Charges for mortality and administration ...... (313) 524 (233)
Change in unearned revenues ................... 517 2,460 2,651
Increase (decrease) in policy liabilities and
accruals ...................................... 74 8 (10)
Decrease (increase) in accrued investment
income ........................................ 1,592 (1,553) (3,222)
Policy acquisition costs deferred ................ (168,444) (346,396) (197,796)
Amortization of deferred policy acquisition costs 55,154 33,119 5,148
Amortization of value of purchased insurance
in force ...................................... 4,801 6,238 4,724
Change in other assets, due to/from affiliates,
other liabilities and accrued income taxes .... (63,840) 24,845 9,979
Provision for depreciation and amortization ...... 8,616 8,850 8,147
Provision for deferred income taxes .............. 13,728 8,523 5,279
Realized losses on investments ................... 6,554 2,923 1,491
--------- --------- ---------
Net cash provided by (used in) operating activities . 72,707 (73,988) (63,923)
--------- --------- ---------
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale ............ 205,136 220,547 145,253
Mortgage loans on real estate .................... 12,701 6,572 3,791
Equity securities ................................ 6,128 -- --
Policy loans - net ............................... 834 -- --
--------- --------- ---------
224,799 227,119 149,044
Acquisition of investments:
Fixed maturities - available for sale ............ (154,028) (344,587) (476,523)
Equity securities ................................ -- -- (10,000)
Mortgage loans on real estate .................... (12,887) (9,659) (16,390)
Policy loans - net ............................... -- (2,385) (2,940)
Short-term investments - net ..................... (26,584) (39,039) (26,692)
--------- --------- ---------
(193,499) (395,670) (532,545)
Issuance of reciprocal loan agreement receivables ... (16,900) -- --
Receipt of repayment of reciprocal loan agreement
receivables ...................................... 16,900 -- --
Net purchase of property and equipment .............. (3,285) (8,968) (6,485)
--------- --------- ---------
Net cash provided by (used in) investing activities . 28,015 (177,519) (389,986)
See accompanying notes.
67
GOLDEN AMERICAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
Year Ended December 31 2000 1999 1998
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement
borrowings ..................................... $ 178,900 $ 396,350 $ 500,722
Repayment of reciprocal loan agreement
borrowings ..................................... (178,900) (396,350) (500,722)
Proceeds from revolving note payable .............. 67,200 220,295 108,495
Repayment of revolving note payable ............... (68,600) (218,895) (108,495)
Proceeds from surplus note ........................ -- 160,000 60,000
Repayment of line of credit borrowings ............ -- -- (5,309)
Receipts from annuity and interest sensitive
life policies credited to account balances ..... 801,793 773,685 593,428
Return of account balances on annuity
and interest sensitive life policies ........... (141,440) (146,607) (72,649)
Net reallocations to separate account ............. (825,848) (650,270) (239,671)
Contributions of capital by parent ................ 115,000 121,000 103,750
--------- --------- ---------
Net cash provided by (used in) financing activities (51,895) 259,208 439,549
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents .................................... 48,827 7,701 (14,360)
Cash and cash equivalents at beginning of
period ......................................... 14,380 6,679 21,039
--------- --------- ---------
Cash and cash equivalents at end of period ........ $ 63,207 $ 14,380 $ 6,679
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ....................................... $ 22,444 $ 6,392 $ 4,305
Income taxes ................................... 957 -- 99
Non-cash financing activities:
Non-cash adjustment to additional paid-in
capital for adjusted merger costs ........... -- -- 143
Contribution of capital from parent to
repay line of credit borrowings ............. -- -- 18,750
See accompanying notes.
69
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
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'
variable annuity products are marketed by broker/dealers, financial
institutions, and insurance agents. The Companies' primary customers are
consumers and corporations.
On October 24, 1997 ("the merger date"), 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 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.
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, 2000 and 1999, all of
the Companies' fixed maturities are designated as available for sale, although
the Companies are not precluded from designating fixed maturities as held for
investment or trading at some future date.
Securities determined to have a decline in value that is other than temporary
are written down to estimated fair value, which becomes the new cost basis by a
charge to realized losses in the Companies' Statements of Operations. Premiums
and discounts are amortized/accrued utilizing a method which results in a
constant yield over the securities' expected lives. Amortization/accrual of
premiums and discounts on mortgage and other asset-backed securities
incorporates a prepayment assumption to estimate the securities' expected lives.
Equity Securities: Equity securities are reported at estimated fair value if
readily marketable. The change in unrealized appreciation and depreciation of
marketable equity securities (net of related deferred income taxes, if any) is
included directly in stockholder's equity. Equity securities determined to have
a decline in value that is other than temporary are written down to estimated
fair value, which 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
70
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 ($63.8 million during 2000, $153.0 million during
1999, and $73.4 million during 1998), 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.
VALUE OF PURCHASED INSURANCE IN FORCE
As a result of the merger, a portion of the purchase price 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.
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.
71
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 14.00% during 2000, 3.00% to
11.00% during 1999, and 3.00% to 10.00% during 1998. 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.
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).
72
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 2001, 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, (5) asset valuation
allowances, (6) guaranty fund assessment accruals, (7) deferred tax benefits
(liabilities), and (8) estimates for commitments and contingencies including
legal matters, if a liability is anticipated and can be reasonably estimated.
Estimates and assumptions regarding all of the preceding items are inherently
subject to change and are reassessed periodically. Changes in estimates and
assumptions could materially impact the financial statements.
PENDING ACCOUNTING STANDARDS: DERIVATIVE FINANCIAL INSTRUMENTS
During 1998, the Financial Accounting Standards Board issued Statement No. 133
("SFAS 133"), Accounting for Derivative Financial Instruments and Hedging
Activities. SFAS 133 requires that all derivative instruments, including certain
derivative instruments embedded in other contracts, be recorded on the balance
sheet and measured at its fair value. The change in a derivative's fair value is
generally to be recognized in current period earnings.
If certain conditions are met, a derivative may be specifically designated as a
hedge of an exposure to changes in fair value, variability of cash flows, or
certain foreign currency exposures. When designated as a hedge, the fair value
should be recognized currently in earnings or other comprehensive income,
depending on whether such designation is considered a fair value or as a cash
flow hedge. With respect to fair value hedges, the fair value of the derivative,
as well as changes in the fair value of the hedged item, are reported in
earnings. For cash flow hedges, changes in the derivatives fair value are
reported in other comprehensive income and subsequently reclassified into
earnings when the hedged item affects earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
73
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Companies adopted SFAS 133 on January 1, 2000. The cumulative effect of the
accounting change upon adoption was not material.
RECLASSIFICATIONS
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 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 $71,134,000 in 2000, $85,578,000 in 1999, $68,002,000
in 1998. Total statutory capital and surplus was $406,923,000 and $368,928,000
at December 31, 2000 and 1999, respectively.
The National Association of Insurance Commissioners has revised the Accounting
Practices and Procedures Manual, the guidance that defines statutory accounting
principles. The revised manual will be effective January 1, 2001, and has been
adopted, at least in part, by the States of Delaware and New York, which are the
states of domicile for Golden American and First Golden, respectively. The
revised manual will result in changes to the accounting practices that the
Companies use to prepare their statutory-basis financial statements. Management
believes the impact of these changes to the Companies' statutory-basis capital
and surplus as of January 1, 2001 will not be significant.
74
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
Year Ended December 31 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Fixed maturities ...................... $ 55,302 $ 50,352 $ 35,224
Equity securities ..................... 248 515 --
Mortgage loans on real estate ......... 7,832 7,074 6,616
Policy loans .......................... 516 485 619
Short-term investments ................ 2,253 2,583 1,311
Other, net ............................ 543 388 246
-------- -------- --------
Gross investment income ............... 66,694 61,397 44,016
Less investment expenses .............. (2,554) (2,228) (1,531)
-------- -------- --------
Net investment income ................. $ 64,140 $ 59,169 $ 42,485
======== ======== ========
Realized losses on investments follows:
Year Ended December 31 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Fixed maturities, available for sale .. $ (6,289) $ (2,910) $ (1,428)
Equity securities ..................... (213) -- --
Mortgage loans on real estate ......... (52) (13) (63)
-------- -------- --------
Realized losses on investments ........ $ (6,554) $ (2,923) $ (1,491)
======== ======== ========
The change in unrealized appreciation (depreciation) of securities at fair value
follows:
Year Ended December 31 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Fixed maturities, available for sale .. $ 16,558 $(24,944) $ 1,100
Equity securities ..................... (4,198) 5,301 (2,390)
-------- -------- --------
Unrealized appreciation (depreciation)
of securities ...................... $ 12,360 $(19,643) $ (1,290)
======== ======== ========
75
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
3. INVESTMENT OPERATIONS (continued)
At December 31, 2000 and December 31, 1999, amortized cost, gross unrealized
gains and losses, and estimated fair values of fixed maturities, all of which
are designated as available for sale, follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(Dollars in thousands)
December 31, 2000
- -----------------
U.S. government and governmental
agencies and authorities .... $ 18,607 $ 580 $ (16) $ 19,171
Public utilities ............... 54,132 294 (1,600) 52,826
Corporate securities ........... 355,890 1,318 (8,006) 349,202
Other assets-backed securities . 223,787 2,166 (1,831) 224,122
Mortgage-backed securities ..... 146,335 1,465 (543) 147,257
-------- -------- -------- --------
Total .......................... $798,751 $ 5,823 $(11,996) $792,578
======== ======== ======== ========
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 assets-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
======== ======== ======== ========
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, 2000, net unrealized investment loss on fixed
maturities designated as available for sale totaled $6,173,000. Depreciation of
$1,447,000 was included in stockholder's equity at December 31, 2000 (net of
adjustments of $801,000 to VPIF, $3,146,000 to DPAC, and $779,000 to deferred
income taxes). 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, 2000, net unrealized depreciation on equity securities was
comprised entirely of gross depreciation of $1,820,000. At December 31, 1999,
net unrealized appreciation on equity securities was comprised entirely of gross
appreciation of $2,378,000.
Amortized cost and estimated fair value of fixed maturities designated as
available for sale, by contractual maturity, at December 31, 2000 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.
76
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
3. INVESTMENT OPERATIONS (continued)
Amortized Estimated
December 31, 2000 Cost Fair Value
- --------------------------------------------------------------------------------
(Dollars in thousands)
Due within one year ......................... $ 51,001 $ 50,836
Due after one year through five years ....... 323,753 317,862
Due after five years through ten years ...... 45,812 44,891
Due after ten years ......................... 8,063 7,610
-------- --------
428,629 421,199
Other asset-backed securities ............... 223,787 224,122
Mortgage-backed securities .................. 146,335 147,257
-------- --------
Total ....................................... $798,751 $792,578
======== ========
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)
For the year ended December 31, 2000:
Scheduled principal repayments, calls, and
tenders ............................... $ 91,158 $ 122 $ (1) $ 91,279
Sales .................................... 120,125 285 (6,553) 113,857
-------- -------- -------- --------
Total .................................... $211,283 $ 407 $ (6,554) $205,136
======== ======== ======== ========
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
======== ======== ======== ========
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.
77
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
3. INVESTMENT OPERATIONS (continued)
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, on 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 $315,000 at December 31, 2000.
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 the year 2000, these bonds
had no further reduction in carrying value.
Investments on Deposit: At December 31, 2000 and 1999, affidavits of deposits
covering bonds with a par value of $6,870,000 and $6,470,000, respectively, were
on deposit with regulatory authorities pursuant to certain statutory
requirements.
Investment Diversifications: The Companies' investment policies related to the
investment portfolio require diversification by asset type, company, and
industry and set limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. The following percentages relate to holdings at December
31, 2000 and December 31, 1999. Fixed maturities included investments in basic
industrials (29% in 2000, 29% in 1999), conventional mortgage-backed securities
(20% in 2000, 22% in 1999), financial companies (14% in 2000, 16% in 1999), and
other asset-backed securities (20% in 2000, 19% in 1999). Mortgage loans on real
estate have been analyzed by geographical location with concentrations by state
identified as California (15% in 2000, 12% in 1999) and Utah (9% in 2000, 10% in
1999). There are no other concentrations of mortgage loans on real estate in any
state exceeding ten percent at December 31, 2000 and 1999. Mortgage loans on
real estate have also been analyzed by collateral type with significant
concentrations identified in office buildings (29% in 2000, 34% in 1999),
industrial buildings (35% in 2000, 33% in 1999), retail facilities (18% in 2000,
19% in 1999), and multi-family apartments (10% in 2000, 10% in 1999). 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, 2000.
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
$606,000 for the year ended December 31, 2000 for First Golden and $(452,000)
and $1,015,000 for the years ended December 31, 1999 and 1998, respectively.
Other comprehensive income excludes net investment gains (losses) included in
net income, which merely represent transfers from unrealized to realized gains
and losses. These amounts total $(2,670,000), $(1,468,000) and $(2,133,000) in
the years ended December 31, 2000, 1999 and 1998, respectively. Such amounts,
which have been measured through the date of sale, are net of income taxes and
adjustments to VPIF and DPAC totaling $(4,742,000), $(1,441,000) and $705,000 in
the years ended December 31, 2000, 1999 and 1998, respectively.
78
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of estimated fair value of all financial instruments, including both
assets and liabilities recognized and not recognized in a company's balance
sheet, unless specifically exempted. SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," requires
additional disclosures about derivative financial instruments. Most of the
Companies' investments, investment contracts, and debt fall within the
standards' definition of a financial instrument. Fair values for the Companies'
insurance contracts other than investment contracts are not required to be
disclosed. In cases where quoted market prices are not available, estimated fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Accounting, actuarial, and
regulatory bodies are continuing to study the methodologies to be used in
developing fair value information, particularly as it relates to such things as
liabilities for insurance contracts. Accordingly, care should be exercised in
deriving conclusions about the Companies' business or financial condition based
on the information presented herein.
The Companies closely monitor the composition and yield of invested assets, the
duration and interest credited on insurance liabilities, and resulting interest
spreads and timing of cash flows. These amounts are taken into consideration in
the Companies' overall management of interest rate risk, which attempts to
minimize exposure to changing interest rates through the matching of investment
cash flows with amounts expected to be due under insurance contracts. These
assumptions may not result in values consistent with those obtained through an
actuarial appraisal of the Companies' business or values that might arise in a
negotiated transaction.
The following compares carrying values as shown for financial reporting purposes
with estimated fair values:
December 31 2000 1999
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
(Dollars in thousands)
ASSETS
Fixed maturities, available for sale .. $ 792,578 $ 792,578 $ 835,321 $ 835,321
Equity securities ..................... 6,791 6,791 17,330 17,330
Mortgage loans on real estate ......... 99,916 100,502 100,087 95,524
Policy loans .......................... 13,323 13,323 14,157 14,157
Short-term investments ................ 106,775 106,775 80,191 80,191
Cash and cash equivalents ............. 63,207 63,207 14,380 14,380
Separate account assets ............... 9,831,489 9,831,489 7,562,717 7,562,717
LIABILITIES
Annuity products ...................... 1,047,932 962,810 1,017,105 953,546
Surplus notes ......................... 245,000 204,455 245,000 226,100
Revolving note payable ................ -- -- 1,400 1,400
Separate account liabilities .......... 9,831,489 9,831,489 7,562,717 7,562,717
79
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
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 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. VALUE OF PURCHASED IN FORCE
As a result of the merger, a portion of the purchase price 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. Interest was accrued at
a rate of 7.32% during 2000 (7.33% during 1999, and 7.29% during 1998).
80
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
6. VALUE OF PURCHASED IN FORCE (continued)
A reconciliation of the change in the VPIF asset follows:
Year Ended December 31 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Beginning balance ......................... $ 31,727 $ 35,977 $ 43,174
Accretion of interest .................. 2,016 2,372 2,802
Amortization of asset .................. (6,817) (8,610) (7,526)
Adjustment for unrealized gains (losses) (984) 1,988 (203)
Purchase price adjustment to opening
balance sheet ....................... -- -- (2,270)
-------- -------- --------
Ending balance ............................ $ 25,942 $ 31,727 $ 35,977
======== ======== ========
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, 2000, is $3.9 million in 2001, $3.6 million in 2002,
$3.0 million in 2003, $2.4 million in 2004, and $1.9 million in 2005. Actual
amortization may vary based upon changes in assumptions and experience.
7. 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, 2000, the Companies have net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $189,656,000.
Approximately $5,094,000, $3,354,000, $50,449,000, $94,078,000 and $36,681,000
of these NOL carryforwards are available to offset future taxable income of the
Companies through the years 2011, 2012, 2018, 2019 and 2020, respectively.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense (benefit) included in the consolidated financial statements
follows:
Year Ended December 31 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Current ................................... $ (46) $ -- $ --
Deferred .................................. 13,728 8,523 5,279
-------- -------- --------
$ 13,682 $ 8,523 $ 5,279
======== ======== ========
81
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
7. INCOME TAXES (continued)
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate. A reconciliation of this difference follows:
Year Ended December 31 2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Income before income taxes ................ $ 32,862 $ 19,737 $ 10,353
======== ======== ========
Income tax at federal statutory rate ...... $ 11,502 $ 6,908 $ 3,624
Tax effect of:
Goodwill amortization ................. 1,322 1,322 1,322
Meals and entertainment ............... 292 199 157
Other items ........................... 566 94 176
-------- -------- --------
Income tax expense ........................ $ 13,682 $ 8,523 $ 5,279
======== ======== ========
DEFERRED INCOME TAXES
The tax effect of temporary differences giving rise to the Companies' deferred
income tax assets and liabilities at December 31, 2000 and 1999 follows:
December 31 2000 1999
--------- ---------
(Dollars in thousands)
Deferred tax assets:
Net unrealized depreciation of securities at fair value .......... $ 637 $ --
Net unrealized depreciation of available for sale fixed maturities 779 3,745
Future policy benefits ........................................... 163,691 133,494
Goodwill ......................................................... 15,111 16,323
Net operating loss carryforwards ................................. 66,380 56,630
Other ............................................................ 1,333 1,333
--------- ---------
247,931 $ 211,525
Deferred tax liabilities:
Net unrealized appreciation of securities at fair value .......... -- (832)
Fixed maturity securities ........................................ (17,774) (17,774)
Deferred policy acquisition costs ................................ (184,743) (154,706)
Mortgage loans on real estate .................................... (715) (715)
Value of purchased insurance in force ............................ (8,512) (10,462)
Other ............................................................ (25,724) (1,348)
--------- ---------
(237,468) (185,837)
--------- ---------
Valuation allowance ................................................. (1,416) (3,745)
--------- ---------
Deferred income tax asset ........................................... $ 9,047 $ 21,943
========= =========
At December 31, 2000, the Company reported, for financial statement purposes,
unrealized losses on certain investments, which have not been recognized for tax
purposes. Since it is uncertain as to whether these capital losses, if ever
realized, could be utilized to offset capital gains, a valuation allowance has
been established for the tax effect of the financial statement losses.
82
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
8. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION
DEFINED BENEFIT PLANS
In 2000, 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, 2000:
2000 1999
------- -------
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at January 1 ............... $ 4,221 $ 4,454
Service cost .................................. 1,569 1,500
Interest cost ................................. 554 323
Actuarial (gain) loss ......................... 1,562 (2,056)
------- -------
Benefit obligation at December 31 ............. $ 7,906 $ 4,221
======= =======
Funded status:
Funded status at December 31 .................. $(7,906) $(4,221)
Unrecognized past service cost ................ 141 --
Unrecognized net loss ......................... 1,627 210
------- -------
Net amount recognized ......................... $(6,138) $(4,011)
======= =======
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 2000 1999
------ ------
Discount rate .................................... 7.75% 8.00%
Expected return on plan assets ................... 9.25 9.25
Rate of compensation increase .................... 5.00 5.00
The following table provides the net periodic benefit cost for the fiscal years
2000, 1999, and 1998:
Year Ended December 31 2000 1999 1998
------ ------ ------
(Dollars in thousands)
Service cost ............................... $1,569 $1,500 $1,138
Interest cost .............................. 554 323 97
------ ------ ------
Net periodic benefit cost .................. $2,123 $1,823 $1,235
====== ====== ======
83
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
8. RETIREMENT PLANS AND EMPLOYEE STOCK COMPENSATION (continued)
There were no gains or losses resulting from curtailments or settlements during
2000, 1999, or 1998.
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 $7,906,000, $4,701,000, and $0, respectively, as of December
31, 2000 and $4,221,000, $2,488,000, and $0, respectively, as of December 31,
1999.
PHANTOM STOCK OPTION PLAN
The Phantom Stock Option Plan (the "Phantom Plan"), which covers certain key
employees, 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.
During 2000, the Phantom Plan liability was transferred to ING. As of December
31, 2000, the Companies held no liabilities under the Phantom Plan. There were
no expenses incurred related to this plan during the year ended December 31,
2000.
9. 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. For the
years ended December 31, 2000, 1999 and 1998, the Companies paid commissions to
DSI totaling $208,883,000, $181,536,000, and $117,470,000, 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, 2000,
1999 and 1998, the fee was $21,296,000, $10,136,000, and $4,771,000,
respectively.
84
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
9. RELATED PARTY TRANSACTIONS (continued)
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, 2000, 1999 and 1998, the
Companies incurred fees of $2,521,000, $2,227,000 and $1,504,000, respectively,
under this agreement.
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 $6,193,000, $6,107,000 and
$5,833,000 for the years ended December 31, 2000, 1999 and 1998, 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 $1,270,000, $1,251,000 and
$1,058,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
First Golden provided resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Companies, totaled
$223,000, $387,000, and $75,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
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 $455,000 and $244,000 for the
years ended December 31, 2000 and 1999, respectively.
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 $593,000 and $460,000 for
the years ended December 31, 2000 and 1999, respectively.
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 $261,000 and $216,000 for
the years ended December 31, 2000 and 1999, respectively.
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 $115,000 and $103,000 for the years
ended December 31, 2000 and 1999, respectively.
85
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
9. RELATED PARTY TRANSACTIONS (continued)
In 2000, 1999, and 1998, the Companies received 11.3%, 10.0%, and 9.6% of total
premiums, net of reinsurance, for variable products sold through eight
affiliates as noted in the following table:
Year Ended December 31 2000 1999 1998
------- ------- -------
(Dollars in thousands)
LSSI ....................................... $ 127.0 $ 168.5 $ 122.9
Vestax Securities Corporation .............. 47.2 88.1 44.9
DSI ........................................ 1.4 2.5 13.6
Multi-Financial Securities Corporation ..... 38.6 44.1 13.4
IFG Network Securities, Inc. ............... 23.1 25.8 3.7
Washington Square .......................... 44.6 -- --
Primevest .................................. 6.2 -- --
Compulife .................................. 2.7 -- --
------- ------- -------
Total ...................................... $ 290.8 $ 329.0 $ 198.5
======= ======= =======
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 on or after January 1, 2000, excluding those with an
interest rate guarantee. The financial statements are presented net of the
effects of the agreement.
Under this agreement, Golden American received a net reimbursement of expenses
and charges of $218.8 million. This was offset by a decrease in deferred
acquisition costs of $223.7 million. As at December 31, 2000, Golden American
also had a payable to Equitable Life of $16.3 million due to the overpayment by
Equitable Life of the cash settlement for the modified coinsurance agreement.
Reinsurance Agreement Covering Minimum Guaranteed Benefits: On December 28,
2000, Golden American entered into a reinsurance agreement with Security Life of
Denver International Limited, an affiliate, covering variable annuity minimum
guaranteed death benefits and minimum guaranteed living benefits of variable
annuities issued on or after January 1, 2000. An irrevocable letter of credit
was obtained through Bank of New York in the amount of $10,500,000 related to
this agreement. Under this agreement, Golden American recorded a reinsurance
recoverable of $14.6 million at December 31, 2000.
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 $481,000,
$815,000 and $1,765,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. At December 31, 2000, 1999 and 1998, Golden American did not have
any borrowings or receivables from ING AIH under this agreement.
86
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
9. RELATED PARTY TRANSACTIONS (continued)
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. The outstanding balance was paid by a capital contribution
and with funds borrowed from ING AIH.
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 $4,112,000 for the year
ended December 31, 2000. Golden American incurred no interest expense during the
year ended December 31, 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 incurred interest expense of
$2,961,000 and $0 for the years ended December 31, 2000 and 1999, respectively.
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 $5,813,000 in 2000 and $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 2000 and 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 2000, unchanged from 1999 and
1998. 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).
87
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
9. RELATED PARTY TRANSACTIONS (continued)
Stockholder's Equity: During 2000, 1999 and 1998, Golden American received
capital contributions from its Parent of $80,000,000, $121,000,000 and
$122,500,000, respectively. As at December 31, 2000, Golden American also had a
receivable of $35,000,000 from capital contributions made by its Parent.
10. COMMITMENTS AND CONTINGENCIES
Reinsurance: At December 31, 2000, the Companies had reinsurance treaties with
six unaffiliated reinsurers and three affiliated reinsurers covering a
significant portion of the mortality risks and guaranteed death and living
benefits 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
$105,334,000, and $119,575,000 at December 31, 2000 and 1999, respectively. At
December 31, 2000 and 1999, the Companies have a net receivable of $33,973,000
and $14,834,000, respectively, for reserve credits, reinsurance claims, or other
receivables from these reinsurers comprised of $16,462,000 and $493,000,
respectively, for claims recoverable from reinsurers, $4,007,000 and $1,201,000,
respectively, for a payable for reinsurance premiums, and $21,518,000 and
$15,542,000, respectively, for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements, excluding the modified
coinsurance agreements, are net considerations to reinsurers of $21,655,000,
$9,883,000 and $4,797,000 and net policy benefits recoveries of $8,927,000,
$3,059,000 and $2,170,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
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 on or after
January 1, 2000, excluding those with an interest rate guarantee. At December
31, 2000, Golden American had received a total settlement of $218.8 million
under this agreement. The carrying value of the separate account liabilities
covered under this agreement represent 17.6% of total separate account
liabilities outstanding at December 31, 2000. Golden American remains liable to
the extent Equitable Life does not meet its obligations under the agreement. The
accompanying statement of operations, statement of changes in stockholder's
equity and statement of cash flows are presented net of the effects of the
agreement.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering variable
annuity minimum guaranteed death benefits and guaranteed living benefits of
variable annuities issued on or after January 1, 2000. An irrevocable letter of
credit was obtained through Bank of New York in the amount of $10,500,000
related to this agreement.
On December 29, 2000, First Golden entered into a reinsurance treaty with London
Life Reinsurance Company of Pennsylvania, an unaffiliated reinsurer, covering
the minimum guaranteed death benefits of First Golden's variable annuities
issued on or after January 1, 2000.
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
$736,000, $1,729,000, $1,022,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
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
88
GOLDEN AMERICAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
10. COMMITMENTS AND CONTINGENCIES (continued)
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, $3,000 and $1,123,000 for
the years ended December 31, 2000, 1999 and 1998, respectively. At December 31,
2000 and 1999, the Companies have an undiscounted reserve of $2,430,000, and
$2,444,000, respectively, to cover estimated future assessments (net of related
anticipated premium tax credits) and have established an asset totaling
$733,000, and $618,000, respectively, for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments based
upon previous premiums and known insolvencies at this time.
Litigation: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
Vulnerability from Concentrations: The Companies have various concentrations in
the investment portfolio (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. A broker/dealer, having at least ten percent of total net premiums,
generated 11% of the Companies' sales in 2000 (28% and 26% by two broker/dealers
during 1999 and 1998, respectively). Two broker dealers, having at least ten
percent of total gross premiums, generated 21% of the Companies' sales in 2000
(30% and 27% by two broker/dealers during 1999 and 1998, respectively). The
Premium Plus product generated 71% of the Companies' sales during 2000 (79%
during 1999 and 63% during 1998).
Leases: The Companies lease their home office space, certain other equipment,
and capitalized computer software under operating leases which expire through
2020. During the years ended December 31, 2000, 1999 and 1998, rent expense
totaled $2,874,000, $2,273,000, and $1,241,000, respectively. At December 31,
2000, minimum rental payments due under all non-cancelable operating leases with
initial terms of one year or more are: 2001 - $3,790,000; 2002 - $3,257,000;
2003 - $2,611,000; 2004 - $2,419,000; 2005 - $2,419,000, and 2006 and thereafter
- - $38,700,000.
Revolving Note Payable: To enhance short-term liquidity, the Companies
established a revolving note payable with SunTrust Bank, Atlanta (the "Bank")
which expires July 30, 2001. The note was approved by the Boards of Directors of
Golden American and First Golden on August 5, 1998 and September 29, 1998,
respectively. The total amount the Companies may have outstanding is
$85,000,000, of which Golden American and First Golden have individual credit
sublimits of $75,000,000 and $10,000,000, respectively. The note accrues
interest at an annual rate equal to: (1) the cost of funds for the Bank for the
period applicable for the advance plus 0.225% or (2) a rate quoted by the Bank
to the Companies for the advance. The terms of the agreement require the
Companies to maintain the minimum level of Company Action Level Risk Based
Capital as established by applicable state law or regulation. During the years
ended December 31, 2000, 1999 and 1998, the Companies incurred interest expense
of $87,000, $198,000 and $352,000, respectively. At December 31, 2000, there
were no amounts outstanding under this agreement. At December 31, 1999, the
Companies had a $1,400,000 note payable to the Bank under this agreement.
89
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction...................................................... 1
Description of Golden American Life Insurance Company............. 1
Safekeeping of Assets............................................. 1
The Administrator................................................. 1
Independent Auditors.............................................. 1
Distribution of Contracts......................................... 1
Performance Information........................................... 2
IRA Partial Withdrawal Option..................................... 6
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
ACCESS ONE 05/01/01
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90
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APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
LIQUID ASSET
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $17.22 -- --
9/18/00 16.94 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $19.77 1,095 $21,647
9/18/00 19.20 -- --
- ------------------------------------------------------------------
CORE BOND (FORMERLY GLOBAL FIXED INCOME)
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $12.42 -- --
9/18/00 11.65 -- --
- ------------------------------------------------------------------
TOTAL RETURN
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $21.95 -- --
9/18/00 20.55 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A1
EQUITY INCOME
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $26.61 833 $22,164
9/18/00 24.14 -- --
- ------------------------------------------------------------------
ALL CAP
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 11.69 -- --
9/18/00 11.60 -- --
- ------------------------------------------------------------------
REAL ESTATE
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $29.64 -- --
9/18/00 27.65 -- --
- ------------------------------------------------------------------
VALUE EQUITY
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $20.52 -- --
9/18/00 19.75 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A2
INVESTORS
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $11.36 -- --
9/18/00 11.11 -- --
- ------------------------------------------------------------------
RISING DIVIDENDS
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $26.59 -- --
9/18/00 27.08 -- --
- ------------------------------------------------------------------
MANAGED GLOBAL
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $21.72 953 $20,690
9/18/00 23.85 -- --
- ------------------------------------------------------------------
LARGE CAP VALUE
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $10.63 -- --
9/18/00 10.77 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A3
HARD ASSETS
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ----------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $18.16 -- --
9/18/00 18.93 -- --
- ------------------------------------------------------------------
RESEARCH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $27.92 -- --
9/18/00 31.83 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $17.97 -- --
9/18/00 20.39 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $27.19 -- --
9/18/00 30.92 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A4
SMALL CAP
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $19.25 1,040 $20,017
9/18/00 24.08 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $44.75 -- --
9/18/00 49.80 -- --
- ------------------------------------------------------------------
STRATEGIC EQUITY
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $19.82 -- --
9/18/00 25.04 -- --
- ------------------------------------------------------------------
GROWTH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $22.98 808 $18,572
9/18/00 29.10 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A5
DEVELOPING WORLD
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $7.78 -- --
9/18/00 9.28 -- --
- ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $10.25 -- --
9/18/00 10.55 -- --
- ------------------------------------------------------------------
PIMCO STOCKSPLUS
GROWTH AND INCOME
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $12.01 -- --
9/18/00 13.18 -- --
- ------------------------------------------------------------------
PILGRIM GLOBAL BRAND NAMES
(FORMERLY, ING GLOBAL BRAND NAMES
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $8.81 -- --
9/18/00 9.36 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A6
PRUDENTIAL JENNISON
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $7.89 -- --
9/18/00 9.64 -- --
- ------------------------------------------------------------------
AccOne-Non-Print
A7
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into
the guaranteed interest period; that the then Index Rate for a 7 year guaranteed
interest period ("J") is 8%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest Allocation on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 (365 x 7)
2,555/365
3. Market Value Adjustment = $124,230 x [(1.07/ 1.0825) -1] = $9,700
Therefore, the amount paid to you on full surrender is $114,530 ($124,230 -
$9,700 ).
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 [(1.07/1.0625) -1] = $6,270
Therefore, the amount paid to you on full surrender is $130,500 ($124,230 +
$6,270 ).
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 $114,530 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.
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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)
2,555/365
3. Amount that must be withdrawn = [$114,530 /( 1.07/1.0825) ]
= $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [(1.07/1.0825) -1] = $9,700
Therefore, the amount of the withdrawal paid to you is $114,530, as
requested. The Fixed Interest Allocation will be reduced by the amount of the
withdrawal, $114,530, and also reduced by the Market Value Adjustment of $9,700,
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 $130,500 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)
2,555/365
3. Amount that must be withdrawn = [$130,500 /(1.07/1.0625) ]
= $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [(1.07/1.0625) -1] = $6,270
Therefore, the amount of the withdrawal paid to you is $130,500, as
requested. The Fixed Interest Allocation will be reduced by the amount of the
withdrawal, $130,500, but increased by the Market Value Adjustment of $6,270,
for a total reduction in the Fixed Interest Allocation of $124,230.
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ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Golden American Life Insurance Company is a stock company domiciled in Delaware
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ACCESS ONE Non-Print 05/01/01
ACCESS ONE PROFILE AND PROSPECTUS
FORM (TWO)
ING VARIABLE ANNUITIES
GOLDEN AMERICAN LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B OF GOLDEN AMERICAN LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
PROFILE OF
GOLDENSELECT ACCESS(R) ONE
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACT
MAY 1, 2001
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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 38 mutual fund investment portfolios through our Separate Account
B and/or (ii) in a fixed account of Golden American with guaranteed interest
periods. The 38 mutual fund portfolios are listed on page 3. We
currently offer guaranteed interest periods of 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.
ACCESS ONE PROFILE PROSPECTUS BEGINS AFTER
PAGE 6 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 $10,000 or more ($1,500
for a qualified Contract) up to and including age 85. You may make additional
payments of $500 or more ($50 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? The Contract is available only in connection
with a non-discretionary asset-based fee brokerage account. The Contract may be
purchased by individuals as part of a personal retirement plan (a "non-qualified
Contract"), or as a Contract that qualifies for special tax treatment when
purchased as either an Individual Retirement Annuity (IRA) or in connection with
a qualified retirement plan (each a "qualified Contract").
IRAs and other qualified plans already have the tax-deferral feature found in
this Contract. For an additional cost, the Contract provides other benefits
including death benefits and the ability to receive a lifetime income. See
"Expenses" in this profile.
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2
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: (1) IF YOU ARE LOOKING FOR A
SHORT-TERM INVESTMENT; (2) IF YOU CANNOT RISK GETTING BACK LESS MONEY THAN YOU
PUT IN; OR (3) IF YOUR ASSETS ARE IN A PLAN WHICH PROVIDES FOR TAX-DEFERRAL AND
YOU SEE NO OTHER REASON TO PURCHASE THIS CONTRACT.
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 39 mutual fund investment portfolios through our Separate Account
B. The investment portfolios are described in the prospectuses for the GCG
Trust, the PIMCO Variable Insurance Trust, Pilgrim Variable Insurance Trust, the
Prudential Series Fund, the Pilgrim Variable Products Trust and the ProFunds.
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 Real Estate Series Capital Growth Series
Limited Maturity Bond Series Value Equity Series Capital Appreciation Series
Core Bond Series (formerly Investors Series Small Cap Series
Global Fixed Income Series) International Equity Series* Mid-Cap Growth Series
Fully Managed Series Rising Dividends Series Strategic Equity Series
Total Return Series Managed Global Series Special Situations
Asset Allocation Growth Series Large Cap Value Series Growth Series
Equity Income Series Hard Assets Series Developing World Series
All Cap Series Diversified Mid-Cap Series Internet TollkeeperSM Series
Growth and Income Series Research Series
THE PIMCO VARIABLE INSURANCE TRUST PILGRIM VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio (FORMERLY ING VARIABLE INSURANCE TRUST)
PIMCO StocksPLUS Growth Pilgrim Global Brand Names Fund
and Income Portfolio (formerly ING Global Brand Names Fund)
PRUDENTIAL SERIES FUND PILGRIM VARIABLE PRODUCTS TRUST
Prudential Jennison Portfolio Pilgrim VP MagnaCap Portfolio
SP Jennison International Growth Pilgrim VP SmallCap Opportunities Portfolio
Portfolio Pilgrim VP Growth Opportunities Portfolio
PROFUNDS
ProFund VP Bull
ProFund VP Small-Cap
ProFund VP Europe 30
* Not currently available.
Internet TollkeeperSM is a service mark of Goldman, Sachs & Co.
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 and an asset-based administrative charge. We
deduct the mortality and expense risk charge and the asset-based
ACCESS ONE PROFILE
3
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.................... 0.35%
Asset-Based Administrative Charge.................. 0.15%
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Total....................................... 0.50%
We do not deduct any surrender charges for withdrawals.
Each investment portfolio has charges for investment management fees and other
expenses. These charges, which vary by investment portfolio, currently range
from 0.55% to 1.86% 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.
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charges" column reflects the maximum mortality and
expense risk charge and the asset-based administrative charge. The "Total Annual
Investment Portfolio Charges" column reflects the portfolio charges for each
portfolio is based on actual expenses as of December 31, 2000, except for
(i) portfolios that commenced operations during 2000 or 2001 where the charges
have been estimated, and (ii) newly formed portfolios where the charges have
been estimated. The column "Total Annual Charges" reflects the sum of the
previous two columns. The columns under the heading "Examples" show you how much
you would pay under the Contract for a 1-year period and for a 10-year period.
As required by the Securities and Exchange Commission, the examples assume that
you invested $1,000 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. 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%.
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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 0.50% 0.55% 1.05% $11 $128
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Limited Maturity Bond 0.50% 0.55% 1.05% $11 $128
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Core Bond 0.50% 1.01% 1.51% $15 $180
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Fully Managed 0.50% 0.95% 1.45% $15 $174
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Total Return 0.50% 0.89% 1.39% $14 $167
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Asset Allocation Growth 0.50% 1.01% 1.51% $15 $180
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Equity Income 0.50% 0.95% 1.45% $15 $174
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All Cap 0.50% 1.01% 1.51% $15 $180
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Growth and Income 0.50% 1.11% 1.61% $16 $191
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Real Estate 0.50% 0.95% 1.45% $15 $174
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Value Equity 0.50% 0.95% 1.45% $15 $174
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Investors 0.50% 1.01% 1.51% $15 $180
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International Equity 0.50% 1.26% 1.76% $18 $207
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Rising Dividends 0.50% 0.95% 1.45% $15 $174
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Managed Global 0.50% 1.26% 1.76% $18 $207
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Large Cap Value 0.50% 1.01% 1.51% $15 $180
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Hard Assets 0.50% 0.95% 1.45% $15 $174
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Diversified Mid-Cap 0.50% 1.01% 1.51% $15 $180
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Research 0.50% 0.89% 1.39% $14 $167
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Capital Growth 0.50% 1.00% 1.50% $15 $179
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Capital Appreciation 0.50% 0.95% 1.45% $15 $174
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Small Cap 0.50% 0.95% 1.45% $15 $174
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Mid-Cap Growth 0.50% 0.89% 1.39% $14 $167
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Strategic Equity 0.50% 0.95% 1.45% $15 $174
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Special Situations 0.50% 1.11% 1.61% $16 $191
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Growth 0.50% 1.00% 1.50% $15 $179
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Developing World 0.50% 1.76% 2.26% $23 $260
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Internet Tollkeeper 0.50% 1.86% 2.36% $24 $270
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THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond 0.50% 0.75% 1.25% $13 $151
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PIMCO StocksPLUS
Growth and Income 0.50% 0.65% 1.15% $12 $140
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PILGRIM VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
Pilgrim Global
Brand Names 0.50% 1.23% 1.73% $18 $204
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THE PRUDENTIAL SERIES FUND
Prudential Jennison 0.50% 1.04% 1.54% $16 $183
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SP Jennison
International Growth 0.50% 1.64% 2.14% $22 $247
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PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap 0.50% 1.10% 1.60% $16 $190
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Pilgrim VP SmallCap
Opportunities 0.50% 1.10% 1.60% $16 $190
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Pilgrim VP Growth
Opportunities 0.50% 1.10% 1.60% $16 $190
PROFUNDS
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Profund VP Bull 0.50% 1.80% 2.30% $23 $264
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ProFund VP Small-Cap 0.50% 1.80% 2.30% $23 $264
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ProFund VP Europe 30 0.50% 1.75% 2.25% $23 $258
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5
The "Total Annual Investment Portfolio Charges" column above reflects current
expense reimbursements for applicable investment portfolios. For more detailed
information, see "Fees and Expenses" in the prospectus for the Contract.
6. TAXES
Under a qualified Contract, your premiums are generally pre-tax contributions
and accumulate on a tax-deferred basis. Premiums and earnings are generally
taxed as income when you make a withdrawal or begin receiving annuity payments,
presumably when you are in a lower tax bracket.
Under a non-qualified Contract, premiums are paid with after-tax dollars, and
any earnings will accumulate tax-deferred. You will generally be taxed on these
earnings, but not on premiums, when you make a withdrawal or begin receiving
annuity payments.
For owners of most qualified Contracts, when you reach age 70 1/2 (or, in some
cases, retire), you will be required by federal tax laws to begin receiving
payments from your annuity or risk paying a penalty tax. In those cases, we can
calculate and pay you the minimum required distribution amounts at your request.
If you are younger than 59 1/2 when you take money out, in most cases, you will
be charged a 10% federal penalty tax on the taxable earnings withdrawn.
7. WITHDRAWALS
You can withdraw your money at any time during the accumulation phase. You may
elect in advance to take systematic withdrawals which are described on page [6].
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 Contract was not issued
before 2000, there is no actual performance history for the entire year to
illustrate. Actual performance information will be shown in updated prospectuses
beginning in 2002. 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 under the annuity option then in effect.
The death benefit may be subject to certain mandatory distribution rules
required by federal tax law.
If you die before the annuity start date, your beneficiary is eligible to
receive the greatest of:
1) the contract value;
2) the total premium payments made under the Contract, reduced by a pro
rata adjustment 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.
Note: The amount of the death benefit could be reduced by premium taxes owed and
withdrawals not previously deducted.
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6
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after you receive it,
you will receive a refund of your adjusted contract value. We determine your
contract value 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 some states, you may be
entitled to a longer free look period.
TRANSFERS AMONG INVESTMENT PORTFOLIOS AND THE FIXED ACCOUNT. You can make
transfers among your investment portfolios and your investment in the fixed
account as frequently as you wish without any current tax implications. The
minimum amount for a transfer is $100. There is currently no charge for
transfers, and we do not limit the number of transfers allowed. The Company may,
in the future, charge a $25 fee for any transfer after the twelfth transfer in a
contract year or limit the number of transfers allowed. Keep in mind that if you
transfer or otherwise withdraw your money from the fixed account more than 30
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 Considerations -- 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. It may give
you a lower average cost per unit over time than a single one-time
purchase. Dollar cost averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses
in a declining market. This option is currently available only if you have
$1,200 or more in the Limited Maturity Bond or the Liquid Asset investment
portfolios or in the fixed account with a 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. These
withdrawals will not result in any surrender charges. 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, PENNSYLVANIA 19380
(800) 366-0066
or your registered representative.
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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 ACCESS(R) ONE
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MAY 1, 2001
This prospectus describes GoldenSelect Access One, a deferred group and
individual variable annuity contract (the "Contract") offered by Golden American
Life Insurance Company (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 38 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 1, 3, 5, 7 and 10 years. The interest earned on your money
as well as your principal is guaranteed as long as you hold them until the
maturity date. If you take your money out from a Fixed Interest Allocation more
than 30 days before the applicable maturity date, we will apply a market value
adjustment ("Market Value Adjustment"). A Market Value Adjustment could increase
or decrease your contract value and/or the amount you take out. You bear the
risk that you may receive less than your principal if we take a Market Value
Adjustment. For Contracts sold in some states, not all Fixed Interest
Allocations or subaccounts are available. You have a right to return a Contract
within 10 days after you receive it for a refund of the adjusted contract value
(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.
This prospectus provides information that you should know before investing
and should be kept for future reference. A Statement of Additional Information,
dated May 1, 2001, has been filed with the Securities and Exchange Commission.
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 Statement of Additional
Information ("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 THE SUBACCOUNTS THROUGH THE GCG TRUST, THE PIMCO VARIABLE
INSURANCE TRUST, PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES FUND,
THE PILGRIM VARIABLE PRODUCTS TRUST OR THE PROFUNDS IS NOT A BANK DEPOSIT AND IS
NOT INSURED OR GUARANTEED BY ANY BANK OR BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE GCG TRUST,
THE PIMCO VARIABLE INSURANCE TRUST, PILGRIM VARIABLE INSURANCE TRUST, THE
PRUDENTIAL SERIES FUND, THE PILGRIM VARIABLE PRODUCTS TRUST AND THE PROFUNDS.
- --------------------------------------------------------------------------------
A LIST OF THE INVESTMENT PORTFOLIOS AND THE MANAGERS ARE LISTED ON THE BACK OF
THIS COVER.
- --------------------------------------------------------------------------------
The investment portfolios available under your Contract and the portfolio
managers are:
A I M CAPITAL MANAGEMENT, INC.
Capital Appreciation Series
Strategic Equity Series
ALLIANCE CAPITAL MANAGEMENT L. P.
Capital Growth Series
BARING INTERNATIONAL INVESTMENT LIMITED
(AN AFFILIATE)
Developing World Series
Hard Assets Series
CAPITAL GUARDIAN TRUST COMPANY
Large Cap Value Series
Managed Global Series
Small Cap Series
EAGLE ASSET MANAGEMENT, INC
Value Equity Series
FIDELITY MANAGEMENT & RESEARCH COMPANY
Asset Allocation Growth Series
Diversified Mid-Cap Series
GOLDMAN SACHS ASSET MANAGEMENT
Internet TollkeeperSM Series
ING INVESTMENT MANAGEMENT, LLC
(AN AFFILIATE)
Limited Maturity Bond Series
Liquid Asset Series
ING PILGRIM INVESTMENTS, LLC (AN AFFILIATE)
International Equity Series*
JANUS CAPITAL CORPORATION
Growth Series
Growth and Income Series
Special Situations Series
KAYNE ANDERSON RUDNICK INVESTMENT
MANAGEMENT, LLC
Rising Dividends Series
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Mid-Cap Growth Series
Research Series
Total Return Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
Core Bond Series
(formerly Global Fixed Income Series)
PRUDENTIAL INVESTMENT CORPORATION
Real Estate Series
SALOMON BROTHERS ASSET MANAGEMENT, INC
All Cap Series
Investors Series
T. ROWE PRICE ASSOCIATES, INC.
Equity Income Series
Fully Managed Series
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO High Yield Bond Portfolio
PIMCO StocksPLUS Growth and Income Portfolio
ING INVESTMENT MANAGEMENT ADVISORS B.V.
(AN AFFILIATE)
Pilgrim Global Brand Names Fund (formerly
ING Global Brand Names Fund)
JENNISON ASSOCIATES LLC
Prudential Jennison Portfolio
SP Jennison International Growth Portfolio
ING PILGRIM INVESTMENTS, LLC (AN AFFILIATE)
Pilgrim VP Growth Opportunities Portfolio
Pilgrim VP MagnaCap Portfolio
Pilgrim VP SmallCap Opportunities Portfolio
PROFUND ADVISORS LLC
ProFund VP Bull
ProFund VP Europe 30
ProFund VP Small-Cap
* Not currently available.
Internet TollkeeperSM Series is a service mark of Goldman, Sachs & Co.
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.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Index of Special Terms.................................................. 1
Fees and Expenses....................................................... 2
Performance Information................................................. 6
Accumulation Unit.................................................. 6
Net Investment Factor.............................................. 6
Condensed Financial Information.................................... 6
Financial Statements............................................... 6
Performance Information............................................ 6
Golden American Life Insurance Company.................................. 7
The Trusts.............................................................. 8
Golden American Separate Account B...................................... 8
The Investment Portfolios............................................... 9
Investment Objectives.............................................. 9
Investment Management Fees......................................... 12
The Fixed Interest Allocation........................................... 13
Selecting a Guaranteed Interest Period............................. 13
Guaranteed Interest Rates.......................................... 13
Transfers from a Fixed Interest Allocation......................... 14
Withdrawals from a Fixed Interest Allocation....................... 14
Market Value Adjustment............................................ 15
The Annuity Contract.................................................... 16
Contract Date and Contract Year .................................. 16
Annuity Start Date................................................. 16
Contract Owner..................................................... 16
Annuitant.......................................................... 16
Beneficiary........................................................ 17
Purchase and Availability of the Contract.......................... 17
Crediting of Premium Payments...................................... 17
Administrative Procedures.......................................... 18
Contract Value..................................................... 19
Cash Surrender Value............................................... 19
Surrendering to Receive the Cash Surrender Value................... 19
The Subaccounts.................................................... 20
Addition, Deletion or Substitution of Subaccounts
and Other Changes............................................... 20
The Fixed Account.................................................. 20
Other Contracts.................................................... 20
Other Important Provisions......................................... 20
Withdawals.............................................................. 21
Regular Withdrawals................................................ 21
Systematic Withdrawals............................................. 21
IRA Withdrawals.................................................... 22
Transfers Among Your Investments........................................ 23
Dollar Cost Averaging.............................................. 23
Automatic Rebalancing.............................................. 24
Death Benefit ......................................................... 24
Death Benefit During the Accumulation Phase........................ 24
Death Benefit During the Income Phase.............................. 25
Continuation After Death-- Spouse.................................. 25
Continuation After Death-- Non Spouse.............................. 25
Required Distributions Upon Contract Owner's Death................. 25
- --------------------------------------------------------------------------------
i
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
Charges and Fees........................................................ 26
Charge Deduction Subaccount........................................ 26
Charges Deducted from the Contract Value........................... 26
No Surrender Charge........................................... 26
Premium Taxes................................................. 26
Transfer Charge............................................... 26
Charges Deducted from the Subaccounts.............................. 27
Mortality and Expense Risk Charge............................. 27
Asset-Based Administrative Charge............................. 27
Trust Expenses..................................................... 27
The Annuity Options..................................................... 27
Annuitization of Your Contract..................................... 27
Selecting the Annuity Start Date................................... 28
Frequency of Annuity Payments...................................... 28
The Annuity Options................................................ 28
Income for a Fixed Period..................................... 28
Income for Life with a Period Certain......................... 28
Joint Life Income............................................. 28
Annuity Plan.................................................. 29
Payment When Named Person Dies..................................... 29
Other Contract Provisions............................................... 29
Reports to Contract Owners......................................... 29
Suspension of Payments............................................. 29
In Case of Errors in Your Application.............................. 29
Assigning the Contract as Collateral............................... 29
Contract Changes-Applicable Tax Law................................ 30
Free Look.......................................................... 30
Group or Sponsored Arrangements.................................... 30
Selling the Contract............................................... 30
Other Information....................................................... 31
Voting Rights...................................................... 31
State Regulation................................................... 31
Legal Proceedings.................................................. 31
Legal Matters...................................................... 31
Experts............................................................ 32
Federal Tax Considerations.............................................. 32
More Information About Golden American Life Insurance Company........... 37
Financial Statements of Golden American Life Insurance Company.......... 57
Statement of Additional Information
Table of Contents.................................................. 87
Appendix A
Condensed Financial Information.................................... A1
Appendix B
Market Value Adjustment Examples................................... B1
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 16
Cash Surrender Value 19
Contract Date 16
Contract Owner 16
Contract Value 19
Contract Year 16
Death Benefit 24
Fixed Interest Allocation 13
Market Value Adjustment 15
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
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES*
Surrender Charge................................................... None
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.
SEPARATE ACCOUNT ANNUAL CHARGES*
Mortality & Expense Risk Charge.................................... 0.35%
Asset-Based Administrative Charge.................................. 0.15%
-----
Total......................................................... 0.50%
* As a percentage of average daily assets in each subaccount. The
mortality and expense risk charge and the asset-based administrative
charge are deducted daily.
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 0.54% 0.01% 0.55%
- --------------------------------------------------------------------------------
Limited Maturity Bond 0.54% 0.01% 0.55%
- --------------------------------------------------------------------------------
Core Bond 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Fully Managed 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Total Return 0.88% 0.01% 0.89%
- --------------------------------------------------------------------------------
Asset Allocation Growth 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Equity Income 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
All Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Growth and Income 1.10% 0.01% 1.11%
- --------------------------------------------------------------------------------
Real Estate 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Value Equity 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Investors 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
International Equity 1.25% 0.01% 1.26%
- --------------------------------------------------------------------------------
Rising Dividends 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Managed Global 1.25% 0.01% 1.26%
- --------------------------------------------------------------------------------
Large Cap Value 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Hard Assets 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Diversified Mid-Cap 1.00% 0.01% 1.01%
- --------------------------------------------------------------------------------
Research 0.88% 0.01% 0.89%
- --------------------------------------------------------------------------------
Capital Growth 0.99% 0.01% 1.00%
- --------------------------------------------------------------------------------
Capital Appreciation 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Small Cap 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Mid-Cap Growth 0.88% 0.01% 0.89%
- --------------------------------------------------------------------------------
Strategic Equity 0.94% 0.01% 0.95%
- --------------------------------------------------------------------------------
Special Situations 1.10% 0.01% 1.11%
- --------------------------------------------------------------------------------
Growth 0.99% 0.01% 1.00%
- --------------------------------------------------------------------------------
Developing World 1.75% 0.01% 1.76%
- --------------------------------------------------------------------------------
Internet Tollkeeper 1.85% 0.01% 1.86%
- --------------------------------------------------------------------------------
2
(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, 2000 and 2001, 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, 2000.
THE PIMCO VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the
average daily net assets of a portfolio):
- -------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES TOTAL EXPENSES
MANAGEMENT SERVICE OTHER AFTER EXPENSE AFTER EXPENSE
PORTFOLIO FEE FEE EXPENSES(1) REIMBURSEMENT(2) REIMBURSEMENT(2)
- -------------------------------------------------------------------------------------------------------------------------
PIMCO High Yield Bond 0.25% 0.15% 0.35% 0.35% 0.75%
PIMCO StocksPLUS Growth
and Income 0.40% 0.15% 0.11% 0.10% 0.65%
- -------------------------------------------------------------------------------------------------------------------------
(1) "Other Expenses" reflects a 0.35% administrative fee for the High
Yield Bond Portfolio and a 0.10% administrative fee and 0.01%
representing organizational expenses and pro rata Trustees' fees for
the StocksPLUS Growth and Income Portfolio.
(2) PIMCO has contractually agreed to reduce total annual portfolio
operating expenses to the extent they would exceed, due to the payment
of organizational expenses and Trustees' fees, 0.75% and 0.65% of
average daily net assets for the PIMCO High Yield Bond and StocksPLUS
Growth and Income Portfolios, respectively. Without such reductions,
Total Annual Expenses for the fiscal year ended December 31, 2000
would have been 0.75% and 0.66% for the PIMCO High Yield Bond and
StocksPLUS Growth and Income Portfolios, respectively. Under the
Expense Limitation Agreement, PIMCO may recoup these waivers and
reimbursements in future periods, not exceeding three years, provided
total expenses, including such recoupment, do not exceed the annual
expense limit.
PILGRIM VARIABLE INSURANCE TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio)(1):
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TOTAL TOTAL NET
MANAGEMENT 12B-1 OTHER PORTFOLIO WAIVER BY PORTFOLIO
PORTFOLIO FEE FEE EXPENSES EXPENSES ADVISER(2) EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
Pilgrim Global Brand Names 1.00% 0.25% 1.72% 2.97% 1.74% 1.23%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The table shows the estimated operating expenses for the Portfolio as
a ratio of expenses to average daily net assets. These estimates are
based on the Portfolio's actual operating expenses for its most recent
complete fiscal year and fee waivers to which the Adviser has agreed
for the Portfolio.
(2) ING Mutual Funds Management Co. LLC, the Portfolio's Investment
Manager, has entered into a written expense limitation agreement with
the Portfolio, under which it will limit expenses of the Portfolio,
excluding interest, taxes, brokerage and extraordinary expenses,
subject to possible reimbursement to ING Mutual Funds Management Co.
LLC within three years. The amount of the Portfolio's expenses waived
or reimbursed during the last fiscal year by ING Mutual Funds
Management Co. LLC is shown under the heading "Waiver by Adviser." The
expense limits will continue through at least December 31, 2001.
3
THE PRUDENTIAL SERIES FUND ANNUAL EXPENSES (as a percentage of the average daily
net assets of the portfolio):
- --------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE(1) EXPENSES(2) EXPENSES(2)
- --------------------------------------------------------------------------------------------------
Prudential Jennison 0.60% 0.25% 0.19% 1.04%
SP Jennison International
Growth 0.85% 0.25% 0.54% 1.64%
- --------------------------------------------------------------------------------------------------
(1) The 12b-1 fees for the Prudential Jennison Portfolio and the SP
Jennison International Growth Portfolio are imposed to enable the
portfolios to recover certain sales expenses, including compensation
to broker-dealers, the cost of printing prospectuses for delivery to
prospective investors and advertising costs for the portfolio. Over a
long period of time, the total amount of 12b-1 fees paid may exceed
the amount of sales charges imposed by the product.
(2) Since the SP Jennison International Growth Portfolio had not commenced
operations as of December 31, 1999, expenses as shown are based on
estimates of the portfolio's operating expenses for the portfolio's
first fiscal year.
PILGRIM VARIABLE PRODUCTS TRUST ANNUAL EXPENSES (as a percentage of the average
daily net assets of the portfolio)(1):
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TOTAL TOTAL NET
MANAGEMENT SERVICE OTHER PORTFOLIO WAIVER BY PORTFOLIO
PORTFOLIO FEE FEES EXPENSES(2) EXPENSES ADVISER(3) EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
Pilgrim VP MagnaCap 0.75% 0.25% 7.15% 8.15% 7.05% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Pilgrim VP SmallCap
Opportunities 0.75% 0.25% 0.23% 1.23% 0.13% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Pilgrim VP Growth
Opportunities 0.75% 0.25% 1.44% 2.44% 1.34% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The table shows the estimated operating expenses for Class S shares of
each Portfolio as a ratio of expenses to average daily net assets.
These estimates are based on each Portfolio's actual operating
expenses for Class R shares for the Trust's most recently completed
fiscal year and fee waivers to which ING Pilgrim Investments, LLC, the
Portfolios' Adviser, has agreed for each Portfolio.
(2) Because Class S shares are new for each Portfolio, the Other Expenses
for each Portfolio are based on Class R expenses of the Portfolio.
(3) ING Pilgrim Investments, LLC has entered into written expense
limitation agreements with each Portfolio which it advises under which
it will limit expenses of the Portfolio, excluding interest, taxes,
brokerage and extraordinary expenses, subject to possible
reimbursement to ING Pilgrim Investments, LLC within three years. The
expense limit for each such Portfolio is shown as "Total Net Portfolio
Expenses." For each Portfolio, the expense limits will continue
through at least December 31, 2001.
PROFUNDS ANNUAL EXPENSES (as a percentage of the average daily net assets of the
portfolio):
- --------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE 12B-1 FEE EXPENSES(2) EXPENSES(2)
- --------------------------------------------------------------------------------------------------
ProFund VP Bull 0.75% 0.25% 0.80% 1.80%
- --------------------------------------------------------------------------------------------------
ProFund VP Small-Cap 0.75% 0.25% 0.80% 1.80%
- --------------------------------------------------------------------------------------------------
ProFund VP Europe 30(1) 0.75% 0.25% 0.75% 1.75%
- --------------------------------------------------------------------------------------------------
(1) Management fees and expenses for the ProFund VP Europe 30 are for the
12-month period ending December 12, 2000.
(2) Other expenses for the ProFund VP Bull and ProFund VP Small-Cap are
estimates as these ProFund Portfolios had not commenced operations as
of December 31, 2000.
4
The purpose of the foregoing tables is to help you understand the various costs
and expenses that you will bear directly and indirectly. See the prospectuses of
the GCG Trust, the PIMCO Variable Insurance Trust, Pilgrim Variable Insurance
Trust, the Prudential Series Fund, the Pilgrim Variable Products Trust, and the
ProFunds for additional information on management or advisory fees and in some
cases on other portfolio expenses.
Premium taxes (which currently range from 0% to 3.5% of premium payments) may
apply, but are not reflected in the tables above or in the examples below.
EXAMPLE:
The following example is designed to show you the expenses you would pay on a
$1000 investment that earns 5% annually. The example reflects the deduction of a
mortality and expense risk charge and an asset-based administrative charge.
5
Example 1:
Whether you surrender, continue to hold or annuitize 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 $11 $33 $ 58 $128
- --------------------------------------------------------------------------------
Limited Maturity Bond $11 $33 $ 58 $128
- --------------------------------------------------------------------------------
Core Bond $15 $48 $ 82 $180
- --------------------------------------------------------------------------------
Fully Managed $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Total Return $14 $44 $ 76 $167
- --------------------------------------------------------------------------------
Asset Allocation Growth $15 $48 $ 82 $180
- --------------------------------------------------------------------------------
Equity Income $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
All Cap $15 $48 $ 82 $180
- --------------------------------------------------------------------------------
Growth and Income $16 $51 $ 88 $191
- --------------------------------------------------------------------------------
Real Estate $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Value Equity $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Investors $15 $48 $ 82 $180
- --------------------------------------------------------------------------------
International Equity $18 $55 $ 95 $207
- --------------------------------------------------------------------------------
Rising Dividends $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Managed Global $18 $55 $ 95 $207
- --------------------------------------------------------------------------------
Large Cap Value $15 $48 $ 82 $180
- --------------------------------------------------------------------------------
Hard Assets $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Diversified Mid-Cap $15 $48 $ 82 $180
- --------------------------------------------------------------------------------
Research $14 $44 $ 76 $167
- --------------------------------------------------------------------------------
Capital Growth $15 $47 $ 82 $179
- --------------------------------------------------------------------------------
Capital Appreciation $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Small Cap $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Mid-Cap Growth $14 $44 $ 76 $167
- --------------------------------------------------------------------------------
Strategic Equity $15 $46 $ 79 $174
- --------------------------------------------------------------------------------
Special Situations $16 $51 $ 88 $191
- --------------------------------------------------------------------------------
Growth $15 $47 $ 82 $179
- --------------------------------------------------------------------------------
Developing World $23 $71 $121 $260
- --------------------------------------------------------------------------------
Internet Tollkeeper $24 $74 $126 $270
- --------------------------------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond $13 $40 $ 69 $151
- --------------------------------------------------------------------------------
PIMCO StocksPLUS Growth and Income $12 $37 $ 63 $140
- --------------------------------------------------------------------------------
PILGRIM VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
Pilgrim Global Brand Names $18 $54 $ 94 $204
- --------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison $16 $49 $ 84 $183
- --------------------------------------------------------------------------------
SP Jennison International Growth $22 $67 $115 $247
- --------------------------------------------------------------------------------
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap $16 $50 $ 87 $190
- --------------------------------------------------------------------------------
Pilgrim VP SmallCap Opportunities $16 $50 $ 87 $190
- --------------------------------------------------------------------------------
Pilgrim VP Growth Opportunities $16 $50 $ 87 $190
PROFUNDS TRUST
- --------------------------------------------------------------------------------
ProFund VP Bull $23 $72 $123 $264
- --------------------------------------------------------------------------------
ProFund VP Small-Cap $23 $72 $123 $264
- --------------------------------------------------------------------------------
ProFund VP Europe 30 $23 $70 $120 $258
- --------------------------------------------------------------------------------
6
THIS EXAMPLE 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.
Compensation is paid for the sale of the Contracts. For information about this
compensation, see "Selling the Contract."
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
We use accumulation units to calculate the value of a Contract. Each subaccount
of Separate Account B has its own accumulation unit value. The accumulation
units are valued each business day that the New York Stock Exchange is open for
trading. Their values may increase or decrease from day to day according to a
Net Investment Factor, which is primarily based on the investment performance of
the applicable investment portfolio. Shares in the investment portfolios are
valued at their net asset value.
THE NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects certain charges
under the Contract and the investment performance of the subaccount. The Net
Investment Factor is calculated for each subaccount as follows:
1) We take the net asset value of the subaccount at the end of each
business day.
2) We add to (1) the amount of any dividend or capital gains distribution
declared for the subaccount and reinvested in such subaccount. We
subtract from that amount a charge for our taxes, if any.
3) We divide (2) by the net asset value of the subaccount at the end of
the preceding business day.
4) We then subtract the applicable daily mortality and expense risk
charge and the daily asset-based administrative charge from the
subaccount.
Calculations for the subaccounts are made on a per share basis.
CONDENSED FINANCIAL INFORMATION
Tables containing (i) the accumulation unit value history of each subaccount of
Golden American Separate Account B offered in this prospectus, and (ii) the
total investment value history of each subaccount are presented in Appendix A --
Condensed Financial Information.
FINANCIAL STATEMENTS
The audited financial statements of Separate Account B for the year ended
December 31, 2000 are included in the Statement of Additional Information. The
audited consolidated financial statements of Golden American for the years ended
December 31, 2000, 1999 and 1998 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
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
7
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. In addition, we may present historic performance data for the
investment portfolios since their inception reduced by some or all of the fees
and charges under the Contract. Such adjusted historic performance includes data
that precedes the inception dates of the subaccounts of Separate Account B. This
data is designed to show the performance that would have resulted if the
Contract had been in existence before the separate account began investing in
the portfolios.
Current yield for the Liquid Asset subaccount is based on income received by a
hypothetical investment over a given 7-day period, less expenses accrued, and
then "annualized" (i.e., assuming that the 7-day yield would be received for 52
weeks). We calculate "effective yield" for the Liquid Asset subaccount in a
manner similar to that used to calculate yield, but when annualized, the income
earned by the investment is assumed to be reinvested. The "effective yield" will
thus be slightly higher than the "yield" because of the compounding effect of
earnings. We calculate quotations of yield for the remaining subaccounts on all
investment income per accumulation unit earned during a given 30-day period,
after subtracting fees and expenses accrued during the period.
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. ING also owns ING Pilgrim Investments, LLC, a
portfolio manager of the GCG Trust, and the investment manager of the Pilgrim
Variable Insurance Trust and the Pilgrim Variable Products Trust. ING also owns
Baring International Investment Limited, another portfolio manager of the GCG
Trust and ING Investment Management Advisors B.V., a portfolio manager of the
Pilgrim Variable Insurance Trust.
Our principal office is located at 1475 Dunwoody Drive, West Chester,
Pennsylvania 19380.
8
- --------------------------------------------------------------------------------
THE TRUSTS
- --------------------------------------------------------------------------------
The GCG Trust is a mutual fund whose shares are offered to separate accounts
funding variable annuity and variable life insurance policies offered by Golden
American and other affiliated insurance companies. The GCG Trust may also sell
its shares to separate accounts of insurance companies not affiliated with
Golden American. Pending SEC approval, shares of the GCG Trust may also be sold
to certain qualified pension and retirement plans. The address of the GCG Trust
is 1475 Dunwoody Drive, West Chester, PA 19380.
The PIMCO Variable Insurance Trust is also a mutual fund whose shares are
available to separate accounts of insurance companies, including Golden
American, for both variable annuity contracts and variable life insurance
policies and to qualified pension and retirement plans. The address of the PIMCO
Variable Insurance Trust is 840 Newport Center Drive, Suite 300, Newport Beach,
CA 92660.
The Pilgrim Variable Insurance Trust (formerly the ING Variable Insurance Trust)
is also a mutual fund whose shares are offered to separate accounts funding
variable annuity contracts offered by Golden American and other insurance
companies, both affiliated and unaffiliated with Golden American. The address of
Pilgrim Variable Insurance Trust is 40 North Central Avenue, Suite 1200,
Phoenix, AZ 85004.
The Prudential Series Fund, Inc. is also a mutual fund whose shares are
available to separate accounts funding variable annuity and variable life
insurance polices offered by The Prudential Insurance Company of America, its
affiliated insurers and other life insurance companies not affiliated with
Prudential, including Golden American. The address of the Prudential Series Fund
is 751 Broad Street, Newark, NJ 07102.
The Pilgrim Variable Products Trust is also a mutual fund whose shares are
offered to separate accounts funding variable annuity contracts offered by
Golden American and other insurance companies, both affiliated and unaffiliated
with Golden American. The address of Pilgrim Variable Products Trust is 40 North
Central Avenue, Suite 1200, Phoenix, AZ 85004.
The ProFunds is also a mutual fund whose shares are offered to separate accounts
funding variable annuity contracts offered by Golden American and other
insurance companies, both affiliated and unaffiliated with Golden American. The
address of ProFunds is 3435 Stelzer Road, Suite 1000, PO Box 182100, Columbus,
OH 43218-2000.
In the event that, due to differences in tax treatment or other considerations,
the interests of contract owners of various contracts participating in the
Trusts conflict, we, the Boards of Trustees of the GCG Trust, the PIMCO Variable
Insurance Trust, the Pilgrim Variable Insurance Trust, the Pilgrim Variable
Products Trust, ProFunds, the Board of Directors of the Prudential Series Fund,
and the management of Directed Services, Inc., Pacific Investment Management
Company, Credit Suisse Asset Management, LLC, The Prudential Insurance Company
of America, ING Pilgrim Investments, Inc., ProFunds Advisors LLC 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 MORE DETAILED INFORMATION ABOUT THE GCG TRUST, THE PIMCO VARIABLE
INSURANCE TRUST, THE PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES
FUND, THE PILGRIM VARIABLE PRODUCTS TRUST, AND PROFUNDS IN THE ACCOMPANYING
PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THEM CAREFULLY BEFORE INVESTING.
9
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GOLDEN AMERICAN SEPARATE ACCOUNT B
- --------------------------------------------------------------------------------
Golden American Separate Account B ("Separate Account B") was established as a
separate account of the Company on July 14, 1988. It is registered with the SEC
as a unit investment trust under the Investment Company Act of 1940 as amended
(the "1940 Act"). Separate Account B is a separate investment account used for
our variable annuity contracts. We own all the assets in Separate Account B but
such assets are kept separate from our other accounts.
Separate Account B is divided into subaccounts. Each subaccount invests
exclusively in shares of one investment portfolio of the GCG Trust, the PIMCO
Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the Prudential
Series Fund, the Pilgrim Variable Products Trust or the ProFunds. Each
investment portfolio has its own distinct investment objectives and policies.
Income, gains and losses, realized or unrealized, of a portfolio are credited to
or charged against the corresponding subaccount of Separate Account B without
regard to any other income, gains or losses of the Company. Assets equal to the
reserves and other contract liabilities with respect to each are not chargeable
with liabilities arising out of any other business of the Company. They may,
however, be subject to liabilities arising from subaccounts whose assets we
attribute to other variable annuity contracts supported by Separate Account B.
If the assets in Separate Account B exceed the required reserves and other
liabilities, we may transfer the excess to our general account. We are obligated
to pay all benefits and make all payments provided under the Contracts.
NOTE: We currently offer other variable annuity contracts that invest in
Separate Account B but are not discussed in this prospectus. Separate Account B
may also invest in other investment portfolios which are not available under
your Contract. Under certain circumstances, we may make certain changes to the
subaccounts. For more information, see "The Annuity Contract -- Addition,
Deletion, or Substitution of Subaccounts and Other Changes."
- --------------------------------------------------------------------------------
THE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
During the accumulation phase, you may allocate your premium payments and
contract value to any of the investment portfolios listed in the section below.
YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO ANY INVESTMENT
PORTFOLIO, AND YOU MAY LOSE YOUR PRINCIPAL.
INVESTMENT OBJECTIVES
The investment objective of each investment portfolio is set forth below. You
should understand that there is no guarantee that any portfolio will meet its
investment objectives. Meeting objectives depends on various factors, including,
in certain cases, how well the portfolio managers anticipate changing economic
and market conditions. Separate Account B also has other subaccounts investing
in other portfolios which are not available to the Contract described in this
prospectus. YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE INVESTMENT
PORTFOLIOS IN THE PROSPECTUSES FOR THE GCG TRUST, THE PIMCO VARIABLE INSURANCE
TRUST, PILGRIM VARIABLE INSURANCE TRUST, THE PRUDENTIAL SERIES FUND, PILGRIM
VARIABLE PRODUCTS TRUST AND THE PROFUNDS. YOU SHOULD READ THESE PROSPECTUSES
BEFORE INVESTING.
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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 agenciesand instrumentalities, bank obligations,
commercial paper and short-term corporate debt
securities. All securities will mature in less than one
year.
--------------------------------------------------------
10
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Limited Maturity Bond Seeks highest current income consistent with low risk to
principal and liquidity. Also seeks to enhance its total
return through capital appreciation when market factors,
such as falling interest rates and rising bond prices,
indicate that capital appreciation may be available
without significant risk to principal.
Invests primarily in diversified limited maturity debt
securities with average maturity dates of five years or
shorter and in no cases more than seven years.
--------------------------------------------------------
Core Bond (formerly Seeks maximum total return, consistent with preservation
Global Fixed of capital and prudent investment management.
Income)
Invests primarily in a diversified portfolio of fixed
income instruments of varying maturities. The average
portfolio duration of the Portfolio normally varies
within a three-to six-year time frame.
--------------------------------------------------------
Fully Managed Seeks, over the long term, a high total investment
return consistent with the preservation of capital and
with prudent investment risk.
Invests primarily in the common stocks of established
companies believed by the portfolio manager to have
above-average potential for capital growth.
--------------------------------------------------------
Total Return Seeks above-average income (compared to a portfolio
entirely invested in equity securities) consistent with
the prudent employment of capital. Growth of capital and
income is a secondary goal.
Invests primarily in a combination of equity and fixed
income securities.
--------------------------------------------------------
Asset Allocation Growth Seeks to maximize total return over the long-term by
allocating assets among stocks, bonds, short-term
instruments and other investments.
Allocates investments primarily in a neutral mix over
time of 70% of its assets in stocks, 25% of its assets
in bonds, and 5% of its assets in short-term and money
market investments.
--------------------------------------------------------
Equity Income Seeks substantial dividend income as well as long-term
growth of capital.
Invests primarily in common stocks of well established
companies paying above-average dividends.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Real Estate Seeks capital appreciation. Current income is a
secondary objective.
Invests primarily in publicly traded real estate equity
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.
--------------------------------------------------------
11
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
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.
--------------------------------------------------------
International Equity Seeks long-term growth of capital.
(not currently
available) Invests at least 65% of its net assets in equity
securities of issuers located in countries outside of
the United States. The Portfolio generally invests at
least 75% of its total assets in common and preferred
stocks, warrants and convertible securities.
--------------------------------------------------------
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."
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Diversified Mid-Cap Seeks long-term capital growth.
Normally invests at least 65% of its total assets in
common stocks of companies with medium market
capitalizations.
--------------------------------------------------------
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 Growth Seeks long-term total return.
Invests primarily in common stocks of companies where
the potential for change (earnings acceleration) is
significant.
--------------------------------------------------------
Capital Appreciation Seeks long-term capital growth.
Invests primarily in equity securities believed by the
portfolio manager to be undervalued.
--------------------------------------------------------
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.
--------------------------------------------------------
12
- --------------------------------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
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.
--------------------------------------------------------
Developing World Seeks capital appreciation.
Invests primarily in equity securities of companies in
developing or emerging countries.
--------------------------------------------------------
Internet Tollkeeper Seeks long-term growth of capital.
Invests primarily in equity securities of "Internet
Tollkeeper" companies, which are companies in sectors
which provide access, infrastructure, content and
services to Internet companies and customers, and which
have developed, or are seeking to develop predictable,
sustainable or recurring revenue by increasing
"traffic," or customers and sales, and raising "tolls,"
or prices in connection with the growth of the Internet.
--------------------------------------------------------
THE PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Seeks to maximize total return, consistent with
preservation of capital and prudent investment
management.
Invests at least 65% of its assets in a diversified
portfolio of junk bonds rated at least B by Moody's
Investor Services, Inc. or Standard & Poor's or, if
unrated, determined by the portfolio manager to be of
comparable quality.
--------------------------------------------------------
PIMCO StocksPLUS Seeks to achieve a total return which exceeds the total
Growth and Income return performance of the Standard & Poor's 500 Stock
Index.
Invests primarily in common stocks, options, futures,
options on futures and swaps.
--------------------------------------------------------
PILGRIM VARIABLE INSURANCE TRUST (formerly ING Variable Insurance Trust)
Pilgrim Global Brand Seeks to provide investors with long-term capital
Names Fund appreciation.
(formerly ING Global
Brand Names Fund) Invests at least 65% of its total assets in equity
securities of companies that have a well recognized
franchise, a global presence and derive most of their
revenues from sales of consumer goods.
--------------------------------------------------------
13
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INVESTMENT PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
Prudential Jennison Seeks long-term growth of capital.
Invests primarily in companies that have shown growth in
earnings and sales, high return on equity and assets or
other strong financial data and are also attractively
valued in the opinion of the manager. Dividend income
from investments will be incidental.
--------------------------------------------------------
SP Jennison Seeks long-term growth of capital.
International Growth
Invests primarily in equity-related securities of
issuers located in at least five different foreign
countries.
--------------------------------------------------------
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP MagnaCap Seeks growth of capital, with dividend income as a
secondary consideration.
Invests primarily in equity securities of companies
meeting investment policy criteria of consistent and
substantially increasing dividends, reinvested earnings,
strong balance sheet and attractive price. Invests
primarily in companies included in the largest 500 U.S.
companies.
--------------------------------------------------------
Pilgrim VP SmallCap Seeks long-term capital appreciation.
Opportunities
Invests primarily in the common stock of smaller,
lesser-known U.S. companies that the portfolio manager
believes have above average prospects for growth.
--------------------------------------------------------
Pilgrim VP Growth Seeks long-term growth of capital.
Opportunities
Invests primarily in U.S. companies that the portfolio
manager believes have above average prospects for
growth.
--------------------------------------------------------
PROFUNDS Seeks daily investment results that correspond to the
ProFund VP Bull performance of the Standard & Poor's 500 Stock Index.
Invests in securities and other financial instruments,
such as futures and options on futures in pursuit of the
portfolio's objective regardless of market conditions,
trends or direction and seeks to provide correlation
with the benchmark on a daily basis.
--------------------------------------------------------
ProFund VP Small-Cap Seeks daily investment results that correspond to the
performance of the Russell 2000 Index.
Invests in securities and other financial instruments,
such as futures and options on futures in pursuit of the
portfolio's objective regardless of market conditions,
trends or direction and seeks to provide correlation
with the benchmark on a daily basis.
--------------------------------------------------------
ProFund VP Europe 30 Seeks daily investment results that correspond to the
performance of the ProFunds Europe 30 Index.
Invests in securities and other financial instruments,
such as futures and options on futures and American
Depository Receipts in pursuit of the portfolio's
objective regardless of market conditions, trends or
direction and seeks to provide correlation with the
benchmark on a daily basis.
--------------------------------------------------------
14
INVESTMENT MANAGEMENT FEES
Directed Services, Inc. serves as the overall manager to each portfolio of the
GCG Trust. The GCG Trust pays Directed Services a monthly fee for its investment
advisory and management services. The monthly fee is based on the average daily
net assets of an investment portfolio, and in some cases, the combined total
assets of certain grouped portfolios. Directed Services provides or procures, at
its own expense, the services necessary for the operation of the portfolio,
including retaining portfolio managers to manage the assets of the various
portfolios. Directed Services (and not the GCG Trust) pays each portfolio
manager a monthly fee for managing the assets of a portfolio, based on the
annual rates of the average daily net assets of a portfolio. For a list of the
portfolio managers, see the front cover of this prospectus. Directed Services
does not bear the expense of brokerage fees and other transactional expenses for
securities, taxes (if any) paid by a portfolio, interest on borrowing, fees and
expenses of the independent trustees, and extraordinary expenses, such as
litigation or indemnification expenses.
Pacific Investment Management Company ("PIMCO") serves as investment advisor to
each portfolio of the PIMCO Variable Insurance Trust. PIMCO provides the overall
business management and administrative services necessary for each portfolio's
operation. PIMCO provides or procures, at its own expense, the services and
information necessary for the proper conduct of business and ordinary operation
of each portfolio. The PIMCO Variable Insurance Trust pays PIMCO a monthly
advisory fee and a separate monthly administrative fee per year, each fee based
on the average daily net assets of each of the investment portfolios, for
managing the assets of the portfolios and for administering the PIMCO Variable
Insurance Trust. PIMCO does not bear the expense of brokerage fees and other
transactional expenses for securities, taxes (if any) paid by a portfolio,
interest on borrowing, fees and expense of the independent trustees, and
extraordinary expenses, such as litigation or indemnification expenses.
ING Pilgrim Investments, LLC ("ING Pilgrim")also serves as the overall manager
of Pilgrim Variable Insurance Trust. ING Pilgrim supervises all aspects of the
Trust's operations and provides investment advisory services to the portfolios
of the Trust, including engaging portfolio managers, as well as monitoring and
evaluating the management of the assets of each portfolio by its portfolio
manager. ING Pilgrim, as well as each portfolio manager it engages, is a wholly
owned indirect subsidiary of ING Groep N.V. Except for agreements to reimburse
certain expenses of the portfolio, ING Pilgrim does not bear any portfolio
expenses.
The Prudential Insurance Company of America ("Prudential") and its subsidiary,
Prudential Investments Fund Management LLC ("PIFM") serve as the overall
investment advisers to the Prudential Series Fund. Prudential and PIFM are
responsible for the management of the Prudential Series Fund and provide
investment advice and related services. For the Prudential Jennison Portfolio
and SP Jennison International Growth Portfolio, Prudential and PIFM engage
Jennison Associates LLC to serve as sub-adviser and to provide day-to-day
management. Prudential and PIFM pay the sub-adviser out of the fee they receive
from the Prudential Series Fund. Each portfolio pays its own administrative
costs.
ING Pilgrim serves as the overall manager of ING Variable Insurance Trust. ING
Pilgrim supervises all aspects of the Trust's operations and provides investment
advisory services to the portfolios of the Trust, including engaging portfolio
managers, as well as monitoring and evaluating the management of the assets of
each portfolio by its portfolio manager. ING Pilgrim is a wholly owned indirect
subsidiary of ING Groep N.V. Except for agreements to reimburse certain expenses
of some portfolios, ING Pilgrim does not bear any portfolio expenses.
ProFunds Advisors LLC serves as the investment advisor of the ProFunds. The
ProFunds pay ProFunds Advisors LLC a monthly advisory fee based on the average
daily net assets of each investment portfolio. Each portfolio pays its own
administrative costs.
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, five portfolios deduct a
service fee, which is used to compensate service providers for administrative
and contract holder services provided on behalf of the portfolios, and six
portfolios deduct a distribution or 12b-1 fee, which is used to finance any
activity that is primarily intended to result in the sale of shares of the
applicable portfolio. Based on actual portfolio experience in 2000, together
with estimated costs for new portfolios, total estimated portfolio fees and
charges for 2001 range from 0.55% to 1.86%. See "Fees and Expenses" in this
prospectus.
15
We may receive compensation from the investment advisors, administrators and
distributors or directly from the portfolios in connection with administrative,
distribution or other services and cost savings attributable to our services. It
is anticipated that such compensation will be based on assets of the particular
portfolios attributable to the Contract. The compensation paid by advisors,
administrators or distributors may vary.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT EACH PORTFOLIO INCLUDING ITS
MANAGEMENT FEES IN THE PROSPECTUS FOR EACH TRUST. YOU SHOULD READ THESE
PROSPECTUSES BEFORE INVESTING.
- --------------------------------------------------------------------------------
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 1, 3, 5, 7 and 10 years, although
we may not offer all these periods in the future. You may select one or more
guaranteed interest periods at any one time. We will credit your Fixed Interest
Allocation with a guaranteed interest rate for the interest period you select,
so long as you do not withdraw money from that Fixed Interest Allocation before
the end of the guaranteed interest period. Each guaranteed interest period ends
on its maturity date which is the last day of the month in which the interest
period is scheduled to expire.
If you surrender, withdraw, transfer or annuitize your investment in a Fixed
Interest Allocation more than 30 days before the end of the guaranteed interest
period, we will apply a Market Value Adjustment to the transaction. A Market
Value Adjustment could increase or decrease the amount you surrender, withdraw,
transfer or annuitize, depending on current interest rates at the time of the
transaction. You bear the risk that you may receive less than your principal if
we apply a Market Value Adjustment.
Assets supporting amounts allocated to the Fixed Account are available to fund
the claims of all classes of our customer, contract owners and other creditors.
Interests under your Contract relating to the Fixed Account are registered under
the Securities Act of 1933, but the Fixed Account is not registered under the
1940 Act.
SELECTING A GUARANTEED INTEREST PERIOD
You may select one or more Fixed Interest Allocations with specified guaranteed
interest periods. A guaranteed interest period is the period that a rate of
interest is guaranteed to be credited to your Fixed Interest Allocation. We may
at any time decrease or increase the number of guaranteed interest periods
offered. In addition, we may offer DCA Fixed Interest Allocations, which are
6-month and 1-year Fixed Interest Allocations available exclusively in
connection with our dollar cost averaging program. For more information on DCA
Fixed Interest Allocations, see "Transfers Among Your Investments--Dollar Cost
Averaging."
Your contract value in the Fixed Account is the sum of your Fixed Interest
Allocations and the interest credited as adjusted for any withdrawals, transfers
or other charges we may impose, including any Market Value Adjustment. 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-
16
grade fixed income securities (i.e., rated by Standard & Poor's rating system to
be suitable for prudent investors) although we are not obligated to invest
according to any particular strategy, except as may be required by applicable
law. You will have no direct or indirect interest in these investments. We will
also consider other factors in determining the guaranteed interest rates,
including regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends and competitive factors. We cannot
predict the level of future interest rates but no Fixed Interest Allocation will
ever have a guaranteed interest rate of less than 3% per year.
We may from time to time at our discretion offer interest rate specials for new
premiums that are higher than the current base interest rate then offered.
Renewal rates for such rate specials will be based on the base interest rate and
not on the special rates initially declared.
TRANSFERS FROM A FIXED INTEREST ALLOCATION
You may transfer your contract value in a Fixed Interest Allocation to one or
more new Fixed Interest Allocations with new guaranteed interest periods, or to
any of the subaccounts of Separate Account B. We will transfer amounts from your
Fixed Interest Allocations starting with the guaranteed interest period nearest
its maturity date, until we have honored your transfer request.
The minimum amount that you can transfer to or from any Fixed Interest
Allocation is $100. If a transfer request would reduce the contract value
remaining in a Fixed Interest Allocation to less than $100, we will treat such
transfer request as a request to transfer the entire contract value in such
Fixed Interest Allocation. Transfers from a Fixed Interest Allocation may be
subject to a Market Value Adjustment. If you have a special Fixed Interest
Allocation that was offered exclusively with our dollar cost averaging program,
cancelling dollar cost averaging will cause a transfer of the entire contract
value in such Fixed Interest Allocation to the Liquid Asset subaccount, and such
a transfer will be subject to a Market Value Adjustment.
On the maturity date of a guaranteed interest period, you may transfer amounts
from the applicable Fixed Interest Allocation to the subaccounts and/or to new
Fixed Interest Allocations with guaranteed interest periods of any length we are
offering at that time. You may not, however, transfer amounts to any Fixed
Interest Allocation with a guaranteed interest period that extends beyond the
annuity start date.
At least 30 calendar days before a maturity date of any of your Fixed Interest
Allocations, or earlier if required by state law, we will send you a notice of
the guaranteed interest periods that are available. You must notify us which
subaccounts or new guaranteed interest periods you have selected before the
maturity date of your Fixed Interest Allocations. If we do not receive timely
instructions from you, we will transfer the contract value in the maturing Fixed
Interest Allocation to a new Fixed Interest Allocation with a guaranteed
interest period that is the same as the expiring guaranteed interest period. If
such guaranteed interest period is not available or would go beyond the annuity
start date, we will transfer your contract value in the maturing Fixed Interest
Allocation to the next shortest guaranteed interest period which does not go
beyond the annuity start date. If no such guaranteed interest period is
available, we will transfer the contract value to a subaccount specially
designated by the Company for such purpose. Currently we use the Liquid Asset
subaccount for such purpose.
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. Be aware that withdrawals may have
federal income tax consequences, including a 10% penalty tax, as well as state
income tax consequences.
If you tell us the Fixed Interest Allocation from which your withdrawal will be
made, we will assess the withdrawal against that Fixed Interest Allocation. If
you do not, we will assess your withdrawal against the subaccounts in which you
are invested, unless the withdrawal exceeds the contract value in the
subaccounts.
17
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+.0025)) -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 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; and
o "N" is the remaining number of days in the guaranteed interest
period at the time of calculation.
The Index Rate is the average of the Ask Yields for U.S. Treasury Strips as
quoted by a national quoting service for a period equal to the applicable
guaranteed interest period. The average currently is based on the period
starting from the 22nd day of the calendar month two months prior to the month
of the Index Rate determination and ending the 21st day of the calendar month
immediately before the month of determination. We currently calculate the Index
Rate once each calendar month but have the right to calculate it more
frequently. The Index Rate will always be based on a period of at least 28 days.
If the Ask Yields are no longer available, we will determine the Index Rate by
using a suitable and approved, if required, replacement method.
A Market Value Adjustment may be positive, negative or result in no change. In
general, if interest rates are rising, you bear the risk that any Market Value
Adjustment will likely be negative and reduce your contract value. On the other
hand, if interest rates are falling, it is more likely that you will receive a
positive Market Value Adjustment that increases your contract value. In the
event of a full surrender, transfer or annuitization from a Fixed Interest
Allocation, we will add or subtract any Market Value Adjustment from the amount
surrendered, transferred or annuitized. In the event of a partial withdrawal,
transfer or annuitization, we will add or subtract any Market Value Adjustment
from the total amount withdrawn, transferred or annuitized in order to provide
the amount requested. If a negative Market Value Adjustment exceeds your
contract value in the Fixed Interest Allocation, we will consider your request
to be a full surrender, transfer or annuitization of the Fixed Interest
Allocation.
Several examples which illustrate how the Market Value Adjustment works are
included in Appendix B.
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THE ANNUITY CONTRACT
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The Contract described in this prospectus is a deferred combination variable and
fixed annuity contract. The Contract provides a means for you to invest in one
or more of the available mutual fund portfolios of the GCG Trust, the PIMCO
Variable Insurance Trust, the Pilgrim Variable Insurance Trust, the Prudential
Series Fund, the Pilgrim Variable Products Trust and the ProFunds through
Separate Account B. It also provides a means for you to invest in a Fixed
Interest Allocation through the Fixed Account.
CONTRACT DATE AND CONTRACT YEAR
The date the Contract became effective is the contract date. Each 12-month
period following the contract date is a contract year.
ANNUITY START DATE
The annuity start date is the date you start receiving annuity payments under
your Contract. The Contract, like all deferred variable annuity contracts, has
two phases: the accumulation phase and the income phase. The accumulation phase
is the period between the contract date and the annuity start date. The income
phase begins when you start receiving regular annuity payments from your
Contract on the annuity start date.
CONTRACT OWNER
You are the contract owner. You are also the annuitant unless another annuitant
is named in the application. You have the rights and options described in the
Contract. One or more persons may own the Contract.
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.
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 and the death benefit is paid upon the death
of the first of the joint owners to die. If any owner's age is 86 or greater,
the death benefit guarantee will be lost. Unless otherwise specified, the term
"age" when used for joint owners shall mean the age of the oldest 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).
19
If there is no contingent annuitant when the annuitant dies before the annuity
start date, the contract owner will become the annuitant. The contract owner may
designate a new annuitant within 60 days of the death of the annuitant.
If there is no contingent annuitant when the annuitant dies before the annuity
start date and the contract owner is not an individual, we will pay the
designated beneficiary the death benefit then due. If a beneficiary has not been
designated, or if there is no designated beneficiary living, the contract owner
will be the beneficiary. If the annuitant was the sole contract owner and there
is no beneficiary designation, the annuitant's estate will be the beneficiary.
Regardless of whether a death benefit is payable, if the annuitant dies and any
contract owner is not an individual, distribution rules under federal tax law
will apply. You should consult your tax 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 during the annuitant's lifetime
unless you have designated an irrevocable beneficiary. When an irrevocable
beneficiary has been designated, you and the irrevocable beneficiary may have to
act together to exercise some of the rights and options under the Contract.
CHANGE OF CONTRACT OWNER OR BENEFICIARY. During the annuitant's lifetime,
you may transfer ownership of a non-qualified Contract. A change in ownership
may affect the amount of the death benefit. If the new owner's age is greater
than 85, the death benefit will be the cash surrender value. The new owner's
death will determine when a death benefit is payable.
PURCHASE AND AVAILABILITY OF THE CONTRACT
The Contract is available only in connection with a non-discretionary
asset-based fee brokerage account. We will issue a Contract only if both the
annuitant and the contract owner are not older than age 85.
The initial premium payment must be $10,000 or more ($1,500 for qualified
Contracts). You may make additional payments of at least $500 or more ($50 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 information necessary. In certain states we also accept initial
and additional premium payments by wire order. Wire transmittals must be
accompanied by sufficient electronically transmitted data. We may retain your
initial premium payment for up to 5 business
20
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. For initial premium payments, the payment will be credited at the
accumulation unit value next determined after we receive your premium payment
and the completed application. Once the completed application is received, we
will allocate the payment to the subaccounts and/or Fixed Interest Allocation
specified by you within 2 business days.
We will make inquiry to discover any missing information related to subsequent
payments. We will allocate the subsequent payment(s) pro rata according to the
current variable subaccount allocation unless you specify otherwise. Any fixed
allocation(s) will not be considered in the pro rata calculations. If a
subaccount is no longer available or requested in error, we will allocate the
subsequent payment(s) proportionally among the other subaccount(s) in your
current allocation or your allocation instructions. For any subsequent premium
payments, the payment will be credited at the accumulation unit value next
determined after receipt of your premium payment and instructions.
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, or your
representative, together with an Application Acknowledgement Statement
for your execution. Until our Customer Service Center receives the
executed Application Acknowledgement Statement, neither you nor the
broker-dealer may execute any financial transactions on your Contract
unless they are requested in writing by you. We may require additional
information before complying with your request (e.g., signature
guarantee).
In some states, we may require that an initial premium designated for a
subaccount of Separate Account B or the Fixed Account be allocated 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. Initial premiums designated for Fixed
Interest Allocations will be 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
21
administrative requirements. We will process your request at the accumulation
value next determined only after you have met all administrative requirements.
CONTRACT VALUE
We determine your contract value on a daily basis beginning on the contract
date. Your contract value is the sum of (a) the contract value in the Fixed
Interest Allocations, and (b) the contract value in each subaccount in which you
are invested.
CONTRACT VALUE IN FIXED INTEREST ALLOCATIONS. The contract value in your
Fixed Interest Allocation is the sum of premium payments 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 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 then subtract any contract
fees (including any rider charges) and premium taxes.
CASH SURRENDER VALUE
The cash surrender value is the amount you receive when you surrender the
Contract. The cash surrender value will fluctuate daily based on the investment
results of the subaccounts in which you are invested and interest credited to
Fixed Interest Allocations and any Market Value Adjustment. We do not guarantee
any minimum cash surrender value. On any date during the accumulation phase, we
calculate the cash surrender value as follows: we start with your contract
value, then we adjust for any Market Value Adjustment, then we deduct any charge
for premium taxes, 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.
Surrendering the Contract may have tax consequences. See "Federal Tax
Considerations."
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Consult your tax adviser regarding the tax consequences associated with
surrendering your Contract. A surrender made before you reach age 59 1/2 may
result in a 10% tax penalty. See "Federal Tax Considerations" for more details.
THE SUBACCOUNTS
Each of the 38 subaccounts of Separate Account B offered under this prospectus
invests in an investment portfolio with its own distinct investment objectives
and policies. Each subaccount of Separate Account B invests in a corresponding
portfolio of the GCG Trust, the PIMCO Variable Insurance Trust, the Pilgrim
Variable Insurance Trust, the Prudential Series Fund, the Pilgrim Variable
Products Trust or the ProFunds.
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 otherwise
eliminate a portfolio which is subject to those instructions, we will execute
your instructions using the substituted or proposed replacement portfolio,
unless you request otherwise. The substitute or proposed replacement portfolio
may have higher fees and charges than any portfolio it replaces.
We also reserve the right to: (i) deregister Separate Account B under the 1940
Act; (ii) operate Separate Account B as a management company under the 1940 Act
if it is operating as a unit investment trust; (iii) operate Separate Account B
as a unit investment trust under the 1940 Act if it is operating as a managed
separate account; (iv) restrict or eliminate any voting rights as to Separate
Account B; and (v) combine Separate Account B with other accounts.
We will, of course, provide you with written notice before any of these changes
are effected.
THE FIXED ACCOUNT
The Fixed Account is a segregated asset account which contains the assets that
support a contract owner's Fixed Interest Allocations. See "The Fixed Interest
Allocations" for more information.
OTHER CONTRACTS
We offer other variable annuity contracts that also invest in the same
portfolios of the Trusts. These contracts have different charges that could
effect their performance, and may offer different benefits more suitable to your
needs. To obtain more information about these other contracts, contact our
Customer Service Center or your registered representative.
OTHER IMPORTANT PROVISIONS
See "Withdrawals," "Transfers Among Your Investments," "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 owner, you
may withdraw all or part of your money. Keep in mind that if you request a
withdrawal for more than 90% of the cash surrender value, we will treat it as a
request to surrender the Contract.
You need to submit to us a written request specifying the Fixed Interest
Allocations or subaccounts from which amounts are to be withdrawn, otherwise the
withdrawal will be made on a pro rata basis from all of the subaccounts in which
you are invested. If there is not enough contract value in the subaccounts, we
will deduct the balance of the withdrawal from your Fixed Interest Allocations
starting with the guaranteed interest periods nearest their maturity dates until
we have honored your request. We will apply a Market Value Adjustment to any
withdrawal from your Fixed Interest Allocation taken more than 30 days before
its maturity date. We will determine the contract value as of the close of
business on the day we receive your withdrawal request at our Customer Service
Center. The contract value may be more or less than the premium payments made.
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.
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES ASSOCIATED WITH TAKING
WITHDRAWALS.
You are responsible for determining that withdrawals comply with applicable law.
A withdrawal made before the taxpayer reaches age 59 1/2 may result in a 10%
penalty tax. See "Federal Tax Considerations" for more details.
We offer the following three withdrawal options:
REGULAR WITHDRAWALS
After the free look period, you may make regular withdrawals. Each withdrawal
must be a minimum of $100. We will apply a Market Value Adjustment to any
regular withdrawal from a Fixed Interest Allocation that is taken more than 30
days before its maturity date.
SYSTEMATIC WITHDRAWALS
You may choose to receive automatic systematic withdrawal payments (1) from the
contract value in the subaccounts in which you are invested, or (2) from the
interest earned in your Fixed Interest Allocations. Systematic withdrawals may
be taken monthly, quarterly or annually. You decide when you would like
systematic payments to start as long as it is at least 28 days after your
contract date. You also select the date on which the systematic withdrawals will
be made, but this date cannot be later than the 28th day of the month. If you
have elected to receive systematic withdrawals but have not chosen a date, we
will make the withdrawals on the same calendar day of each month as your
contract date. If your contract date is after the 28th day of the month, your
systematic withdrawal will be made on the 28th day of each month.
Each systematic withdrawal amount must be a minimum of $100. The amount of your
systematic withdrawal can either be (1) a fixed dollar amount, or (2) an amount
based on a percentage of your contract value. Both forms of systematic
withdrawals are subject to the following maximum, which is calculated on each
withdrawal date:
MAXIMUM PERCENTAGE
FREQUENCY OF CONTRACT VALUE
Monthly 1.25%
Quarterly 3.75%
Annually 15.00%
If your systematic withdrawal is a fixed dollar amount and the amount to be
withdrawn would exceed the applicable maximum percentage of your contract value
on any withdrawal date, we will automatically reduce
24
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, consider
the Fixed Dollar Systematic Withdrawal Feature which you may add to your regular
fixed dollar systematic withdrawal program.
If your withdrawal is based on a percentage of your contract value and the
amount to be systematically withdrawn based on that percentage would be less
than $100, we will automatically increase the amount to $100 as long as it does
not exceed the maximum percentage. If the systematic withdrawal would exceed the
maximum percentage, we will send the amount, and then automatically cancel your
systematic withdrawal option.
Systematic withdrawals from Fixed Interest Allocations are limited to interest
earnings during the prior month, quarter, or year, depending on the frequency
you chose. Systematic withdrawals are not subject to a Market Value Adjustment,
unless you have added the Fixed Dollar Systematic Withdrawal Feature discussed
below and the payments exceed interest earnings. Systematic withdrawals from
Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal Feature
are available only in connection with Section 72(q) and 72(t) distributions. A
Fixed Interest Allocation may not participate in both the systematic withdrawal
option and the dollar cost averaging program at the same time.
You may change the amount or percentage of your systematic withdrawal once each
contract year or cancel this option at any time by sending satisfactory notice
to our Customer Service Center at least 7 days before the next scheduled
withdrawal date. If you submit a subsequent premium payment after you have
applied for systematic withdrawals, we will not adjust future withdrawals under
the systematic withdrawal program unless you specifically request that we do so.
The systematic withdrawal option may commence in a contract year where a regular
withdrawal has been taken but you may not change the amount or percentage of
your withdrawals in any contract year during which you have previously taken a
regular withdrawal. You may not elect the systematic withdrawal option if you
are taking IRA withdrawals.
FIXED DOLLAR SYSTEMATIC WITHDRAWAL FEATURE. You may add the Fixed Dollar
Systematic Withdrawal Feature to your regular fixed dollar systematic withdrawal
program. This feature allows you to receive a systematic withdrawal in a fixed
dollar amount regardless of any Market Value Adjustments. Systematic withdrawals
from Fixed Interest Allocations under the Fixed Dollar Systematic Withdrawal
Feature are available only in connection with Section 72(q) and 72(t)
distributions. You choose the amount of the fixed systematic withdrawals, which
may total up to a maximum of 15% of your contract value as determined on the day
we receive your election of this feature. The maximum limit will not be
recalculated when you make additional premium payments, unless you instruct us
to do so. We will assess a 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 any Market Value Adjustment directly to your
contract value (rather than to the withdrawal) so that the amount of each
systematic withdrawal remains fixed.
Flat dollar systematic withdrawals which are intended to satisfy the
requirements of Section 72(q) or 72(t) of the Tax Code may exceed the maximum.
Such withdrawals are subject to Market Value Adjustments when they exceed the
applicable maximum percentage.
IRA WITHDRAWALS
If you have a non-Roth IRA Contract and will be at least age 70 1/2 during the
current calendar year, you may elect to have distributions made to you to
satisfy requirements imposed by Federal tax law. IRA withdrawals provide payout
of amounts required to be distributed by the Internal Revenue Service rules
governing mandatory distributions under qualified plans. We will send you a
notice before your distributions commence. You may elect to take IRA withdrawals
at that time, or at a later date. You may not elect IRA withdrawals and
participate in systematic withdrawals at the same time. If you do not elect to
take IRA withdrawals, and distributions are required by Federal tax law,
distributions adequate to satisfy the requirements imposed by Federal tax law
may be made. Thus, if you are participating in systematic withdrawals,
distributions under that option must be adequate to satisfy the mandatory
distribution rules imposed by federal tax law.
25
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 Statement of Additional Information. Or, we will
accept your written instructions regarding the calculated amount required to be
withdrawn from your Contract each year. 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
us 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.
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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 judgement 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. Separate Account B and the Company will not
be liable for following instructions communicated by telephone or other approved
electronic means that we reasonably believe to be genuine. We may require
personal identifying information to process a request for transfer made over the
telephone, internet or other approved electronic means.
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 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.
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 units are purchased if the value of its unit
is high. Therefore, a lower than average value per unit may be achieved over the
long term. However, we cannot guarantee this. When you elect the dollar cost
averaging program, you are continuously investing in securities regardless of
26
fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
You elect the dollar amount you want transferred under this program. Each
monthly transfer must be at least $100. If your source account is the Limited
Maturity Bond subaccount, the Liquid Asset subaccount or a 1-year Fixed Interest
Allocation, the maximum amount that can be transferred each month is your
contract value in such source account divided by 12. You may change the transfer
amount once each contract year.
Transfers from a Fixed Interest Allocation under the dollar cost averaging
program are not subject to a Market Value Adjustment.
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 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 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 when either the
annuitant (when contract owner is not an individual), the contract owner or the
first of joint owners dies. Assuming you are the contract owner, your
beneficiary will receive a death benefit unless the beneficiary is your
surviving spouse and elects to continue the Contract. The death benefit value is
calculated at the close of the business day on which we receive written notice
and due proof of death, as well as any required paperwork, at our Customer
Service Center. If your beneficiary elects to delay receipt of the death benefit
until a date after the time of death, the amount of 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
27
information on required distributions under federal income tax laws, you should
see "Required Distributions upon Contract Owner's Death."
The Death Benefit under the Contract is the greatest of (i) your contract
value prior to death; (ii) total premium payments reduced by a pro rata
adjustment for any withdrawal; and (iii) the cash surrender value.
DEATH BENEFIT DURING THE INCOME PHASE
If any contract owner or the annuitant dies after the annuity start date, the
Company will pay the beneficiary any certain benefit remaining under the annuity
in effect at the time.
CONTINUATION AFTER DEATH-SPOUSE
If at the contract owner's death, the surviving spouse of the deceased contract
owner is the beneficiary and such surviving spouse elects to continue the
contract as his or her own the following will apply:
If the guaranteed death benefit as of the date we receive due proof of death,
minus the contract value also on that date, is greater than zero, we will add
such difference to the contract value. Such addition will be allocated to the
variable subaccounts in proportion to the contract value in the subaccounts. If
there is no contract value in any subaccount, the addition will be allocated to
the Liquid Asset subaccount, or its successor.
The death benefit will continue to apply, with all age criteria using the
surviving spouse's age as the determining age.
This addition to contract value is available only to the spouse of the owner as
of the date of death of the owner if such spouse under the provisions of the
contract holder elects to continue the contract as his or her own.
CONTINUATION AFTER DEATH-NON SPOUSE
If the beneficiary or surviving joint owner is not the spouse of the owner, the
Contract may continue in force subject to the required distribution rules of the
Internal Revenue Code. See next section.
REQUIRED DISTRIBUTIONS UPON CONTRACT OWNER'S DEATH
We will not allow any payment of benefits provided under a non-qualified
Contract which do not satisfy the requirements of Section 72(s) of the Code.
If any 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
28
payment within five years from date of death. We will determine the death
benefit as of the date we receive proof of death. We will make payment of the
proceeds on or before the end of the 5-year period starting on the owner's date
of death. Such cash payment will be in full settlement of all our liability
under the Contract.
If 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
- --------------------------------------------------------------------------------
We deduct the Contract charges described below to cover our cost and expenses,
services provided and risks assumed under the Contracts. We incur certain costs
and expenses for distributing and administrating the Contracts, including
compensation and expenses paid in connection with sales of the Contracts, for
paying the benefits payable under the Contracts and for bearing various risks
associated with the Contracts. The amount of a Contract charge will not always
correspond to the actual costs associated with the charge. 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:
NO SURRENDER CHARGE. We do not deduct any surrender charges for
withdrawals.
PREMIUM TAXES. We may make a charge for state and local premium taxes
depending 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 or on the annuity start
date.
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, auto 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 charge, on an annual basis, is equal to 0.35% of
the assets you have in each subaccount. The
29
charge is deducted on each business day at the rate of .000961% 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
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, five portfolios deduct a
service fee, which is used to compensate service providers for administrative
and contract holder services provided on behalf of the portfolios, and six
portfolios deduct a distribution or 12b-1 fee, which is used to finance any
activity that is primarily intended to result in the sale of shares of the
applicable portfolio. Based on actual portfolio experience in 2000, together
with estimated costs for new portfolios, total estimated portfolio fees and
charges for 2001 range from 0.55% to 1.86%. See "Fees and Expenses" in this
prospectus.
Additionally, we may receive compensation from the investment advisers,
administrators, distributors of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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THE ANNUITY OPTIONS
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ANNUITIZATION OF YOUR CONTRACT
If the annuitant and contract owner are living on the annuity start date, we
will begin making payments to the contract owner under an income plan. We will
make these payments under the annuity option you chose. You may change an
annuity option by making a written request to us at least 30 days before the
annuity start date. The amount of the payments will be determined by applying
your contract value, adjusted for any applicable Market Value Adjustment, on the
annuity start date in accordance with the annuity option you chose.
You may also elect an annuity option on surrender of the Contract for its cash
surrender value or you may choose one or more annuity options for the payment of
death benefit proceeds while it is in effect and before the annuity start date.
If, at the time of the contract owner's death or the annuitant's death (if the
contract owner is not an individual), no option has been chosen for paying death
benefit proceeds, the beneficiary may choose an annuity option within 60 days.
In all events, payments of death benefit proceeds must comply with the
distribution requirements of applicable federal tax law.
The minimum monthly annuity income payment that we will make is $20. We may
require that a single sum payment be made if the contract value is less than
$2,000 or if the calculated monthly annuity income payment is less than $20.
For each annuity option we will issue a separate written agreement putting the
annuity option into effect. Before we pay any annuity benefits, we require the
return of your Contract. If your Contract has been lost, we will require that
you complete and return the applicable lost Contract form. Various factors will
affect the level of annuity benefits, such as the annuity option chosen, the
applicable payment rate used and the investment performance of the portfolios
and interest credited to the Fixed Interest Allocations.
Our current annuity options provide only for fixed payments. Fixed annuity
payments are regular payments, the amount of which is fixed and guaranteed by
us. Some fixed annuity options provide fixed payments either for a specified
period of time or for the life of the annuitant. The amount of life income
payments will depend on the form and duration of payments you chose, the age of
the annuitant or beneficiary (and gender,
30
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 you do not select an annuity start date, it will automatically begin in the
month following the annuitant's 90th birthday, or 10 years from the contract
date, if later.
If the annuity start date occurs when the annuitant is at an advanced age, such
as over age 85, it is possible that the Contract will not be considered an
annuity for federal tax purposes. For more information, see "Federal Tax
Considerations" and the Statement of Additional Information. For a Contract
purchased in connection with a qualified plan, other than a Roth IRA,
distributions must commence not later than April 1st of the calendar year
following the calendar year in which you reach age 70 1/2 (or, in some cases,
retire). Distributions may be made through annuitization or withdrawals. You
should consult a tax adviser for tax advice before investing.
FREQUENCY OF ANNUITY PAYMENTS
You choose the frequency of the annuity payments. They may be monthly,
quarterly, semi-annually or annually. If we do not receive written notice from
you, we will make the payments monthly. There may be certain restrictions on
minimum payments that we will allow.
THE ANNUITY OPTIONS
We offer the 4 annuity options shown below. Payments under Options 1, 2 and 3
are fixed. Payments under Option 4 may be fixed or variable. For a fixed annuity
option, the contract value in the subaccounts is transferred to the Company's
general account.
OPTION 1. INCOME FOR A FIXED PERIOD. Under this option, we make monthly
payments in equal installments for a fixed number of years based on the contract
value on the annuity start date. We guarantee that each monthly payment will be
at least the amount stated in your Contract. If you prefer, you may request that
payments be made in annual, semi-annual or quarterly installments. We will
provide you with illustrations if you ask for them. If the cash surrender value
or contract value is applied under this option, a 10% penalty tax may apply to
the taxable portion of each income payment until the contract owner reaches age
59 1/2.
OPTION 2. INCOME FOR LIFE WITH A PERIOD CERTAIN. Under this option, we make
payments for the life of the annuitant in equal monthly installments and
guarantee the income for at least a period certain such as 10 or 20 years. Other
periods certain may be available to you on request. You may choose a refund
period instead. Under this arrangement, income is guaranteed until payments
equal the amount applied. If the person named lives beyond the guaranteed
period, we will continue payments until his or her death. We guarantee that each
payment will be at least the amount specified in the Contract corresponding to
the person's age on his or her last birthday before the annuity start date.
Amounts for ages not shown in the Contract are available if you ask for them.
OPTION 3. JOINT LIFE INCOME. This option is available when there are 2
persons named to determine annuity payments. At least one of the persons named
must be either the contract owner or beneficiary of the Contract. We guarantee
monthly payments will be made as long as at least one of the named persons is
31
living. There is no minimum number of payments. Monthly payment amounts are
available if you ask for them.
OPTION 4. ANNUITY PLAN. Under this option, your contract value can be
applied to any other annuitization plan that we choose to offer on the annuity
start date. Annuity payments under Option 4 may be fixed or variable. If
variable and subject to the Investment Company Act of 1940, it will comply with
the requirements of such Act.
PAYMENT WHEN NAMED PERSON DIES
When the person named to receive payment dies, we will pay any amounts still due
as provided in the annuity agreement between you and Golden American. The
amounts we will pay are determined as follows:
(1) For Option 1, or any remaining guaranteed payments under Option 2, we
will continue payments. Under Options 1 and 2, the discounted values
of the remaining guaranteed payments may be paid in a single sum. This
means we deduct the amount of the interest each remaining guaranteed
payment would have earned had it not been paid out early. The discount
interest rate is never less than 3% for Option 1 and Option 2 per
year. We will, however, base the discount interest rate on the
interest rate used to calculate the payments for Options 1 and 2 if
such payments were not based on the tables in your Contract.
(2) For Option 3, no amounts are payable after both named persons have
died.
(3) For Option 4, the annuity option agreement will state the amount we
will pay, if any.
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OTHER CONTRACT PROVISIONS
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REPORTS TO CONTRACT OWNERS
We will send you a quarterly report within 31 days after the end of each
calendar quarter. The report will show the contract value, cash surrender value,
and the death benefit as of the end of the calendar quarter. The report will
also show the allocation of your contract value and reflects the amounts
deducted from or added to the contract value since the last report. 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 SEC so that the sale of securities
held in Separate Account B may not reasonably occur or so that the Company may
not reasonably determine the value of Separate Account B's net assets; or (4)
during any other period when the SEC so permits for the protection of security
holders. We have the right to delay payment of amounts from a Fixed Interest
Allocation for up to 6 months.
IN CASE OF ERRORS IN YOUR APPLICATION
If an age or gender given in the application or enrollment form is misstated,
the amounts payable or benefits provided by the Contract shall be those that the
premium payment would have bought at the correct age or gender.
ASSIGNING THE CONTRACT AS COLLATERAL
You may assign a non-qualified Contract as collateral security for a loan but
understand that your rights and any beneficiary's rights may be subject to the
terms of the assignment. An assignment may have federal tax consequences. You
should consult a tax adviser for tax advice. You must give us satisfactory
written notice at
32
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 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. The principal address of Directed
Services is 1475 Dunwoody Drive, West Chester, Pennsylvania 19380. Directed
Services is a corporation organized under the laws of New York and is a wholly
owned subsidiary of Equitable of Iowa. Directed Services is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934, as well as
with securities commissions in the states in which it operates, and is a member
of the National Association of Securities Dealers, Inc. ("NASD").
Directed Services has the authority to enter into selling agreements with other
firms. Certain sales agreements may provide for payment of a quarterly trail
commission based on a percentage of contract value at the end of each quarter.
Directed Services has entered into selling agreements with broker-dealers to
sell the Contracts through registered representatives. Those representatives are
registered with the NASD, and if applicable, also with the states in which they
do business. They also are licensed as insurance agents in the states in which
they do business.
Directed Services receives no commissions for the sale of the Contracts but may
receive a quarterly trail commission for some Contracts. When such trail
commissions are received, Directed Services passes through the entire amount of
the commission to the broker-dealer whose registered representative sold the
Contract.
33
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UNDERWRITER COMPENSATION
- --------------------------------------------------------------------------------
NAME OF PRINCIPAL AMOUNT OF COMMISSION OTHER
UNDERWRITER TO BE PAID COMPENSATION
Directed Services, Inc. None Reimbursement of any
covered expenses
incurred
by registered
representatives
in connection
with the
distribution
of the Contracts.
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We may make additional cash payments to broker-dealers for marketing and
educational expenses and for the reimbursement of certain expenses incurred 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 Investment Company Act of 1940 or any related
regulations should change, or if interpretations of it or related regulations
should change, and we decide that we are permitted to vote the shares of 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's meeting. We will ask you for voting instructions by mail at
least 10 days before the meeting. If we do not receive your instructions in
time, we will vote the shares in the same proportion as the instructions
received from all contracts in that subaccount. We will also vote shares we hold
in Separate Account B which are not attributable to contract owners in the same
proportion.
STATE REGULATION
We are regulated by the Insurance Department of the State of Delaware. We are
also subject to the insurance laws and regulations of all jurisdictions where we
do business. The Contract offered by this prospectus has been approved where
required by those jurisdictions. We are required to submit annual statements of
our operations, including financial statements, to the Insurance Departments of
the various jurisdictions in which we do business to determine solvency and
compliance with state insurance laws and regulations.
LEGAL PROCEEDINGS
The Company, like other insurance companies, may be 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. We believe
that currently there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Company or Separate Account B.
34
LEGAL MATTERS
The legal validity of the Contracts was passed on by Myles R. Tashman, Esquire,
Executive Vice President, General Counsel and Assistant Secretary of Golden
American. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided
advice on certain matters relating to federal securities laws.
EXPERTS
The audited financial statements of Golden American and Separate Account B
appearing in this prospectus or in the 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
- --------------------------------------------------------------------------------
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
35
Separate Account B assets, we reserve the right to modify the Contracts as
necessary to prevent a contract owner from being treated as the owner of the
Separate Account B assets supporting the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any non-qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The non-qualified Contracts contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are clarified by
regulation or otherwise. See "Death Benefit Choices" for additional information
on required distributions from non-qualified contracts.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAX TREATMENT OF ANNUITIES
IN GENERAL. We believe that if you are a natural person you will generally
not be taxed on increases in the value of a Contract until a distribution occurs
or until annuity payments begin. (For these purposes, the agreement to assign or
pledge any portion of the contract value, and, in the case of a qualified
Contract, any portion of an interest in the qualified plan, generally will be
treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. The owner of any annuity contract who is not a natural
person generally must include in income any increase in the excess of the
contract value over the "investment in the contract" (generally, the premiums or
other consideration you paid for the contract less any nontaxable
withdrawals)during the taxable year. There are some exceptions to this rule and
a prospective contract owner that is not a natural person may wish to discuss
these with a tax adviser. The following discussion generally applies to
Contracts owned by natural persons.
WITHDRAWALS. When a withdrawal from a non-qualified Contract occurs, 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 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.
36
ANNUITY PAYMENTS. Although tax consequences may vary depending on the
payment option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the Contract
ratably on a tax-free basis over the expected stream of annuity payments, as
determined when annuity payments start. Once your investment in the Contract has
been fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of your death or the death of the annuitant. Generally, such
amounts are includible in the income of recipient as follows: (i) if distributed
in a lump sum, they are taxed in the same manner as a surrender of the Contract,
or (ii) if distributed under a payment option, they are taxed in the same way as
annuity payments.
TRANSFERS, ASSIGNMENTS, EXCHANGES AND ANNUITY DATES OF A CONTRACT. A
transfer or assignment of ownership of a Contract, the designation of an
annuitant, or payee other than an owner, 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,designation 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 one 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.
37
WITHHOLDING. Distributions from certain qualified plans generally are
subject to withholding for the contract owner's federal income tax liability.
The withholding rates vary according to the type of distribution and the
contract owner's tax status. The contract owner may be provided the opportunity
to elect not to have tax withheld from distributions. "Eligible rollover
distributions" from section 401(a) plans and section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions that are required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the contract owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
Brief descriptions of the various types of qualified retirement plans in
connection with a Contract follow. We will endorse the Contract as necessary to
conform it to the requirements of such plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Section 401(a) of the Code permits corporate employers to establish various
types of retirement plans for employees, and permits self-employed individuals
to establish these plans for themselves and their employees. These retirement
plans may permit the purchase of the Contracts to accumulate retirement savings
under the plans. Adverse tax or other legal consequences to the plan, to the
participant, or to both may result if this Contract is assigned or transferred
to any individual as a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such benefits before transfer
of the Contract. Employers intending to use the Contract with such plans should
seek competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that can be contributed,
the deductible amount of the contribution, the persons who may be eligible, and
the time when distributions commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" or transferred on a
tax-deferred basis into an IRA. There are significant restrictions on rollover
or transfer contributions from Savings Incentive Match Plans (SIMPLE), under
which certain employers may provide contributions to IRAs on behalf of their
employees, subject to special restrictions. Employers may establish Simplified
Employee Pension (SEP) Plans to provide IRA contributions on behalf of their
employees. Sales of the Contract for use with IRAs may be subject to special
requirements of the IRS.
ROTH IRA
Section 408A of the Code permits certain eligible individuals to contribute to a
Roth IRA. Contributions to a Roth IRA, which are subject to 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 the any IRA. A 10% penalty 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 a 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.
38
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences under
the Contracts are not exhaustive, and special rules are provided with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law, and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each contract owner
or recipient of the distribution. A competent tax adviser should be consulted
for further information.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contracts could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective before the date of the change). You should consult a tax adviser
with respect to legislative developments and their effect on the Contract.
39
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ITEM PAGE
Introduction....................................................... 1
Description of Golden American Life Insurance Company.............. 1
Safekeeping of Assets.............................................. 1
The Administrator.................................................. 1
Independent Auditors............................................... 1
Distribution of Contracts.......................................... 1
Performance Information............................................ 2
IRA Partial Withdrawal Option...................................... 6
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
ACCESS ONE 05/01/01
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
89
88
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- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION--PRE-2000 AND YR-2000
Except for the Internet Tollkeeper, the Pilgrim VP MagnaCap, the Pilgrim VP
SmallCap Opportunities, Pilgrim VP Growth Opportunities, the ProFund VP Bull,
the ProFund VP Small-Cap, and the ProFund VP Europe 30 subaccounts which did not
commence operations as of December 31, 2000, the following tables give (1) the
accumulation unit value ("AUV"), (2) the total number of accumulation units, and
(3) the total accumulation unit value, for each subaccount of Golden American
Separate Account B available under the Contract for the indicated periods. The
date on which the subaccount became available to investors and the starting
accumulation unit value are indicated on the last row of each table.
LIQUID ASSET
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $17.22 -- --
9/18/00 16.94 -- --
- ------------------------------------------------------------------
LIMITED MATURITY BOND
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $19.77 1,095 $22
9/18/00 19.20 -- --
- ------------------------------------------------------------------
CORE BOND (FORMERLY GLOBAL FIXED INCOME)
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $12.42 -- --
9/18/00 11.65 -- --
- ------------------------------------------------------------------
TOTAL RETURN
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $21.95 -- --
9/18/00 20.55 -- --
- ------------------------------------------------------------------
A1
EQUITY INCOME
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $26.61 833 $22
9/18/00 24.14 -- --
- ------------------------------------------------------------------
ALL CAP
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $11.69 -- --
9/18/00 11.60 -- --
- ------------------------------------------------------------------
REAL ESTATE
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $29.64 -- --
9/18/00 27.65 -- --
- ------------------------------------------------------------------
VALUE EQUITY
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $20.52 -- --
9/18/00 19.75 -- --
- ------------------------------------------------------------------
A2
INVESTORS
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $11.36 -- --
9/18/00 11.11 -- --
- ------------------------------------------------------------------
RISING DIVIDENDS
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $26.59 -- --
9/18/00 27.08 -- --
- ------------------------------------------------------------------
MANAGED GLOBAL
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $21.72 953 $21
9/18/00 23.85 -- --
- ------------------------------------------------------------------
LARGE CAP VALUE
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $10.63 -- --
9/18/00 10.77 -- --
- ------------------------------------------------------------------
A3
HARD ASSETS
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $18.16 -- --
9/18/00 18.93 -- --
- ------------------------------------------------------------------
RESEARCH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $27.92 -- --
9/18/00 31.83 -- --
- ------------------------------------------------------------------
CAPITAL GROWTH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $17.97 -- --
9/18/00 20.39 -- --
- ------------------------------------------------------------------
CAPITAL APPRECIATION
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $27.19 -- --
9/18/00 30.92 -- --
- ------------------------------------------------------------------
A4
SMALL CAP
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $19.25 1,040 $20
9/18/00 24.08 -- --
- ------------------------------------------------------------------
MID-CAP GROWTH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $44.75 -- --
9/18/00 49.80 -- --
- ------------------------------------------------------------------
STRATEGIC EQUITY
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $19.82 -- --
9/18/00 25.04 -- --
- ------------------------------------------------------------------
GROWTH
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $22.98 808 $19
9/18/00 29.10 -- --
- ------------------------------------------------------------------
A5
DEVELOPING WORLD
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $7.78 -- --
9/18/00 9.28 -- --
- ------------------------------------------------------------------
PIMCO HIGH YIELD BOND
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $10.25 -- --
9/18/00 10.55 -- --
- ------------------------------------------------------------------
PIMCO STOCKSPLUS
GROWTH AND INCOME
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $12.01 -- --
9/18/00 13.18 -- --
- ------------------------------------------------------------------
PILGRIM GLOBAL BRAND NAMES
(FORMERLY, ING GLOBAL BRAND NAMES)
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $8.81 -- --
9/18/00 9.36 -- --
- ------------------------------------------------------------------
A6
PRUDENTIAL JENNISON
- ------------------------------------------------------------------
STANDARD DEATH BENEFIT
- ------------------------------------------------------------------
TOTAL # OF
ACCUMULATION
AUV AT UNITS AT TOTAL
YEAR END (AND YEAR END (AND AUV AT
AT BEGINNING OF AT BEGINNING OF YEAR END
FOLLOWING YEAR) FOLLOWING YEAR) (IN THOUSANDS)
- ------------------------------------------------------------------
2000 $7.89 -- --
9/18/00 9.64 -- --
- ------------------------------------------------------------------
A7
APPENDIX B
MARKET VALUE ADJUSTMENT EXAMPLES
EXAMPLE #1: FULL SURRENDER -- EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
Assume $100,000 was allocated to a Fixed Interest Allocation with a
guaranteed interest period of 10 years, a guaranteed interest rate of 7.5%, an
initial Index Rate ("I") of 7%; that a full surrender is requested 3 years into
the guaranteed interest period; that the then Index Rate for a 7 year guaranteed
interest period ("J") is 8%; and that no prior transfers or withdrawals
affecting this Fixed Interest Allocation have been made.
CALCULATE THE MARKET VALUE ADJUSTMENT
1. The contract value of the Fixed Interest Allocation on the date of
3
surrender is $124,230 ($100,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
2,555/365
3. Market Value Adjustment = $124,230 x [(1.07/1.0825) -1] = $9,700
Therefore, the amount paid to you on full surrender is $114,530 ($124,230
- $9,700 ).
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 [(1.07/1.0625) -1] = $6,270
Therefore, the amount paid to you on full surrender is $130,500 ($124,230
+ $6,270 ).
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 $114,530 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.
B1
First calculate the amount that must be withdrawn from the Fixed Interest
Allocation to provide the amount requested.
1. The contract value of the Fixed Interest Allocation on the date of
3
withdrawal is $248,459 ( $200,000 x 1.075 )
2. N = 2,555 ( 365 x 7 )
3. Amount that must be withdrawn =
2,555/365
[ $114,530 / (1.07/1.0825) ] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [(1.07/1.0825) -1] = $9,700
Therefore, the amount of the withdrawal paid to you is $114,530, as
requested. The Fixed Interest Allocation will be reduced by the amount of the
withdrawal, $114,530, and also reduced by the Market Value Adjustment of $9,700,
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 $130,500 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
[ $130,500 /(1.07/1.0625) ] = $124,230
Then calculate the Market Value Adjustment on that amount.
2,555/365
4. Market Value Adjustment = $124,230 x [(1.07/1.0625) -1 ] = $6,270
Therefore, the amount of the withdrawal paid to you is $130,500, as
requested. The Fixed Interest Allocation will be reduced by the amount of the
withdrawal, $130,500, but increased by the Market Value Adjustment of $6,270,
for a total reduction in the Fixed Interest Allocation of $124,230.
B2
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following provisions regarding the Indemnification of
Directors and Officers of the Registrant are applicable:
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
INCORPORATORS
Delaware General Corporation Law, Title 8, Section 145
provides that corporations incorporated in Delaware may
indemnify their officers, directors, employees or agents
for threatened, pending or past legal action by reason
of the fact he/she is or was a director, officer, employee
or agent. Such indemnification is provided for under the
Company's By-Laws under Article VI. Indemnification
includes all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such
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 and
Directed Services, Inc. (1)
3(a) Certificate of Amendment of the Restated Articles of
Incorporation of Golden American, dated (03/01/95). (1)
3(b) By-Laws of Golden American, dated (01/07/94). (1)
3(c) Resolution of Board of Directors for Powers of
Attorney, dated (04/23/99). (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 and Fixed Annuity Contract. (1)
4(d) Individual Retirement Annuity Rider Page. (1)
4(e) Individual Deferred Combination Variable and Fixed
Annuity Application. (1)
4(f) Group Deferred Combination Variable and Fixed
Annuity Enrollment Form. (1)
4(g) Individual Deferred Variable Annuity Application. (1)
4(h) Roth Individual Retirement Annuity Rider. (1)
5 Opinion and Consent of Myles R. Tashman.
10(a) Participation Agreement between Golden American
and PIMCO Variable Insurance Trust. (1)
10(b) Administrative Services Agreement between Golden
American and Equitable Life Insurance Company of
Iowa. (1)
10(c) Service Agreement between Golden American and
Directed Services, Inc. (1)
10(d) Asset Management Agreement between Golden American
and ING Investment Management LLC. (1)
10(e) Reciprocal Loan Agreement between Golden American
and ING America Insurance Holdings, Inc. (1)
10(f) Revolving Note Payable between Golden American and
SunTrust Bank. (1)
10(g) Surplus Note, dated, 12/17/96 between Golden American
and Equitable of Iowa Companies. (1)
10(h) Surplus Note, dated, 12/30/98 between Golden American
and Equitable Life Insurance Company of Iowa. (1)
10(i) Surplus Note, dated, 09/30/99 between Golden American
and ING AIH. (1)
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) Participation Agreement between Golden American and
Prudential Series Fund, Inc. (1)
10(m) Participation Agreement between Golden American and
ING Variable Insurance Trust. (1)
10(n) Reinsurance Agreement, effective 01/01/00, between Golden
American and Security Life of Denver International Limited
10(o) Letter of Credit between Security Life of Denver International
Limited and The Bank of New York for the benefit of Golden
American
10(p) Form of Participation Agreement between Golden American and
Pilgrim Variable Products Trust
10(q) Form of Participation Agreement between Golden American and
ProFunds
23(a) Consent of Sutherland Asbill & Brennan LLP.
23(b) Consent of Ernst & Young LLP, Independent Auditors.
23(c) Consent of Myles R. Tashman, incorporated in Exhibit 5 of
this Part II, together with the Opinion of Myles R.
Tashman.
24 Powers of Attorney.
____________________________________
(1) Incorporated herein by reference to the initial filing of this
Registration Statement filed with the Securities and Exchange Commission
on June 23, 2000.
(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, 2000 COST(1) VALUE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
TYPE OF INVESTMENT
Fixed maturities, available for sale:
Bonds:
United States government and governmental agencies and
authorities......................................................... $18,607 $19,171 $19,171
Public utilities...................................................... 54,132 52,826 52,826
Corporate securities.................................................. 355,890 349,202 349,202
Other asset-backed securities......................................... 223,787 224,122 224,122
Mortgage-backed securities............................................ 146,335 147,257 147,257
--------------------------------------------
Total fixed maturities, available for sale............................ 798,751 792,578 792,578
Equity securities:
Common stocks: industrial, miscellaneous, and all other............... 8,611 6,791 6,791
Mortgage loans on real estate......................................... 99,916 99,916
Policy loans.......................................................... 13,323 13,323
Short-term investments................................................ 106,775 106,775
--------------- -------------
Total investments..................................................... $1,027,376 $1,019,383
=============== =============
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 COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
- ------------------------------------------------------------------------------------------------------------------------------------
FUTURE
POLICY AMORTIZA-
BENEFITS, OTHER BENEFITS TION OF
LOSSES, POLICY CLAIMS, DEFERRED
DEFERRED CLAIMS CLAIMS INSURANCE LOSSES POLICY
POLICY AND UNEARNED AND PREMIUMS NET AND ACQUI- OTHER
ACQUISITION LOSS REVENUE BENEFITS AND INVESTMENT SETTLEMENT SITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES RESERVE PAYABLE CHARGES INCOME EXPENSES COSTS EXPENSES* WRITTEN
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
Life insurance $635,147 $1,062,891 $6,817 $82 $144,877 $64,140 $200,031 $55,154 $143,300 --
YEAR ENDED DECEMBER 31, 1999:
Life insurance 528,957 1,033,701 6,300 8 82,935 59,169 182,221 33,119 (83,827) --
YEAR ENDED DECEMBER 31, 1998:
Life insurance 204,979 881,112 3,840 -- 39,119 42,485 96,968 5,148 (26,406) --
* 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 COLUMN D COLUMN E COLUMN F
- --------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- --------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000:
Life insurance in force................. $196,334,000 $105,334,000 -- $91,000,000 --
================================================================================
At December 31, 1999:
Life insurance in force................. $225,000,000 $119,575,000 -- $105,425,000 --
================================================================================
AT DECEMBER 31, 1998:
Life insurance in force................. $181,456,000 $111,552,000 -- $69,904,000 --
================================================================================
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement
shall be deemed to be a new registration statement
relating to the securities offered therein, and the
offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on
its behalf in the City of West Chester, and Commonwealth of Pennsylvania, on
the 23rd day of April, 2001.
SEPARATE ACCOUNT B
(Registrant)
By: GOLDEN AMERICAN LIFE
INSURANCE COMPANY
(Depositor)
By:
--------------------
Robert C. Salipante*
Chief Executive Officer
Attest: /s/ Marilyn Talman
------------------------
Marilyn Talman
Vice President, Associate General Counsel
and Assistant Secretary of Depositor
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated on
April 23, 2001.
Signature Title
- --------- -----
Director and Chief Executive
- -------------------- Officer of Depositor
Robert C. Salipante*
Director, Senior Vice President
- -------------------- and Chief Financial Officer
Wayne R. Huneke*
DIRECTORS OF DEPOSITOR
- ----------------------
Robert C. Salipante*
- ----------------------
Thomas J. McInerney*
- ----------------------
Wayne R. Huneke*
- ----------------------
Mark A. Tullis*
- ----------------------
Phillip R. Lowery*
Attest: /s/ Marilyn Talman
------------------------
Marilyn Talman
Vice President, Associate General Counsel
and Assistant Secretary of Depositor
*Executed by Marilyn Talman on behalf of those indicated pursuant
to Power of Attorney.
EXHIBIT INDEX
ITEM EXHIBIT PAGE #
- ---- ------- ------
5 Opinion and Consent of Myles R. Tashman, Esq. EX-5
10(n) Reinsurance Agreement, effective 01/01/00, between
Golden American and Security Life of Denver
International Limited EX-10.N
10(o) Letter of Credit between Security Life of Denver
International Limited and The Bank of New York
for the benefit of Golden American EX-10.O
10(p) Form of Participation Agreement between Golden
American and Pilgrim Variable Products Trust EX-10.P
10(q) Form of Participation Agreement between Golden
American and ProFunds EX-10.Q
23(a) Consent of Sutherland Asbill & Brennan LLP. EX-23.A
23(b) Consent of Ernst & Young LLP, independent auditors. EX-23.B
24 Powers of Attorney. EX-24